FEBRUARY 2018
VOLUME 25 NO. 2
Connecting People, Ideas and Products in the Document Technology Industry since 1994
engage ‘n exchange M&A, ORGANIC GROWTH SPARK PINNACLE SALES’ Continued Ascendancy
NOT ALL
CONSUMABLES
OEM, REMANUFACTURED, COMPATIBLE AND COUNTERFEIT CONSUMABLES A Reseller’s Guide to Truth and Fiction
CREATED EQUAL
MARKET WATCH: U.S. REMANS MAY SEEK CONSOLIDATION to Help Counter Expanding Global Competition
SUPREME COURT DECISION engage ‘n exchange PUTS IMPRESSION PRODUCTS
UNPRECEDENTED CHANGES AND GROWTH HIGHLIGHT BANNER 2017 FOR DOING BETTER BUSINESS
ON THE MAP Ensures Unfettered Future for Aftermarket World Eric Smith, Impression Products
engage ‘n exchange
engage ‘n exchange
ENX Magazine
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EXPAND YOUR PORTFOLIO AND YOUR CUSTOMER BASE like never before with the new Epson WorkForce Enterprise. Realize the potential of new customers with a Multi-Function Printer that makes printing in color more affordable and prints 100 pages of color in 60 seconds. And because they’re easy to maintain, you’ll spend less time servicing the machines, and more time profiting from them. It’s time to rethink your portfolio. It’s time to think about Epson. Learn more at Epson.com/WorkForceEnterpriseProfit
OF COLOR IN 100 PAGES 60 SECONDS
WORKFORCE ENTERPRISE EPSON, PrecisionCore and WorkForce are registered trademarks, EPSON Exceed Your Vision is a registered logomark and Better Products for a Better Future and Epson Connect are trademarks of Seiko Epson Corporation. All other product and brand names are trademarks and/or registered trademarks of their respective companies. Epson disclaims any and all rights in these marks. Copyright 2017 Epson America, Inc. CPD-53423 2/17
FEBRUARY 2018
VOLUME 25 NO. 2
Connecting People, Ideas and Products in the Document Technology Industry since 1994
engage ‘n exchange
NOT ALL
CONSUMABLES CREATED EQUAL
M&A, ORGANIC GROWTH SPARK PINNACLE SALES’ Continued Ascendancy OEM, REMANUFACTURED, COMPATIBLE AND COUNTERFEIT CONSUMABLES A Reseller’s Guide to Truth and Fiction
MARKET WATCH: U.S. REMANS MAY SEEK CONSOLIDATION to Help Counter Expanding Global Competition
SUPREME COURT DECISION PUTS IMPRESSION PRODUCTS ON THE MAP Ensures Unfettered Future for Aftermarket World UNPRECEDENTED CHANGES AND GROWTH HIGHLIGHT BANNER 2017 FOR DOING BETTER BUSINESS
Eric Smith, Impression Products
In This Issue
30
CHANNEL INSIGHT
Supreme Court Decision Puts Impression Products on the Map, Ensures Unfettered Future for Aftermarket World By Erik Cagle
16
STATE OF THE INDUSTRY
Not All Consumables Created Equal: Making Time to Vet Sources Can Pay Dividends for Dealers By Erik Cagle
24
MARKET INTELLIGENCE
Market Watch: U.S. Remans May Seek Consolidation to Help Counter Expanding Global Competition By Charles Brewer
34
34
BUSINESS PROFILE
M&A, Organic Growth Spark Pinnacle Sales’ Continued Ascendancy in Distributor Channel By Erik Cagle
38
DEALER SPOTLIGHT
Unprecedented Changes and Growth Highlight Banner 2017 for Doing Better Business By Erik Cagle
38
44
BUSINESS MANAGEMENT
48
SALES AND MARKETING
Doing Nothing - DOES Something! By Charles Lamb
OEM, Remanufactured, Compatible and Counterfeit Consumables: A Reseller’s Guide to Truth and Fiction By Christian Pepper
48 6
•
www.enxmag.com | February 2018
52
SERVICE MANAGEMENT
54 56
PRINTER TECH TIP By LaserPros
Toner Control and Service Profitability By Ken Edmonds
DISPLAY ADVERTISERS INDEX
We Saw It In ENX Magazine
BROAD SELECTION OF
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Contributors
Staff
CHARLES BREWER is the founder and president of Actionable Intelligence, the digital imaging industry’s leading market research firm. He was an editor for Inc. magazine and ComputerWorld during the 1990s, and more recently, the managing editor of The Hard Copy Supplies Journal. Mr. Brewer’s analysis is currently featured at his firm’s website, www.Action-Intell.com.
Susan Neimes Publisher & Managing Editor
KEN EDMONDS is currently employed as a District Service Manager for a major copier manufacturer. He has an extensive background in the imaging business, having owned a successful dealership, serving as service manager for multiple dealerships, and as a Document Solutions Specialist for Sharp Electronics. He has more than 40 years of experience in the electronics and computer fields. For further information email him at Ken.Edmonds@CKE-Enterprises.biz
Erik Cagle Editorial Director
CHARLES LAMB is the President and CEO of Mps&it Sales Consulting. His firm delivers proven methodologies and processes that assist dealer principals seeking a successful transformation into the managed services space. He’s created complementary solutions including Funnelmaker, Gatekeeper, and Shield IT services. For more info, call 888.823.0006, e-mail him at clamb@mpsandit.com, or visit www.mpsandit.com. CHRISTIAN PEPPER has over 20 years of experience in the Office Printing industry holding executive and management positions for both for Printer OEMs and Aftermarket manufacturers in Europe and the USA. Christian is currently the President of LD Products Channel Partner Division, a regular contributor to trade publications and an engaging speaker on Managed Print Services, Compatible and Remanufactured Consumable strategies, B2B Sales Training and Digital Marketing. He can be reached via email Christianp@ldproducts.com or by phone at 480-407-7187.
Ronelle Ingram Contributing Editor
Christina Kim
Stay Connected Share Your Views
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www.enxmag.com | February 2018
ENX Magazine is published monthly by Affinity Business Communications, Inc. Any inquiries should be sent to: enx@pacbell.net or mailed to the corporate office. Copyright ©2018 by ENX Magazine printed in the U.S.A. All reproduction in whole or part is prohibited without written permission. Cover photo from depositphotos.com
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• 30 pages per minute (3011i) • 35 pages per minute (3511i) • Dual 500 Sheets • 33.6 Kbps Fax (Option)
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All supplies & Parts available for prompt delivery! ENX Magazine | www.enxmag.com
All prices, rebates, and availability are subject to change without notice. Please call us to confirm.
Nuworld is not responsible for typographical errors or inaccurate specifications. Registered trademarks are properties of their respective owners.
Copiers • Printers • MFPs • Faxes • Scanners E m a il: info @ n u w o rld in c.co m
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DP-MC210S1
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$429
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BIG SALE!
PPF-4750e
BIG SALE! UB-5335 2-Panel Electronic
High Speed Laser Fax | 33.6Kbps Super G3.................
High Perf. Laser Fax | 33.6Kbps | Network.....................
MFC-8220
BIG SALE!
MFC-9330CDW
BIG SALE!
MFC-J5720DW
BIG SALE!
B&W Laser AIO | 21ppm | 32MB Memory.......................
Color Digital MFC | 23ppm | Dplx | Wireless Network.....
Color InkJet AIO | 35/27ppm (BW/Color).......................
MFC-L2740DW
BIG SALE!
MFC-L5700DW
BIG SALE!
B&W AIO | 32ppm | Duplex | Wireless Network............
B&W Laser Printer | 42ppm | Dplx | Wireless Network...
MFC-L8610CDW
BIG SALE!
MFC-L8900CDW
BIG SALE!
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33ppm Color MFP • Duplex • Wireless Network..............
• 26ppm BW (M266N) • 31ppm BW (M316N) • 35ppm BW (M354N) • 2 x 500-Sheet Paper Drawers, 100-Sheet MPT
BIG
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• 50” Diagonal • USB Flash Memory Interface BLOWOUT
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$1159
UB-7325
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SALE! UB-5338C / 5838C
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899
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DR-C240 30ppm B&W/ Grayscale/ Color (Simplex)
899
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695
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MP501SPF................$200 REBATE MP2501SP.........................BIG SALE! MP2555SPAD...................BIG SALE! SP 3600SF............................BIG SALE! $50 REBATE! SP 3610SF.............................................. SP 4510DN............................................. $40 REBATE! SP 4510SF.............................................. $100 REBATE! SP 5200DN............................BIG SALE! SP 5210SR............................BIG SALE! $100 REBATE! SP 5300DN............................................. SP 5310DN............................................. $150 REBATE!
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CT-S601
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IPF PRO2000
36-inch Large Format Printers
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SD622
CALL FOR SPECIAL PRICING
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1279
$
IMAGEPROGRAF
DEAL!
MX-C301W
PLEASE CALL FOR REBATE INFORMATION!
LASERJET M402DNE...................................................$80 REBATE LASERJET M426FDN/FDW........................................$120 REBATE LASERJET M521DN...................................................$180 REBATE LASERJET M501DN...................................................$100 REBATE LASERJET M506N/DN.....................................................BIG SALE! COLOR LASERJET M254DW........................................$80 REBATE COLOR LASERJET M180NW........................................$50 REBATE COLOR LASERJET M281FDW...................................$100 REBATE COLOR LASERJET M477FDW..................................$200 REBATE COLOR LASERJET M477FDN...................................$200 REBATE COLOR LASERJET M452NW....................................$100 REBATE COLOR LASERJET M452DN/DW.............................$130 REBATE COLOR LASERJET M570DN.....................................$200 REBATE COLOR LASERJET M553N........................................$120 REBATE COLOR LASERJET M553DN.....................................$160 REBATE
INCREDIBLE
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Multifunctions
DOCUMENT SCANNER Fi-7160
• 30 pages per minute
$620
ALL REBATES ARE VALID WHILE SUPPLIES LAST!
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SALE!
MX-C250 $
• 30 pages per minute
$185
2-Panel Electronic Color White Boards
BIG SALE!
MX-C300W
$80
White Boards w/ Integrated Printer
BUY
MX-B402
150
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LASERJET M605X
58ppm B&W Duplex, Network-Ready Printer
REBATE AFTER REBATE
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GREAT
SALE!
$
MX-2616N MX-3116N
LASERJET M402N
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Color Multifunction
MFPs MX-M266N MX-M316N MX-M354N
Hi Speed Laser Fax
ALL REBATES ARE VALID WHILE SUPPLIES LAST!
$645
DCP-L2540DW
30ppm B&W Copier • Duplex • Wireless Network..........
LASERJET PRINTERS & MFPS
MULTIFUNCTIONS PRINTERS FAXES PANABOARDS Hi Speed Laser Fax
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CT-S801
BIG
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300mm/s/384K Mem.
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(IPF 770MFP)
400
$
Rebate
825 $800
$
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(IPF PRO4000) (IPF PRO4000S)
IPF680/685 24-INCH LARGE FORMAT PRINTERS.......$360/$400R IPF780 36-INCH LARGE FORMAT PRINTER................$630 REBATE IPF785 36-INCH LARGE FORMAT PRINTER..............$1030 REBATE IPF PRO6000S 60-INCH LF PRINTER...................$1300 REBATE TX-3000/4000 UP TO 44-INCH LF PRINTERS..........up to $1375R
Parts Order Hotline: 562.977.4949
All prices, rebates, and availability are subject to change without notice. Please call us to confirm.
Nuworld is not responsible for typographical errors or inaccurate specifications. Registered trademarks are properties of their respective owners.
NBS / ENX | February 2018
Since 1985
Your Prime Source T EL: 800.729.8320
FAX: 800.829.0292
INSTANT REBATE SALE! ALL INSTANT REBATE PROMOS ARE VALID THROUGH MARCH 31, 2018 TO CANON PREMIER PARTNERS OR WHILE SUPPLIES LAST!
• PRINT • COPY • SCAN • FAX
MF236N MF247DW MF249DW
85
65
$
$
MF414DW MF416DW
• PRINT • COPY • SCAN • FAX
• 35ppm • 250 Shts, 50-Sht MPT • 33.6 Kbps Fax Super G3 • PS (MF416DW)
REBATE MF249DW
MF419DW MF515DW
• PRINT • COPY • SCAN • 35ppm (419DW) • FAX • 42ppm (515DW) • 500 Shts + 100-Sht MPT • Duplex Versatility, W-Ntwrk Both models can only be sold to 3P Authorized Dealers!
Both models can only be sold to 3P Authorized Dealers!
100 120
215 95
$
$
REBATE
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MF414DW
MF416DW
MF419DW
MF515DW
$
LBP251DW LBP253DW
B&W Laser Duplex Printers with Wireless Network • 30ppm (LBP251DW) • 35ppm (LBP253DW)
$
LBP312DN
B&W Laser Duplex Printer with Network • 45 pages per minute • 550 Sheets + 100-Sheet Multipurpose Tray
90
$
REBATE
45
REBATE
LBP251DW LBP253DW
• Up to 35 pages per minute • 256MB Memory • 500 Sheets + 50-Sheet MPT • Duplex Versatility • 33.6 Kbps Fax Super G3 (D1550)
$
95
REBATE
175 125 $REBATE
$
REBATE D1520
375 200 $REBATE
$
810CDN
820CDN
55
$
75
$
REBATE
REBATE
MF634CDW MF731CW
Color Laser Duplex Printer with Wireless Network • 28/28ppm (BW/Color) • 250 Sheets + 50-Sheet Multipurpose Tray
B&W Laser Duplex Printers with Network
155 130 $REBATE
$
REBATE
REBATE
REBATE
LBP351DN LBP352DN
• 33.6Kbps • 19ppm Print (L100) • 26ppm Print (L190)
• Duplex (L190)
Image Shown: FAXPHONE L190
LBP654CDW
LBP351DN LBP352DN
Both models can only be sold to 3P Authorized Dealers!
$
MF733CDW MF735CDW
• 19/19ppm • SCAN (BW/Color) • FAX (MF634CDW) • 28/28ppm (BW/Color) (MF731CDW) • Wireless Network
• PRINT • COPY • SCAN • FAX
REBATE
90
95
$
FAXPHONE L100 MF634CDW FAXPHONE L190 MF731CW •• PRINT COPY LASER FAX BASED MFPS
• 26ppm (BW/Color (MF810Cdn) • 36ppm (BW/Color (MF820Cdn) • 550 Sheets + 1-Sheet Multipurpose Tray • Duplex Versatility MF820CDN can only be sold to 3P Authorized Dealers!
• 28/28ppm (BW/Color) • 1200 x 1200 dpi Resolution (Print) • 250-Sheet Cassette, 50-Sheet Multipurpose Tray • 50-Sheet Duplex DF • 1GB Memory (Copy/Print) • UFR II (Host-Based), PCL 5c/6, Adobe PS (MF735CDW) • Duplex, Wireless Network • 33.6 Kbps Fax Speed
D1550
MF810CDN MF820CDN
• 58ppm (LBP351DN) • 65ppm (LBP352DN) • 500 Sheets + 100-Sheet Multipurpose Tray • 1GB Memory
LBP253DW can only be sold to 3P Authorized Dealers!
$
MF733CDW MF735CDW
D1520 D1550 • PRINT • COPY • SCAN • FAX
• 24ppm (MF236N) • 28ppm (MF247DW, MF249DW) • 600 x 600 dpi Resolution • 250-Sheet Cassette + 1-Sheet Multipurpose Tray • 512MB Memory (Copy/Print) • Duplex, Wireless Network (MF247DW, REBATE MF249DW) MF236N
• PRINT • COPY • SCAN • FAX
70
$
REBATE
70
$
$
75
REBATE
REBATE
L100
L190
LBP712DN
Color Laser Duplex Printer with Network • 40/40ppm (BW/Color) • 550 Sheets + 100-Sheet Multipurpose Tray
60
$
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All supplies & Parts available for prompt delivery! ENX Magazine | www.enxmag.com
All prices, rebates, and availability are subject to change without notice. Please call us to confirm.
Nuworld is not responsible for typographical errors or inaccurate specifications. Registered trademarks are properties of their respective owners.
Copiers • Printers • MFPs • Faxes • Scanners E m a il: info @ n u w o rld in c.co m
Order Online! www.nuworldinc.com
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MFPs & PRINTERS
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CLX-8640ND / CLX-8650ND
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• 35 pages per minute • 500 Sheets $ Input, 50 AFTER Sheets $ MPT
CLX-8650ND
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SL-C2670FW
$100 REBATE
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Erik Cagle
State of the Industry
Not All Consumables Created Equal: Making Time to Vet Sources Can Pay Dividends for Dealers
W
hen it comes to purchasing a new car, many of us are guilty of making our selection based upon short-sighted criteria. We fall for the sexy looks, become attached to only certain makes and models, and even obsess about ancillary features that really add little to the overall driving experience. Some of us are even goaded by a pretty color. Far too many consumers ultimately ignore or overlook the overall cost of ownership. Sure, gas mileage is a factor, but when you’re in the driver’s seat, taking a model for a test spin, that consideration generally gets pushed into the back of your mind. However, the savvy among us who take all of the important considerations into account are rewarded on the back end of the ownership process. How does this translate into the world of office technology equipment? Well, we’re not here to advocate the benefits of one A3 or A4 device over another. But given that consumables account for 70 percent of total costs, it behooves dealers and their clients to be mindful of the unleaded and highoctane gasoline they’re pumping into these devices, so to speak. It’s been an eventful period for the world of consumables. The last two years has witnessed a surge in acquisitions among OEMs, distributors and remanufacturers, both in the United States and internationally. The Supreme Court’s ruling in the Impression Products v. Lexmark case has cleared the path for the import and remanufacture of empty cartridges and redefined the rules regarding patent infringement, to an extent. Chinese investment in companies like Lexmark has further muddied the
IT’S A MATURING MARKET FOR THOSE PARTIES THAT CONTINUE TO HAVE AN APPETITE FOR GROWTH; THEY’RE LOOKING FOR ACQUISITION AS PART OF THAT STRATEGY. Monte White, Supplies Network
waters and truly turned the world of consumables into a global market. With a dizzying array of choices for sourcing consumables, how can dealers adequately guide their clients in making the best possible decisions that factor in costs, quality and page yields? Car buyers may not have to fret about such decisions when pulling up the gas pump, but MFP end users certainly cannot afford to gloss over their choice in consumables if they want to get the most mileage out of their devices. To that end, we’ve assembled a wide-ranging sample of industry experts—OEMs, remans, distributors and consultants—to add their perspective to an often-unheralded segment of the printing ecosystem.
Changes to the Landscape
The most noteworthy evolution in the consumables world in recent years is less about technology and more centered on the players involved, notes Monte White, vice president of product marketing for Supplies Network. Apex Technology, which has invested in Static Control, has created an interesting dynamic with its acquisition of Lexmark, while the M&A activity in the reseller market impacts the manufacturers and distributors that serve those resellers. “It’s a maturing market for those parties that continue to have an appetite for growth; they’re looking for acquisition as part of that strategy,” White said. “That applies to manufacturers as it does to resellers. It’s creating pricing pressures, but with the consumables industry, there’s a great di- Jim Loparich, vide. There are those who Pinnacle Sales sell on price, and low-cost Chinese product is prevailing with online sales. Then there are those selling a solution or MPS, which you see in the BTA market. They’re selling a solution, bundling supplies and service into a broader solution. They can mask the pricing pressures and sell on deliverables and solutions versus a straight product price. continued on page 18
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www.enxmag.com | February 2018
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Not All Consumables Created Equal QUALITY LEVELS FOR OUR NEWBUILD LASER CARTRIDGES HAVE INCREASED OVER THE PAST FEW YEARS, WITH OVERALL DEFECTS DOWN TO 1 PERCENT. Bob Willmes, Supplies Wholesalers
“End users, whether they’re small- or mid-size corporations looking to buy things transactionally, get it cheaper online. The resellers that were making a living selling transactionally are just getting squeezed, so I think there’s kind of this divide between price and solution that’s also creating a divide of channels.” The acquisitions of Lexmark and Static Control have produced undesirable results in the form of price increases due to the control of certain market segments and products, according to Jim Loparich, president of Pinnacle Sales. He fears the acquisition of Katun Corp. by General Plastic Industrial Co. Ltd. of Taiwan will have similar results in the market. Loparich believes the federal government should investigate the ramifications of potential security issues stemming from the foreign business control over these products and technologies. Joe Contreras, vice president of product and solutions marketing for Toshiba, feels the biggest developments in recent years entails the expiration of certain patents and the introduction of new compatible toner cartridges into the market, primarily from China. This adds a new wrinkle for manufacturers to work around in negotiating with dealers and resellers. “This clearly brings about more price competition and pricing pressure,” Contreras said. “As a manufacturer, we must take a hard look at the competitive landscape, because it’s not just OEM to OEM competition, it’s other third-party manufacturers of toner and ink products.”
Separating Quality from Commodity
The continuing shift in attitude toward dealers and resellers viewing consumables as a commodity is somewhat disturbing and wholly inaccurate, notes Luke Goldberg, executive vice president, sales and marketing for Clover Imaging Group (CIG). Consumables are the cornerstone to any quality MPS program, and not all products are created equal. “We emphasize to customers that there is a difference between high-quality consumables and what goes into producing those as opposed to a lot of the other products on the market,” he said. “Everyone says they have high quality, but there are big differences and we view it as a huge variable, one that dealers need to consider.” Another notable trend in recent years is the acceptance of top-tier, high-quality and patent safe new build printer cartridg18
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www.enxmag.com | February 2018
es, states Bob Willmes, CEO and founder of Supplies Wholesalers. He also feels the growing trend toward consolidation is making it more difficult for the smaller players within the industry. Another challenge is the increased technology barriers for the aftermarket due to sophisticated, encrypted chips. “Quality levels for our new-build laser cartridges have increased over the past few years, with overall defects down to 1 percent. We’re now seeing the quality is on par with the best North American remanufactured cartridges, with savings of up to 40 percent,” Willmes said. “Our top-tier China factories producing these cartridges have also proven they can successfully identify and design around the OEM patents and provide non-infringing cartridges, alleviating previous concerns for IP safety.” Charles Brewer, president of Actionable Intelligence and a 20-plus year veteran of the consumables industry, notes that 10 years ago, virtually any new build of an existing drum and toner cartridge—due to all the patented technologies involved in its makeup—likely constituted an infringement. But these manufacturers lay claim to workarounds that are not infringing, and according to Brewer few suits have been filed recently as the number of new-build toner cartridges has climbed. “I’m not sure why we haven’t seen more suits. Perhaps the manufacturers who make the new builds have obtained crosslicensing agreements or maybe a lot of the technology has come off patent,” Brewer observed. “Or it could be that OEMs are just biding their time. I’m hearing lots of rumors that more lawsuits are coming. Perhaps it’s just a matter of time.” There are a number of large new-build companies and they have launched B2B programs that they are selling to dealers. “This trend toward more and more new-build cartridges is big, and these manufacturers are going after the office equipment dealers. These companies are going after the installed bases where the end users print in a high-volume environment. That’s a real problem for the remanufacturers and the OEMs.” In the early years of this decade, print volume decline was leaving its impact on hardware in the OEM community, and in recent years the trend has left its mark on the consumables aftermarket, notes Christian Pepper, president of the channel partner division for LD Products. That, in part, prompted the OEMs to become more aggressive in getting close to their customers in an attempt to better control the channel.
THIS TREND TOWARD MORE AND MORE NEW-BUILD CARTRIDGES IS BIG, AND THESE MANUFACTURERS ARE GOING AFTER THE OFFICE EQUIPMENT DEALERS. Charles Brewer, Actionable Intelligence continued on page 20 We Saw It In ENX Magazine
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Not All Consumables Created Equal “Some resellers feel that they have benefitted from working closer with OEMs. Other resellers have felt constrained or uneasy about programs that require end user reporting information in return for lower consumable pricing and larger rebates,” Pepper adds. Christian Pepper, LD Products
Making the Right Choice
Given the endless options at their disposal, how can dealers and their clients successfully navigate the ocean of offerings from traditional consumables suppliers, online retailers and remanufacturers, both domestic and international, in sourcing product that is most tailored to their needs? Many observers find this to be a nearly impossible task. “The short answer is, they can’t. Not without a good, reliable partner,” stressed Neal Becker, partner and cofounder of Q2 LLC. “We visit manufacturers regularly, and have personnel in Asia working with us on a fulltime basis. The product choices and differences are very complex and difficult to understand and manage. We spend a significant amount of time evaluating quality up front and monitoring ongoing performance so that our customers can concentrate on where they need to focus— successfully running and operating their businesses. In today’s world, there are usually 20 or so more manufacturers of any given product. Knowing which one or two are good, and which are not is critical, and it’s something that can’t be left to chance. Dealers need a good partner to decipher the options.” Much of the decision-making process is tied to a dealer’s go-to-market strategy and whether the dealer is selling the consumables outright or as part of a contracted, pagebased MPS solution, notes Doug Johnson, chief strategy officer for LMI Solutions. For a pure product sell, dealers should ask themselves whether their value proposition
WE SPEND A SIGNIFICANT AMOUNT OF TIME EVALUATING QUALITY UP FRONT AND MONITORING ONGOING PERFORMANCE SO THAT OUR CUSTOMERS CAN CONCENTRATE ON WHERE THEY NEED TO FOCUS. Neal Becker, Q2 LLC
OEMs Offer Programs Designed to Help Dealers Protect Consumables Profits
O
ne of the greatest challenges OEMs face given dwindling hardware margins is support programs for dealers that will enable them to secure consistent profits on the consumables end. Lexmark, for one, has provided dealer-specific hardware models with uniquely keyed supplies for nearly a decade, notes Greg Chavers, vice president, North America Channel Sales. “This combination allows dealers to Greg Chavers, Lexmark protect their profits from online sales and commercial models, as well as focus on workflow solutions as a primary talk track,” he said. “The Lexmark dealer program has continuously invested in new, device-based and cloud solutions that get the dealer out of the standard click discussion and raise their level to trusted advisor within their accounts. Solutions selling, along with dealer-unique models wrapped in a dealer program that provides incentives and resources, are the engine that enables Lexmark dealers to consistently grow profits and revenues.” Toshiba has programs in place on the aftermarket side to allow its dealers to be competitive when they target larger accounts in terms of special pricing. Beyond dollars and cents, one of the biggest keys is to enable dealers to become more operationally efficient through its MPS programs, according to Joe Contreras, vice president of product and solutions marketing for Toshiba. Joe Contreras, Automatic toner replenishment, for Toshiba example, can lower a dealer’s carrying costs with just-in-time replenishment. This aids a dealer’s operational efficiencies, as orders are generated and sent out directly to the end user. The replenishment also ensures that a dealer’s client isn’t burdened with a closet full of toner. “In addition to pricing and operational efficiency, we’re also providing additional value through the solutions and the enablement programs that we’ve introduced,” Contreras said. “We’re working with all the industry leaders on print management and output solutions to help control and manage costs. From a new product perspective, we’re continuously looking at the material and the physical product itself, introducing things like longer life parts, longer duty cycles on the products and making sure they’re operating more efficiently and effectively in our clients’ environments.” ♦ continued on page 22
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We Saw It In ENX Magazine
Not All Consumables Created Equal MUCH OF THE DECISION-MAKING PROCESS IS TIED TO A DEALER’S GO-TO-MARKET STRATEGY AND WHETHER THE DEALER IS SELLING THE CONSUMABLES OUTRIGHT OR AS PART OF A CONTRACTED, PAGE-BASED MPS SOLUTION. Doug Johnson, LMI Solutions evolves around high-quality, OEM-equivalent products or “good enough” quality. Contracted deals generally call for high-yield products with low failure rates. While Johnson understands that it is difficult to test a range of products to validate these factors, there is a checklist of variables that can be used to mitigate risks. “First, they can ask potential vendors questions to better determine the fit with their business model,” he said. “For example, are the products offered IP free? What is their failure rate, and have them show you the data. Do they root cause test all returns? Do they offer a range of products—mono and color, multiple brands—or focus on a few? Can they demonstrate yields and quality via ongoing testing? “Dealers should also call references provided by the vendor, as well as seek them out on their own, to get real-world feedback,” Johnson added. “Of course, the most important criteria in gathering peer dealer feedback is ensuring the reference dealer has the same go-to-market model, and therefore the same key criteria in evaluating vendor options.” Supplies Wholesalers’ Willmes boiled the process down to three talking points. The first is reputation, whether a company is known for standing behind its product and can back claims. A second is having faith in a new-build cartridge to perform to the level of an OEM’s, but at a significant savings. Lastly, Willmes urges dealers and clients to opt for a partner that has made significant infrastructure investments and boasts talented sales and customer service personnel.
Doing Your Homework
Pepper feels it is incumbent upon shoppers to become informed through testing and due diligence. This entails asking vendors to provide documentation that details the quality standards their product is built to, along with OEM IP compliance and protection/indemnification from future claims of infringement. It is also essential to know how a vendor manages its supply chain of components, assembling or finished product (depending on whether the vendor is a manufacturer or wholesaler). “As downward price pressure in our industry continues, all vendors need to find ways to lower costs. In many cases, that involves supplying lower quality/lower cost product without informing a reseller of a change,” Pepper said. “In addition, the length and coverage of the product guarantee will give you a good indication of how good a product is. Average companies 22
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offer a one- to two-year guarantee, but the better ones offer three years. The very best offer a lifetime guarantee that covers the reseller’s costs to repair devices damaged by faulty products.” Clover’s Goldberg sees the sourcing challenge as being nearly impossible for the typical dealer, especially when it comes to finding a quality, re-engineered product versus an inferior one that is either a rebuilt compatible or merely a product that has been refilled. Few dealers, he adds, take the trouble to perform due diligence necessary to validate a vendor’s quality assurance. “If you really want to understand whether a company can produce quality or not, the only way you can do that is with a site visit,” Goldberg said. “It’s impossible to take someone’s word for it, impossible to look at a video or to have someone send you a list of their so-called certifications. Where the rubber meets the road is touring the factory to view quality control methodologies, process controls, engineering infrastructure and capital equipment investitures—things you can only see with a site visit. Without that, to me it’s inherently impossible to really understand who the best in quality suppliers are.”
IF YOU REALLY WANT TO UNDERSTAND WHETHER A COMPANY CAN PRODUCE QUALITY OR NOT, THE ONLY WAY YOU CAN DO THAT IS WITH A SITE VISIT. Luke Goldberg, Clover Imaging Group (CIG)
Mitigating the Race to the Bottom
Resellers who buy and sell on price further the winner-less race to the bottom, observes Supplies Network’s White, and trafficking in that business model requires an extremely efficient or low-cost product. He recommends dealers opt for subscription programs for supplies or bundled MPS solutions that offer more business certainty. While Supplies Network has a legacy of serving transactional supplies resellers, it has gravitated toward serving the BTA market, a channel that has been successful in changing its business model to selling supplies in a contractual fashion. Additionally, White believes the OEMs have become more aggressive in maintaining aftermarket share. “The OEMs have stepped up their game and HP is a good example of that,” he said. “The pressure to retain aftermarket supplies business for the equipment they have is of importance to them. We’ve seen HP take greater efforts to win back share with pricing programs that entice customers to come back to them under a longer term price contract with insulation from increases.” ♦ We Saw It In ENX Magazine
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Market Watch: U.S. Remans May Seek Consolidation to Help Counter Expanding Global Competition
T
hose who watch the markets for office imaging devices and consumables know that both are tied— inextricably—to the economy. Good news: These days, the economies in North America are looking pretty good and that’s great for the regional office imaging equipment industry and its channels. In the closing months of last year, the U.S. unemployment rate sat at 4.1 percent—a 17-year low. Hardware manufacturers appear to be benefiting from the good economy and many have indicated that their North American business is doing well. Last year’s good economic news continues a trend. For the past several years, vendors have reported that the office imaging equipment markets in North America have been among the world’s strongest. My company’s website, www.Action-Intell.com, featured various posts in 2017 reporting stronger hardware and consumables sales at firms like Canon, Epson, Hewlett-Packard, Konica Minolta, and others. And the good news should continue. It appears that unemployment is on track to remain low in 2018. In a recent poll of 11,500 U.S. employers conducted by the ManpowerGroup, 92 percent said they expected to either add to their payrolls or keep staffing at current levels. The report says that the firm’s Net Employment Outlook for the U.S. is “the strongest reported in the past decade.”
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Despite the improved economy, things have not been so good for many of the remanufacturers in North America. The region’s remanufacturing industry has continued to show signs of stress as it has for some time. Actionable Intelligence recently explored the situation in a 39-page white paper that we released at the close of 2017. “Forces Shaping Today’s Cartridge Remanufacturing Industry,” which is available at no charge on our website, details how the global industry has fared over the past 30-plus years and looks at where it’s heading. We examine some of the challenges that are unique to North American remanufacturers, as well as analyze the competitive forces at play in other key regions including China and Europe.
Relentless Competition
Many of the challenges facing today’s remanufacturing industry reflect trends that have been ongoing for decades. From the start, OEMs have battled with third-party supplies vendors over the consumables market. With supplies that perform almost flawlessly, hardware manufacturers have always had a leg up on non-OEM consumables vendors in terms of quality and the OEMs’ wellestablished channels and big marketing dollars have added to their competitive advantage. But OEMs have charged a premium for their supplies, which led some customers to seek better We Saw It In ENX Magazine
deals. Remanufacturers have managed to bring to market consumables with much lower price points. Moreover, as the remanufacturing industry has matured, its products have improved. Today, non-OEM cartridges are popular especially monochrome SKUs, which perform well and deliver pages that can cost a fraction of what it cost to print with an equivalent OEM SKU. The decades-long battle between OEMs and remans has been well chronicled in court dockets around the world and nowhere have more suits been filed than in the United States. Most hardware vendors have filed at least one lawsuit (some have filed dozens!) in U.S. federal court alleging a third-party supplies vendor has encroached on the OEM’s intellectual property. And most have been successful. The OEMs that have prevailed in U.S. courts against third-party companies marketing cartridges infringing their IP include Canon, Epson, Hewlett-Packard, Lexmark, Ricoh, Toshiba, and Xerox. Although there has been a bit of a lull over the past couple of years, Canon filed suit at the end of 2017, which I’ll discuss later, that may be a harbinger of a big legal battle in near future. Lawsuits have taken their toll the North American remanufacturers and their channel partners. Although the amounts awarded are seldom disclosed continued on page 26
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Market Watch: U.S. Remans May Seek Consolidation to Help Counter Expanding Global Competition by the courts, it’s safe to assume that firms determined to be marketing the infringing consumables have paid tens of millions (perhaps hundreds of millions?) of dollars over the years in penalties and awards, not to mention lost product and legal fees. As fiercely as remanufacturers have fought OEMs, the competition within the ranks of non-OEM supplies vendors has been even more punishing. Third-party supplies vendors compete almost exclusively on price, and some have demonstrated a willingness to slash prices to grab market share. Ceaseless pricing pressures have resulted in margins that can sustain only a select few non-OEM consumables vendors. Certain remanufacturers have managed to grow large enough to achieve economies of scale that allow them to compete even on razor thin margins. Others have had to make changes to their business models to keep the lights on, while many have opted to exit the industry altogether. While the remanufacturing industry in North America was once made up of more than 4,500 constituents, today that number has dwindled to fewer than 1,000.
Partnering with China
The North American remanufacturing industry’s dealings with China date back to the early 1990s and it has become a love-hate relationship over the years. Initially, office imaging devices were based on a handful of imaging engines that employed a limited number of consumables. The hardware population quickly became more diverse, however. North American remanufacturers as well as with their cohorts in Europe realized back in the 1990s that they couldn’t cover the entire installed base by marketing only those cartridges that they produced in-house so they began sourcing product from China. As the industry in China matured, it invested to build out its capacity to manufacture the range of products needed to supply the West’s diverse hardware populations. The almost insatiable needs of Western companies allowed the Chinese industry 26
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to grow quickly as it moved into the 21st century. Over time, Chinese firms captured more and more share of the U.S. market as the region’s domestic non-OEM supplies vendors grew increasingly reliant on imports from China. As inexpensive Chinese products became increasingly available, more and more smaller third-party supplies vendors in the West turned to importing rather than produce remanufactured cartridges in-house. Over the past 20 years, droves of Western remanufacturers have become distributors and shut down their production lines. In addition, many of the companies that continue to remanufacture today turn to China when needed to supplement their production lines with SKUs that could not be produced profitably in-house. Chinese entrepreneurs understood that to compete effectively with one another and continue to gain share in Western markets, they must be able to keep production costs down. Many of China’s leading nonOEM supplies companies invested to become vertically integrated so they could produce essential raw materials in house. The most expensive raw materials for remanufacturers are empty cartridges. So-called empty “cores” must be collected, stored, cleaned, and inspected before they can be refurbished. To avoid the costs associated with remanufacturing cores, some third-party supplies vendors in China began to market cartridges made from brand new cores that were fabricated in-house. Brand new non-OEM cartridges can be problematic because they have a history of violating OEM patents. This is especially true of “cloned” toner cartridges, which are reverse engineered with no respect for IP. Many toner cartridges feature inventions that OEMs protect with numerous patents, which can be very difficult to design around. But new-build clones are much less expensive to bring to market than remanufactured products or new compatibles that have been painstakingly
replicated without violating any OEM IP. The exportation of infringing clone exploded at the time of the economic downturn and they continue to be popular today. The explosion of clones has put more pressure on prices that were already severely compressed.
Industry Transformed
Dealing with price compression and a declining market, the maturing Western remanufacturing industry has been consolidating for years. Today the North American remanufacturing industry is dominated by just a few large players. The largest, Clover Imaging Group (CIG), grew from a $68 million U.S.-based company in 2003 to an international enterprise boasting over $1 billion in total sales in about 10 years. In 2010, Golden Gate Capital took a position in the company, and since then Clover’s M&A actions have given the firm assets around the world. According to my firm’s research, LMI Solutions is North America’s second-largest remanufacturer. LMI has made several key acquisitions over the past five years including the purchase of two of the largest North American printer remanufacturers, Global Printer Services (GPS) and Printersdirect in 2014, then LMI bought the parts distributor Parts Now in 2015. Large foreign third-party supplies vendors have been expanding their presence in North America of late through acquisition. Perhaps the most well-known example is the purchase of Lexmark International by Zhuhai, China’s Ninestar Corporation (formerly known as Apex Technology). It’s not clear what has become of Lexmark’s remanufacturing operations, which were once among the world’s largest, but Ninestar is pursuing more of the international cartridge market with its U.S. assets. Prior to the Lexmark deal, the Chinese company acquired the remanufacturing supplier Static Control Components in 2015. Shortly after being acquired, Static Control expanded its portfolio
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Market Watch: U.S. Remans May Seek Consolidation to Help Counter Expanding Global Competition to included finished cartridges along with the chips, toners, drums, and other cartridge parts it has marketed for years. At its plant in North Carolina, Static Control remanufactures toner cartridges and it now markets finished cartridges supplied by Ninestar. Germany’s Turbon Group is another non-U.S.-based firm looking to expand its North American business through acquisition. In 2013, the German remanufacturer purchased Clarity Imaging Technologies of Saddle Brook, NJ and also acquired International Laser Group (ILG), which is based in Woodland Hills, CA. The firm has struggled in North America since making its acquisitions, however. As the larger players in North America continue to further consolidate the industry, several hundred remanufacturers remain. Although their total revenue is nowhere that of a Clover or a Ninestar, the industry’s second-tier is occupied by companies that have been in operation for between 10 and 20 years such as Diversified Computer Supplies, InkCycle, and Liberty Laser Solutions. According to Actionable Intelligence’s research, companies in the second tier have annual revenue of between $20 and $35 million and most support customers across the United States from their own regional distribution centers. The third-tier of the North America remanufacturer supply regional markets and support end users at small- to medium-sized companies. Most of the third-tier players have revenue under $15 million. Perhaps the best example of a regional reman is the Charleston, WV firm, Impression Products. The company, which I estimate has about $10 million in annual sales, grabbed headlines when it challenged a patent infringement lawsuit filed against it by Lexmark. After years of legal wrangling, the case was ultimately heard by the U.S. Supreme Court, which sided with Impression Products and overturned years of case law on patent protections. 28
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The Post-Impression Products World
In addition to its case being a great David-versus-Goliath story, the industry will long remember the modest Charleston remanufacturer for the changes that its victory wrought on U.S. patent laws. Prior to the SCOTUS ruling, remanufacturers risked violating certain U.S. patent protections if they refurbished empties that end users had agreed to return to Lexmark, or remanufactured spent cartridges that were first sold overseas. The Impression Products, Inc. v. Lexmark International, Inc. ruling eliminated such protections after the first authorized sale of a product freeing companies to remanufacture an empty cartridge regardless of where it was sold or any preconditions placed on its purchaser. As one can imagine, the ruling had a profound impact on the international remanufacturing industry because it opened the U.S. to empties first sold overseas, which should be a boon for U.S. companies because their source of empties was dramatically increased. While U.S. remanufacturers rejoiced at Impression Products win, they also realized that there was a downside to the ruling. Under the old rules, offshore remanufacturers were required to gather their empties from the United States if they were to sell them here. Most foreign firms without U.S. plants had exited the market because they couldn’t profitably acquire cores in the U.S., ship them to an offshore factory for refurbishing, and then return the finished cartridges to the U.S. for marketing. After the Impression Products decision, however, there are no restrictions on foreign firms exporting remanufactured cartridges to the U.S., so reman cartridges produced in factories around the world are increasingly available here. The Impression Products ruling has also allowed for more new-build cartridges to be imported into the United States. Over the past couple of
decades, various OEMs have obtained protections from federal agencies that have prevented both non-infringing and infringing compatibles from entering the U.S. Some of the orders restricting compatible imports were based on patent protections that were eliminated by SCOTUS’s Impression Products decision. Although I suspect that in time new barriers will be erected to limit the importation of clones, for the foreseeable future some of the gates that once protected the U.S. market from such bogus products are up and will remain so.
Unwanted Competition
Regardless if the cartridge is legitimate or if it’s infringing, more overseas competition will be tough for U.S. remans to handle. As I alluded to at the beginning of this piece, even as the U.S. economy has improved, remanufacturers have struggled. In late October, Moody’s Investor Service downgraded the debt ratings of Clover’s parent company, 4L Technologies because of weakness in the firm’s reman business. Moody’s revised its outlook for the 4L’s debt from stable to negative citing what it termed “uncertainties related to the timing of a stabilization in 4L Tech’s business after a multi-year contraction in sales and profitability.” Clover is not the only company with sagging sales. The Turbon Group’s top line got a nice boost after it made its 2013 U.S. acquisitions but those gains were quickly erased. After watching its revenue decline almost 10 percent in fiscal 2016, the publicly-traded German firm told investors in September that sales were expected to drop another couple points in FY 2017 despite improvements in its European sales. During the first six months of last year, Turbon sales in North America were down 28 percent. There are a number of challenges that remanufacturers in the U.S. are currently dealing with including more aggressive OEM consumables pricing and a glut of
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ange capacity as end users in the home and
office continue to print less. In addition to these now perennial issues, remanufacturers are facing increasing competition from newly manufactured compatible cartridges. Although freshly minted compatible cartridges are not new, in the past these products were viewed largely as infringing and relegated for sale on the Internet. Over the past couple of years, however, more and more companies have been marketing new compatible toner cartridges as non-infringing products and they have moved into the mainstream. Representatives from Ninestar have told me that including ink SKUs, about 80 percent of the firm’s portfolio is currently non-infringing new build cartridges. Ninestar is not alone and we heard from many companies last year that are marketing new-build compatibles. Notably, as 2017 ended, one of North America’s largest independent online cartridge merchants, LD Products, announced that it will market premium, new-build compatibles to dealers and resellers.
It’s hard to say what’s behind the growing number of non-infringing cartridges. The fact that many patents on older HP LaserJet cartridges have now expired undoubtedly explains some of the growth. It is also likely that some of today’s larger third-party supplies manufacturers now have the technical expertise to reverse-engineer OEM technologies and perfect patent workarounds that may have alluded them in the past. And, who knows, some firms may have quietly negotiated crosslicensing deals. After all, anything is possible in today’s hardcopy industry! Still, I doubt that all the claims of “noninfringing” will go unchallenged. While OEMs have been active in courts in other countries, the U.S. courts have only seen a handful of infringement cases over the past couple of years. Just as last year was wrapping up, however, Canon filed a case in U.S. federal court that bears watching. The suit accuses the Amazon merchant Kostland, Inc. of violating a new U.S. patent (9,581,958 B2) issued in 2017. The patent covers
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gears and other technologies used in certain new JetIntelligence cartridges used in such devices as the HP Color LaserJet Enterprise M553dn, M553n, M553x and HP Color LaserJet Enterprise MFP M577dn and M577f as well as the HP Color LaserJet Enterprise Flow MFP M577c and M577z, which were released in 2015. So far, only Kostland has been named as a defendant but others seem likely. For months, rumors have been circulating that a major legal battle is brewing so perhaps the Kostland filing is just the opening salvo. I expect to see some shake ups in the North American remanufacturing industry over the next several years. The industry dynamics are changing as more products enter the North American market from overseas and the established regional players brace themselves for stiffer competition. While further consolidation is inevitable, what’s less predictable is which firms will be acquired next and who will be writing the check. We’ll follow it all at Actionable Intelligence and on www. Action-Intell.com so stay tuned! ♦
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Erik Cagle
Channel Insight
Supreme Court Decision Puts Impression Products on the Map Ensures Unfettered Future for Aftermarket World Around the time Eric Smith joined Impression Products, the family-owned business founded by his father, Walter, one of the Charleston, WV-based firm’s biggest moves was becoming a Lexmark-authorized supplier of toner cartridges. In fact, Impression Products also offered OEM supplies from HP, Canon and Brother, among others.
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ut the younger Smith was flabbergasted by the high prices commanded for OEM cartridges. Emboldened by suggestions from customers, he started exploring the idea of remanufacturing spent cartridges and selling them at a more economical price point. The reman cartridges sat on the shelf next to the OEM product, giving the customer more options. These cartridges worked just as well as the originals, and customers reaped savings up to 50 percent. Impression Products didn’t offer reman cartridges for every printer; if the company couldn’t replicate the quality and stand by it 100 percent, then Smith would recommend the OEM product. Impression Products hummed along smoothly for years, until Smith began receiving cease and desist letters from Lexmark in 2010. Lexmark targeted Impression Products among about 50 other remanufacturers, claiming its patent rights were being infringed. Lexmark sued Impression Products in Ohio federal court in 2013, arguing it retained patents rights for its cartridges after the initial sale, and that Impression Products infringed on its patents by refilling and reselling Lexmark toner cartridges. Impression Products countered in saying the patent rights had been exhausted after the first sale. The question at hand was whether Lexmark could apply restrictions (such as the single-use edict under its Return Program) and retain patent rights for cartridges sold domestically and overseas. The OEM was buffered by a pair of precedents set by the U.S Court of Appeals, including Mallinckrodt v. Medipart, a 1992 decision that permitted patent holders to retain protections
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on patented goods sold with a similar single-use restriction. In that case, Mallinckrodt held a patent for its device for dispensing a mist used in taking lung x-rays, and Mediapart recycled, remanufactured and resold those devices to hospitals at 40 percent of the original cost. The District Court dismissed the patent infringement claim, but the Federal Circuit reversed it. The Impression Product-Lexmark case snaked through the courts in comparatively short order. The District Court dismissed the patent infringement case for domestic sales, but ruled in Lexmark’s favor for international sales, finding Impression Products had infringed upon Lexmark’s patents. Both parties appealed, and the U.S. Court of Appeals found in favor of Lexmark on both counts in 2016—a reaffirmation of the precedent cases. Finally, last May’s ruling by the Supreme Court was not so much a rebuke of the appeals court as it was a broader interpretation of patent exhaustion and patent holder rights. Lexmark, the high court wrote, had exhausted its patent rights following the first sale, both domestically and internationally. Impression Products and other remans would be free to remanufacture and resell the toner cartridges, but the case went far beyond consumables. It reaffirmed that once a product had passed into commerce, it was no longer under an ownership cloud. The aftermarket product world rejoiced, as a blow against Impression Products
Eric Smith
would have set precedent for restrictions on any number of products. Imagine owning a Ford and being compelled to use only Ford-manufactured parts and supplies, or not being able to resell an iPhone or android. Smith took time out from the holidays to recount his seven-year battle with Lexmark, which included losing verdicts in the lower courts, fighting the battle alone with only moral support from his contemporaries, and resisting the urge to accept a highly-tempting settlement offer from Lexmark. In the wake of his victory, Smith is hoping to parlay the outcome into substantial business growth with the very companies that benefitted the most from the high court’s ruling.
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Tell us about your career path leading up to Impression Products. SMITH: My father, Walter Smith, started the business in 1978, selling typewriter ribbons. As typewriters gave way to personal printers, we started selling them. After graduating high school, I had to decide whether I wanted to go to college or work a year or two for him, then maybe go back to school. I jumped right into the family business in 1989 and Impression Products became my education. That was about time dot matrix printers were turning into laser printers. I took control of the company around 1995. In 2013, you were taken to court by Lexmark, which claimed your remanufacturing of the company’s cartridges violated its single-use, no resale policy. What was your initial reaction? SMITH: In 2010, I started receiving cease and desist letters from Lexmark, which was baffling at the time. We had been doing it since the early 1990s and it was strange to start receiving letters that a patent infringement had occurred. I had no clue what they were talking about at the time. My initial thought—and I’d heard they were sending these letters out to my contemporaries in other states— was that Lexmark was hoping everyone would settle out of court and this would all go away. I decided to stick it out, not reply back and see what happened. As time went on, the letters increased, and eventually I was served court papers. So I had to make the decision to get out or fight. At that point, I realized no one else was willing to take on Lexmark, and it was either going to be me doing it alone or just give up. And I’d never given up on anything in my life. It was time to put the boxing gloves on and go to war. What factored into your decision to push forward with the case?
SMITH: I was doing this for my employees, my friends from the community I’d hired who had been with me all of these years. Their jobs and livelihood were on the line. If Lexmark could get away with what they wanted to do, then in time HP, Brother, Canon— each one we were remanufacturing products for—would follow the leader and sue us, too. Then we wouldn’t have any toner cartridges to offer our customers. We would be a company that could only offer OEM product at ridiculously high prices. The consumers, at the end of the day, would be the ones that would suffer. But my main concern was my employees. A case that started out about toner cartridges ended up a fight for every consumer in the world. In the beginning,
would the impact have been on your company? SMITH: The whole time, I was thinking, “What have I gotten myself into?” I knew once I started, I’d have to follow through. It worked its way up to the Federal Circuit Court in Washington, DC. They had an en banc, and that’s where 12 judges ruled. We got our butts kicked. There were two issues, the domestic and international parts of the case. In the beginning, they had ruled in our favor on the domestic part and against us on the international part. When it went to the en banc, they ruled against us on both counts, 10-2. I decided at that point that I needed a more experienced representation if we were going to take it to the Supreme Court. We went with Mayer Brown. Paul Hughes and Andy Pincus did a fantastic job. But we wouldn’t have reached that point without the work of Ed O’Connor from Avyno Law, who did a fantastic job getting us there. It was really a team effort. After losing in the U.S. Court of Appeals, what were your expectations moving forward? SMITH: I was very disappointed, but at the same time I always believed common
A CASE THAT STARTED OUT ABOUT TONER CARTRIDGES ENDED UP A FIGHT FOR EVERY CONSUMER IN THE WORLD. IN THE BEGINNING, I DIDN’T HAVE ANY IDEA THAT WAS GOING TO BE THE CASE. AS THIS THING GOT DEEPER, I REALIZED WHAT I WAS FIGHTING FOR WENT FAR BEYOND OUR INDUSTRY. I didn’t have any idea that was going to be the case. As this thing got deeper, I realized what I was fighting for went far beyond our industry. If you think about it, the bigger, multibillion dollar companies that sell aftermarket products should have been fighting for me. I’m talking about companies like Auto Zone, O’Reilly, and all the big auto part chain stores. Go to Dollar General, or Rite-Aid, CVS…you have the choice to buy those aftermarket products because of this case. And those companies have the right to sell [generic] products because of us. Taking a case all the way to the Supreme Court can be a costly proposition. Had you capitulated to Lexmark’s wishes, what
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sense would prevail. I had a lot of people calling and encouraging me on this case. They were saying, if you take this to the Supreme Court, they will get it right. If you buy something, you own it, period. End of story. Once it’s first sold, that product patent is exhausted. That entity has no more control over the product. A lot of prayer and hope went into it. At what point did Lexmark approach you wanting to offer a settlement? SMITH: After the en banc, Lexmark contacted me about a settlement. That also led me to believe I could win, because why else would they want to make a deal to prevent the case from
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Supreme Court Decision Puts Impression Products on the Map, Ensures Unfettered Future for Aftermarket World going to the highest court? So maybe they were concerned themselves. Under the deal, we would have been one of the only ones to remanufacture their product. It was a very attractive and tempting offer. I had a weak moment when I actually went to Mayer Brown and told them I was going to take the deal. They strongly urged me not to and told me to think about it. They told me that although I’d be helping the 2530 people who worked for me, I’d be hurting millions of people. I finally came back to my principles and decided to stand for what I believed in all along. I turned down millions and a lot of people owe us a debt of gratitude. We fought on their behalf when we didn’t have to. We could have easily taken the money and been just fine, sitting on the beach, drinking tequila and taking it easy. How has business been in the aftermath of the case? SMITH: There are a lot of people outside of West Virginia that recognized and appreciated what we had done and
wallets. I think every person in the world was impacted by this case.
Did the outcome shock you, considering how badly you’d lost in the U.S. Court of Appeals? SMITH: The international part kind of shocked me. I felt the domestic side of the case was a slam dunk. A lot of other people did, too. The international part was a question mark, and to win that one by such a wide margin was most shocking to me. But I thought it was right.
THE NATIONAL EXPOSURE HAS BEEN AMAZING; I’VE BEEN IN FORBES, BEEN ON MSNBC. IT WAS QUITE AN EXPERIENCE TO BE IN THE NATIONAL SPOTLIGHT. WE’VE HAD A CHANCE TO SHOW THE WORLD WHAT WE’RE ABOUT AND WHAT A LITTLE WEST VIRGINIA COMPANY COULD DO, GIVEN THE OPPORTUNITY.
gave us opportunities to be their printer vendor. We snagged some contracts because of the case. I don’t want to stop there, I want to keep the momentum going. I want to be a national provider to the companies that most benefitted from our win. There are a lot of big chain suppliers that have 6,000 to 10,000 stores. As long as it makes good business sense and we can show them that our product is as good or better what they’re using now, at a better price, then why not support the company that fought on their behalf and help us pay off these debts? We’re built for it, we’re ready for that new challenge and know exactly how to make it work. We’re on the 50-yard line with a few of them already. 32
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What would the landscape have looked like if Lexmark prevailed with the high court? SMITH: I think we’d be in a big mess right now. Consumers would feel it. If you walked into Dollar General, you would no longer be buying [generic] products, you’d only be buying brand name supplies. The everyday consumer is the one that benefits by this case, because everyone now has a choice when they go to the store to purchase what they want, and that’s because of Impression Products. This case wasn’t in the national news for seven years, but had we lost, I think there would have been a lot of coverage on it right now. People would be noticing it in their
Have you heard from anyone that this case has opened the floodgates for overseas product to come into the U.S.? SMITH: I’ve yet to see it. I say bring it on, competition is good. We’re making a product here that I know matches every OEM cartridge that we offer. We love to bring people out to tour our facilities to show them how we make our products. If a customer uses a particular type of toner, we like to have that toner on the shelf next to ours, so that they can test the two, side by side. Nine times out of 10, the customer will see that our product works better than the OEM’s. We’ve invested millions of dollars in our equipment and our people, and we make a product that is second to none. Page to page, print to print, you’re not going to find a better product than what Impression Products manufactures. How would you sum up the entire experience? SMITH: There were a lot of sleepless nights. It’s tough to deal with that and run your business. Luckily for me, I was able to turn the legal part over to people who were experts. I just kept my head down and focused on what we’ve always done. The national exposure has been amazing; I’ve been in Forbes, been on MSNBC. It was quite an experience to be in the national spotlight. We’ve had a chance to show the world what we’re about and what a little West Virginia company could do, given the opportunity. What does the future hold for Impression Products? SMITH: We gained a lot of national publicity that a company like mine probably would’ve never received otherwise. Now, Impression Products is not just known in West Virginia, but all over the world. We’ll go down in the history books. My hope is to turn this case into an investment, winning more business to compensate us for all of those restless nights from the past seven years. My goal is to become a national power. Hopefully, this case will get us there. ♦
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Erik Cagle
Business Profile
M&A, Organic Growth Spark Pinnacle Sales’ Continued Ascendancy in Distributor Channel Take a good look at the head-and-shoulders picture of Jim Loparich. If he looks quite familiar, then there’s a strong likelihood you are currently doing business with Pinnacle Sales.
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he Westlake, OH-based master distributor of OEM and compatible imaging parts and supplies may not have enough employees for a company softball team, but it boasts a true home run hitter in its founder, a 40-year veteran of B2B sales in the office equipment space. He’s worked at dealers and manufacturers alike, understanding the entire supply chain end-to-end. If Loparich’s experience has taught him anything, it’s that this is a people business and the best way to cultivate a potential client is to meet every new dealer prospect and visit them regularly when they become a customer. “Much of the competition sells over the phone or their sales reps don’t do inperson sales calls…maybe their business model doesn’t call for travel,” Loparich notes. “It’s extremely important to meet your customer face to face. That’s what sales is all about. “It gives me the opportunity to tell my personal and professional story and build relationships. People buy from people they like. They first like you, then they trust you, then they buy from you.” Founded in late 2009, Pinnacle maximizes a staff of four in processing nearly 9,000 orders per month. The distributor counts more than 40 supplier relationships—manufacturers, importers and distributors—that allows them to ship product from 60 locations in 18 states. Pinnacle Sales blankets the country via one or two-day ground shipping.
Plethora of Choices
Pinnacle prides itself on supplying any and every product that a dealer requires—be it OEM, remanufactured or compatible—and enjoys numerous exclusive manufacturing relationships that 34
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yield the goods much larger distributors do not have access to. The company distributes parts and supplies for all major brands, including Brother, Canon, DEC/Digital, Dell, Epson, Gestetner, HP, IBM, Konica Minolta, KYOCERA, Lanier, Lexmark, Muratec, NEC, Océ, OKI, Panasonic, Primera, Ricoh, RISO, Samsung, Savin, Sharp, Source Technologies, Tally-Genicom, Toshiba, Troy, Unisys-Burroughs, Xante and Xerox. “Since Pinnacle’s inception, our business model has been and still remains 100 percent drop-shipping of all products, whether to dealers or their end-user customers,” Loparich explained. “We truly are experts and an industry leader at this process. This enables Pinnacle to afford dealers the leading edge on price, quality, fulfillment and delivery, which we back up with the best service and customer support in the industry. “We are a source of products as a fulfillment company, whether they’re already built or we develop them ourselves. Quite simply, we’ve collapsed the supply distribution chain to its most basic and fundamental principle: Getting products where they need to be, on time, every time, at the lowest cost possible.”
Outpacing the Competition
Despite its comparatively small size among distributors, Pinnacle has caught the attention of its larger competitors, who have recently began offering products that Pinnacle previously had exclusively developed and remanufactured. Loparich keeps one step ahead of his
Jim Loparich, Pinnacle Sales
contemporaries by working with dealers to develop the next big product. As a “sell through” company, Pinnacle helps dealers address pain points and challenges to jointly develop products that reduce expenses and enable dealers to be more competitive while increasing their bottom line. Some of Pinnacle’s primary targets include MFP drum units, unique MFP toners, off-brand printer cartridges and various parts. Loparich’s team huddles with dealers to determine which high monthly usage items are on their wish list for procurement, then Pinnacle determines whether it can remanufacture them. More often than not, Pinnacle can round up the OEM empties, rebuild them and ship back to customers at 30 to 65 percent off the OEM price. “We design, build and test 100 percent in the U.S.A. on our own equipment, so the product loop is completely closed from end to end, guaranteeing
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continued on page 34
M&A, Organic Growth Spark Pinnacle Sales’ Continued Ascendancy in Distributor Channel
Shown from left, the Pinnacle Sales team of Liz Ventura, Jim Loparich, Vickie Dickson and Patty Charielle
product quality control,” he said. “The competitors who are attempting to take this business from us are utilizing offshore remanufacturers at a lower price. The product and quality control is inconsistent, which eventually helps us in the end. We just have to deal with pricing differential issues until the dealer realizes the poorer quality.”
Fundamental Business
Pinnacle sets itself apart from the competition by tending to the basic fundamentals of sound business: price, quality, fulfillment, delivery, service and support. Loparich works closely with the engineering and technical staffs of his manufacturers and suppliers and selects the best class of product from each one, which eliminates the guesswork on the part of a dealer’s purchasing department. As a result, Pinnacle’s product return rate is less than 1 percent, which Loparich believes is unmatched in the industry. Customer service is another area in which Loparich feels his team is without peer. Dealers with annual sales ranging from $50,000 to $200 million constantly rave about the response level of the Pinnacle Team, and the fact that email queries are often answered in less than 10 minutes. To help ease the burden on customer purchasing departments, Pinnacle has developed POPA (Pinnacle Order Processing Automation), its own software integration to dealer ERP systems. POPA automates the entire 36
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order processing cycle, from capturing the purchase order to closing out the invoice. “We own it and provide it to the dealers at no charge,” he adds. “Pinnacle’s integration is a huge benefit to dealers and their end-user custom-
only see university branding on the site, with Pinnacle providing all fulfillment on the back end. “It’s as easy as buying from Staples or Office Depot,” Loparich noted. “Again, it is provided to the dealers for free.” Pinnacle has enjoyed considerable progress in its marketing efforts. They continue to increase new products, dealers and distributors, with a goal of 20 percent growth per year in each category. In the past four years alone, Pinnacle has grown all three by 126 percent. On the topic of revenue, anything less than 20 percent organic growth during the next five years would be deemed unacceptable to Loparich. “By organic growth I mean down in the trenches adding new business product by product, dealer by dealer, and distributor by distributor,” he said. “So basically, one at a time.”
IT’S EXTREMELY IMPORTANT TO MEET YOUR CUSTOMER FACE TO FACE. THAT’S WHAT SALES IS ALL ABOUT. ers, streamlining capabilities and adding efficiencies far beyond other distributors in the industry,” Loparich noted. “We also include Supply Intelligence from Gwentaa at no charge, which is a powerful front-end software that ties together onto one screen all the components of eAutomate, FM Audit, Print Fleet, Print Audit, OMD, tracking and inventory, with a single equipment number entry. We’ll soon complete our integration pipeline to MWAi Forza, a rising contender in the dealer ERP space.”
Customer-Branded Online Ordering
Pinnacle is also in the process of completing direct order entry integration into eAutomate from its dealer ecommerce websites and will be launching a large university ordering site for a client. The site is expected to generate 3,500 orders per month and anticipated annual retail sales for the dealer is projected to reach $2.9 million. The distributor and dealer intervention is opaque, as end users will
M&A Approach to Growth
Perhaps the quickest vehicle to growth lies in Pinnacle’s quest to acquire a competitor in the $20 million revenue range. Loparich is in the process of exploring manufacturer and distributor candidates and hopes to close a deal in 2018. Following a 12-month integration process, Loparich plans to embark on obtaining another similar-sized (or larger) company. Loparich is definitely looking to make M&A an integral part of Pinnacle’s longterm strategy moving forward. “If we can acquire and integrate three companies inside of five years, I would be extremely happy,” he concluded. “While this seems like a very aggressive game plan, it is attainable and would drive Pinnacle Sales’ revenue beyond $100 million, thereby making us a major contender in the dealer parts and supply space by 2022. Besides, it will be lots of fun getting there, so I’m ready to get rocking and rolling in 2018.” ♦
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Erik Cagle
DealerBriefing Spotlight News
Unprecedented Changes and Growth Highlight Banner 2017 for Doing Better Business
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s it even possible for Doing Better Business, the Altoona, PA-based provider of office technology, managed print services, managed IT and document services for the central Pennsylvania, West Virginia panhandle and Maryland regions, to improve upon 2017? It would be tough to replicate the amazing experience that 2017 provided for the ownership team of Debbie, Joe and Beth Dellaposta. The siblings were able to complete the acquisition of their parents’ business, Word Processing Services, at the end of last summer. Around the same time, the dealership sold its TSI Office Products division to W.B. Mason, moved its Latrobe, PA,
office to Greensburg, PA, and launched its new website. But that’s not all. In May, Doing Better Business acquired 2,000 customers from Ricoh, along with 11 of its employees. And the year all began with the acquisition of Total Service, in Latrobe. Doing Better Business was created in 2013 when the Dellapostas obtained Van Dyk in the Pittsburgh market, setting the stage for the eventual buyout of Word Processing Services. The dealership carries Ricoh, Sharp, HP and Lexmark products and does about $25 million in annual revenue. We sat down with the Dellapostas (Debbie is president and CEO, Beth is CFO and
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How has business been this year? DEBBIE: We are showing steady growth for this year. Electronic document management, combined with our managed print services program, has helped make a strong impact. It was kind of a surprise, because we committed a lot of resources to get electronic document management to take off. But just when we were about to scrap it because it wasn’t working—we even took away our dedicated sales rep—it started moving like crazy. It just takes time to educate your customers and build a foundation. We’ve been big in MPS for a long time, we called it printer fleet management before the term MPS became fashionable. It continues to be strong and we’re growing that aspect of the business. BETH: It’s been our best year ever in the history of the company. Revenue, profit and keeping NPS above 90. Revenue is up by 10 percent and we doubled our net profit. What does Doing Better Business pride itself on? DEBBIE: Customer service and family. We do not consider our team members employees. They are family and they carry this over to our clients by making them part of our family, as well.
Doing Better Business owners Debbie, Joe and Beth Dellaposta 38
Joseph COO) to learn more about the whirlwind of activity and how it has positioned them to continue the successes forged by their parents, Vincent and Marcella Ann, while carving out their own identity in the market.
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The Washington County, MD, commissioner and president of the county’s Chamber of Commerce participate in a ribbon-cutting ceremony at Doing Better Business
It’s all about trying to differentiate yourself. Everyone’s out there saying the same thing, whether it’s true or not. We really rely heavily on our Net Promoter Score and we do surveys. Anybody can make a claim, but we have the documentation to back it up. During 2017, you acquired Total Service and the family’s Word Processing Services, plus added 2,000 customers from Ricoh. How has this integration process unfolded, and what were some of the challenges along the way? BETH: We experienced all of the normal challenges like converting and merging databases, integrating new team members and finding the correct cadence for communicating with clients. There’s been moments of utter chaos and stress; we’d be lying if we said it was all roses and balloons. DEBBIE: We had a fantastic team of people working for us making sure that everything went as smoothly as possible. It’s unprecedented in history of Ricoh to do something like that, so they also had a learning curve, plus they had 20 other dealers they were contending with. Seeing them as a partner rather than competitor was something new, because they had been very strong in our marketplace. Onboarding such a large influx of customers seems like an overwhelming challenge. How do you tackle such a tall task from a sales and marketing standpoint? JOE: We were blessed to not only acquire Ricoh customers but also some of their talented sales and service personnel. Everyone from the sales, service and
administrative teams put forth a heroic effort to meet with every new client face to face. Our marketing team put together some great materials, which were hand-delivered, mailed and emailed to every new customer. We ended up with 13 new people from Ricoh. We’d had two Ricoh technicians come over several years before. We sent them out with existing sales people and the new sales people we received. We just divided and conquered, got out in front of everybody as quickly as we could. How has the cultural assimilation progressed with the former Ricoh employees? DEBBIE: We take great pride in the culture we’ve created here and they love the family atmosphere. One of salesmen
sent us a long email after his wife had a baby; he couldn’t believe that we sent flowers and a teddy bear. All of the staff we on boarded was amazed that we really do walk the talk about culture and core values here. The process to hire them was rapid and intense, just because of the nature of how everything transpired. It was apparent in the interviews that everyone was going to love being with us. The same was true of the Ricoh customers, who have found it is so easy to work with us. Lately, we’ve been getting a lot of great surveys from the Ricoh customers. What factored into your company’s decision to sell the TSI Office Products Division to W.B. Mason?
Youngsters from Girls Inc. sang Christmas carols and presented Doing Better Business with a gift to thank the dealership for supporting its organization continued on page 40
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Unprecedented Changes and Growth Highlight Banner 2017 for Doing Better Business BETH: We are proud of the way our team handled an unprecedented amount of change and growth. We had new clients, new team members, a ton of data to convert, moved an office, opened two new offices and had to completely rebrand under one company name. We did all of this and had a record-breaking year in revenue and profit and still maintained our net promoter score.
From left, Joe, Beth and Debbie Dellaposta unveil the dealership’s new sign in Hagerstown, MD
JOE: Our niche, where we are truly one of the best in the industry, is with our managed print and document services programs. We did not want to lose our focus. W.B. Mason is a leader in the office supplies and furniture space. It just made sense. For over four decades, we had dedicated ourselves to the office equipment industry and avoided office supplies and furniture. In purchasing TSI, it was a good experience for us and very profitable. The furniture portion was profitable but office supplies were more of an add-on. TSI predominantly services Westmoreland County in Pennsylvania, and one county was more of a distraction than it was worth. What are some of your newer areas of business? Is it going the way you hoped? DEBBIE: We are finally experiencing significant client adoption of electronic document management software and workflow. The key to EDM is understanding how to create workflows that customers can understand. Instead of trying to sell a software package, at a holistic level, you get down to one workflow and you’re able to describe how you can take a paper intensive workflow at a company and turn it into an electronic workflow. That’s really been the key for us, finding success in selling workflow with electronic document management versus trying to sell a package of software. We sell Content Central from Ademero mostly into HR and accounts payable. 40
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Is there a product or solution that you are looking to add in the near future? DEBBIE: Our industry is definitely going through some dramatic changes at a much more rapid pace. We see many of the manufacturers looking for ways to adapt and they all have some interesting new offerings. We will continue to vet those products on behalf of our clients and only implement any new technologies that make sense. We jumped into 3D printing very early and that was a huge mistake; it’s definitely not mature enough for our market. There’s probably going to be more coming in that space in the future. We’re in that holding pattern to see how things flesh out. What was your dealership’s most significant accomplishment or biggest win last year?
What do you look for in your employees? How do you recruit and retain good ones? DEBBIE: We are very protective of our culture and core values. Team members must adhere to our internal code of conduct, which can be summed up as respect for each other. Our best recruits come from current team member referrals. We are very excited about the new program we are using to share our profits with our team members and everyone is eligible for our President’s Club. JOE: A year ago, I would’ve said finding new employees is challenging. We’re fresh off adding 11 Ricoh sales people; in the Hagerstown market, we picked up two quality reps and it didn’t seem all that challenging. On service side, we’re having difficulty finding more mechanically trained technicians. There are so many people out there learning networking skills that there’s been a drop off in people being trained in mechanical skills and electronics. We’ve been actively looking for a service technician in the Pittsburgh market for three or four
Doing Better Business toured the Vatican during its Rome trip in May of 2017 continued on page 42 We Saw It In ENX Magazine
Unprecedented Changes and Growth Highlight Banner 2017 for Doing Better Business services industry rather than commoditydriven, with more focus on leveraging technology to improve efficiencies. Continuous education of our team members, an internal technology committee and participation in global peer groups help us stay fresh and nimble.
Employees kick back at Foxy’s in Jost Van Dyke, the British Virgin Islands, during Doing Better Business’ StarClipper sailing trip in 2016
months now. So we were having trouble finding quality salespeople, but now it is quality service technicians that are hard to find. Have you instilled major cultural changes at Doing Better Business? DEBBIE: I think so. Back when we created Doing Better Business, one of first things I wanted to do was talk to everybody one-on-one. We instituted that, then started doing open book management with everybody and sharing the financials. We’ve gone through a couple different profit sharing plans and settled into the one we have now. We’ve had a lot of success from it and are getting a lot of great feedback from the employees. We now have an online app platform internally for employees to be able to receive bonuses on a daily basis for doing great things for our customers. What was your biggest challenge in the past year? DEBBIE: Maintaining our high standards of service and Net Promoter Score with such rapid growth. We are proud to be ending the year with a Net Promoter Score in the mid 90’s. JOE: The desperate grab of market share by all of the dealers. In any given transaction, people are willing to lose money. I’d rather not have the customer at this point than lose money. Who do you see as your biggest competition, and how do you differentiate your company from them? 42
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JOE: We operate in different markets, so it’s really a market-dependent question. Pittsburgh is different than our West Virginia panhandle market, Hagerstown or central Pennsylvania. We have different competitors everywhere we go. DEBBIE: We used to see Ricoh Direct as our biggest competition. We now view them as a strategic partner. Typically, when you are up against any of the OEM direct branches, they are the ones that are dropping the prices drastically versus an independent dealer. I wish other manufacturers would take a note of what Ricoh’s doing and put more focus into their dealer network and let them hopefully have profitable business. What are your goals for 2018? BETH: We want to continue to focus on profitability, for not only us but our clients as well. I think we focus on supporting our sales and service teams, so that all the puzzle pieces we put into place really drive that growth for the company. DEBBIE: We are also looking to make at least one more acquisition, one that would be in support of one of our current markets. There’s been a few that I’ve reached out to that would be adjacent to us, but I’d rather just support the current markets right now. How do you view the industry changing in the future and what are you doing to adapt? DEBBIE: We see the continued movement to being a cloud-based
What do you enjoy most about your job? DEBBIE: We enjoy working with each other; we have our moments, but we’re pretty good. We really focus on having fun. What is your least favorite aspect? JOE: Now that we’re larger and have 100 employees, the toughest thing to deal with is the HR aspect of it. Every day, there’s something that has to be managed. It’s not a huge ordeal, but there are always little things here and there. None of us like to shop for health insurance every year because of the escalating costs. We want to offer the best benefits package that we can, but we also have to be competitive ourselves. Outside of work, what do you do for fun? DEBBIE: We all enjoy traveling, which shows with the how much time and effort we put into our President’s Club Trips. We’ve been to Punta Cana, Ireland, Germany, Scotland, Italy, Puerto Vallarta, Bermuda, the British Virgin Islands, Cabo, and Lake George. Now we’re going to New Orleans. We usually do a Caribbean or beach-type trip, then go to Europe the following year. BETH: It started with our mother, who loved to travel. We all inherited her love of travel and exploring, and it’s something we want to share with our team. We enjoy planning, picking the location, surprising everyone with it. We try to have a one-of-a-kind experience on the trip that they wouldn’t be able to get if they just went on their own. We did the 100th year anniversary of Oktoberfest, which was really fun. It’s not just a sales incentive trip; we create opportunities for everybody—service, management and admin staff—to win an invitation onto the trip. ♦
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Charles Lamb
Business Management
Doing Nothing - DOES Something! Intending to Grow Your Business in 2018? Do SOMETHING!
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e’re just finishing our year-end review, identifying the most important and concerning findings from 2017, as related to intentional business growth. It was a unanimous decision by our team that “doing nothing” remains the greatest detriment to successful growth which we encounter. My definition of “intentional business growth” refers to an executable strategy and plan that produces positive, tracked results toward your growth target. It is possible to grow your business without a specific plan; but, I would argue it’s impossible to create strong growth results without intentional effort. Ninety percent of the owners we counsel will claim that their business is showing growth, yet so few are executing a plan. Imagine the results, were growth actually planned! There are many contributors to growth: • Older companies may enjoy growth mainly due to their established reputation. • Newer, more aggressive companies can experience top line growth as they disrupt their market with low profit-no profit deals hoping to energize their back-end service and supply revenues. In relation to this, one of the most popular comments I hear is, “we just can’t compete when it comes to price!” What’s funny is, that comment applies across all brands and markets. • Reacting to new opportunities presented through new technologies, some companies
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scale for growth – expanding into new verticals as they implement more efficient business processes. • Market consolidation, for some businesses, presents rapid opportunities to conquer larger territories and area of specialty – resulting in growth due to business absorption or a customer-driven, elevated demand for services. The facts are; an intentional growth strategy is necessary to guide your business and should point you at moderate to higher profit opportunities. No one wants to set a plan to pick up low profit-no profit business. It’s imperative to choose the right targets for the right products in your growth plan. If you choose to hunt elephants with longer sales cycles, (and I don’t advise it), you must be able to fund that timeline. I do see sales organizations struggle trying not to run out of money before their sales results arrive. Remember your business growth plan needs to consider what you are today. All advancement is based on that truth. This may be an obvious assertion, but doing nothing does something to the culture of a company. Allowing your company to operate with a stagnant demeanor has a negative impact on many things. Negative attracts and creates more negative. For example; dealers ask me all the time; “where do I find quality people?” Let me tell you, people talk and anyone whose worth hiring will sniff out a stagnant culture. Remember you’re comWe Saw It In ENX Magazine
peting for quality employees just like you’re competing for quality sales. Hand in hand with the stagnant culture comes stagnant everything else. Some owners who are in the do-nothing mode claim that they’ve tried everything, and nothing seems to work because they simply can’t complete with the BIG BOYS. That defeated mentality flows down hill. It creates the revolving door that most dealers are battling every month. As far as sales go, doing nothing produces a “get all you can get” cheap price result and not a value sales result. I’ve said many times before if a business is only renewing 95% of their lease portfolio, and the net new growth plan is to “get all you can get”, most likely that company is shrinking. Sure, with the occasional large deal your numbers will grow, but most likely the overall value of the company is not improving. In other words you’re just processing more paperwork, money and effort. Do you want to change this pattern? There really is good news in the above opinion because it describes MOST OF YOUR COMPETITORS. You don’t have to settle for doing nothing, like they do. If you want to develop an intentional growth plan and really put your heart into it, you would be amazingly unique, or at least part of a smaller elite group. Just having a plan creates a competitive advantage for which your competitors won’t be prepared. It’s harder than you think, but not impossible to build. continued on page 46
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Doing Nothing - DOES Something! The restaurant business is split it into the two pieces, the “front of the house” and “back of the house.” The back of the house is the kitchen. It’s behind the scenes and everyone knows the importance of their jobs. The back of the house serves both the front of the house and indirectly the customers. The front of the house is equally important as it sells the overall experience and quality of food. If the restaurant delivers a quality experience, it is typically packed. In our industry any good business plan is multi-faceted. The parts break down in several ways. You review the previous year’s results, your marketplace, your industry, technology requirements and your company’s ability to execute and implement deliverables. Each area should be analyzed and adjusted to achieve the results you desire. Most Dealers are pretty capable when it comes to planning through the back of the house. However, in the front of the house, it seems that the details are often vague to non-existent. Sure, often the products and pricing are set, comp plans are all in place, the website is polished, but when it comes to an intentional growth strategy and planning, I seldom see anyone executing anything. If you follow any of the articles I’ve posted in ENX Magazine, then you’ll know that I believe a strong pipeline of opportunity does not happen by accident. The details of your growth plan must be developed down to the smallest detail. The first step; be honest! Second step; evaluate all levels of management, including yourself. Since you’re the driving force behind the results your company produces, have an outside expert evaluate you and your practices. Ideally, it should be a growth expert, someone who can show you best practices in business development and market penetration. Most importantly, fire the shot over the bow and let everyone in your company know that you’re seeking best practice in everything to encourage them be more successful and to create a “great place to work” reality. 46
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While there are thousands of things to consider, I’ll share my thoughts regarding the topics of; intentional growth strategies, forecast and win history, go-to-market research and best practices.
Building an Intentional Growth Strategy and Plan
As the owner, it starts with you. You must take all of the data gathered from your business review discoveries and seed your growth-plan with purpose and intention. It’s not about one product or another. It’s about a scalable-repeatable process that delivers to both your net new revenue or profit requirements and assures a relevant position in your marketplace. When you build your growth plan you have to accept and responsibly lead your organization THROUGH THE TRANSFORMATION. In order for any business plan to be successful you have to hold yourself accountable to your team members and them to you! Anything less and it’s likely to fail.
Your Forecast and Win History
Evaluating your company’s forecast and win history helps to provide the necessary data to create future growth calculations. This is easier to establish on comfortable/existing products and solutions. Adding in products and solutions that you haven’t yet sold makes forecasting more difficult, but all products contribute to growth and you need to consider that information as well. Remember your intentional growth plan should be mostly focused on net new customers and not just expanding existing relationships.
Your Go-to-Market
Maintaining and adding the right products and solutions that match your market’s demand is imperative. You will find that some market research is required to establish what products and solutions are needed to support your intentional growth plan. This is where you really need to consider not being a “me too” company and let the market tell you what it wants. I’m told all the time
that market research is too expensive and thus few employ that method of discovery. I say, use your sales team and give them the top questions you’d like to discover and turn them loose on recon activity. It’s very possible they’ll find business along the way. Keep in mind: Market research is serious and whatever you do to gather it, should provide you with solid useful information. One of the best ways to discover new products or solutions is to ask your sales reps about the times you told them “NO” when they wanted to sell something that wasn’t on your menu. If you said no often about a certain type of product, that might indicate something new to consider for the future. A great go-to-market plan should put you in front of your competitors and not in the middle of the pack. Once you nail down your products and solutions, this helps define the job description and profile for the sales team you’ll require. You must not skip this stage. If you fail to realign your sales team for the future, no growth plan will work. Think about this path logically. An intentional growth plan begins with evaluating you and your leadership, better leaders wisely demand market research, market research leads to discovering best products and solutions, identifying those products and solutions pinpoints the attributes your sales team must possess! It makes great sense doesn’t it?
Execution
No magic here, if your execution is weak, it’s most likely your own fault. But it doesn’t have to stay that way. Lead from the front, explain your value, your targets and the opportunity. It always amazes me when I visit a specific marketplace, where in the same town three dealerships are singing the blues, yet the fourth is just cranking success. Why? It’s in their plan to succeed! So, build your plan, even if it’s not exactly right, build it anyway. Because doing nothing – does something, and it’s not good! ♦
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Christian Pepper
Sales and Marketing
OEM, Remanufactured, Compatible and Counterfeit Consumables: A Reseller’s Guide to Truth and Fiction “The World is changing and we must change with it.” Ragnar Lothbrok, Viking leader The aftermarket is increasingly lining up into two distinct methodologies. In the U.S. and western markets like Europe, the industry leaders’ business models are at least 90 percent invested in producing high quality, higher price remanufactured cartridges. However, in Asia more than 90 percent of cartridges produced now are lower cost, lower quality new-build compatibles. I believe in 2018 and beyond we are going to see increased competition between the companies involved in these two different aftermarket strategies as they fight for share in a shrinking market. Let me give you the backstory of how we got here: Around 2008, there was one legitimate alternative to OEM cartridges—remanufactured. Then, once Lexmark sued 60 companies for importing empty cores into the U.S., Chinese aftermarket companies began
to get serious about producing cartridges built from new shells. Perhaps the burden of recording where cores came from and where they then had to be returned to be sold was the tipping point that made remanufacturing in China less attractive than the capital investment and business model changes required to manufacture new compatibles. Or, as I and many others came to derogatorily refer to them as, clones. The clone term wasn’t accidental, either. What do you think of when you hear this term? Counterfeit? Low quality? Mea culpa…I’ve worked in remanufacturing for 16 years and actively promoted this narrative. In 2017, I moved to a new company, travelled to China and was forced to confront a new reality. The vast majority of “clones” do not infringe OEM intellectual property and, moreover, not all clones are low quality, either.
What is the difference between a reman and a new-build compatible?
Today there are more similarities than differences because remanufactured cartridges do not contain as much recycled content as they used to. The drive towards OEM quality has meant that nearly every component inside is now exchanged for new. Few items have been designed by the OEM to go a second lifespan, so they 48
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We Saw It In ENX Magazine
have to be replaced. The toner, chip, OPC, PCR, mag roller, doctor blade, wiper blade, drive gears, etc., are usually changed 100 percent of the time. Today, little more than the plastic casing is reused, which means that the fundamental difference between a reman cart and a new-build is the sourcing strategy of the shell—new or used.
Is a remanufactured cartridge more environmentally friendly than a new compatible?
Well, maybe. Let’s examine that. A new OEM cartridge and a new compatible are made from new plastic, but the carbon cost of these consumables can be lowered by utilizing recycled plastics in the manufacturing process and by how much recycling the company does of its sold/expired product. A remanufactured cartridge reuses the plastic shell, but how much of this carbon saving is used by shipping the empty cartridge to plants overseas for remanufacture? Then, as most/ all of the components inside are replaced, what happens to these items? Are they properly recycled or simply disposed of into the waste stream? I now believe the environmental benefits of a cartridge are largely determined by what happens to all spent cartridges after they are sold, regardless of whether they are OEM, reman or compatible. To determine (or diccontinued on page 48
OEM, Remanufactured, Compatible and Counterfeit Consumables: A Reseller’s Guide to Truth and Fiction
tate) this, the decision to recycle is as much the responsibility of the end user and reseller as it is of the manufacturer. The OEMs, for example, shred (and recycle) the entire used cartridge down to its plastics and metals in the local market and claim this is a more environmentally-friendly solution than remanufacturing a cartridge just once. I had always been a skeptic and believe they did this to take useable cores out of the remanufacturers’ supply chain. However, in light of what is reused in a reman cartridge today, I’m not sure I can fully dismiss the OEM argument anymore. Sorry…
Is a new-build cartridge a counterfeit?
Yes, if it is put into fake OEM packaging and attempted to be sold as an OEM. It also is if the new-build shell is an exact replica of the OEM shell with no regard given to the IP ownership of the OEM.
Does a new build cartridge infringe OEM IP?
It can, but in this respect, both a reman and new-build are judged equally: Every year millions of new-built cartridges are legally imported into the U.S. and Europe. For that matter, so are most remanufactured cartridges. Most remans are now built in low-cost markets outside of the primary western economies in which they are sold.
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Both categories are subject to the same importation standards of IP compliance and are scrutinized by the same customs organizations before being successfully imported. In the U.S., we have the USITC. For the last five years, the OEMs have done an excellent job of training and working with customs agents to help them understand all the patents/GEOs and seize non-compliant product. As a result, it is my opinion— backed up by a huge decline in the number of inbound shipment seizures at the ports—that very little infringing product now makes it into the country. That is significant because it forces us to confront a new paradigm: The act of producing a new-built (clone) shell cartridge does not infringe OEM IP. If it did, the millions of new-built cartridges that are sold in western markets primarily into the retail channel would not be allowed in by customs officials. In fact, if you search through the databases of past and active USITC investigations (I recommend the excellent website www.action-intell.com) you will be hard pressed to find any litigation or seizures made around the shell of the cartridge. What you will find is that both remanufacturers and new builders are both held to the same standards around the components inside the cartridge. I reiterate, not a new shell or, thanks to the Supreme Court ruling in 2017, a used core. The reason lies with the goal of the patent system. A patent is awarded for “An invention that is a solution to a specific technological problem” (Wikipedia definition). Therefore, the OEMs have concentrated their product development around creating new components inside the cartridge that have specific purposes. Obtaining a patent around the shell/cartridge case is almost impossible. The reason being that all of the OEMs have used shells for decades and there has been no way (to date) that the OEMs could prove that their shell was a new invention that solved a specific technological problem.
So why are remanufactured cartridges associated with high quality and new-builds low quality?
Well, capitalism! Until recently, the builders of new compatibles concentrated on the internet buyer looking for the lowest cost/acceptable quality level of cartridge and it has taken nearly a decade for them to perfect their trade. Today, though, it is possible to find non-infringing new-build compatibles that marry the two business models together to create a compatible that is built using the high-quality components typically found in a reman cartridge, but are housed inside a low-cost compatible shell. Low cost and high quality? That sounds like having your cake and eating it, too! If you are intrigued to know more, please contact me at Christianp@ldproducts.com. ♦ We Saw It In ENX Magazine
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Ken Edmonds
Service Management News Briefing
Toner Control and Service Profitability
W
hen a copier dealer replaces a competitor’s machine they usually also pick up a supply of surplus toner that is stored at the customer’s site. These supplies in many cases get discarded, or sold wholesale. While this is good for the dealer installing the new equipment, it is an unnecessary expense for the previous vendor. When examining why service profitability is suffering, problems with supply expenses may not surface. This can result in pressure on technicians for more productivity and to reduce parts costs.
Why it Matters
Toner control affects two issues. One is the need for capital, and the other is dealer profitability. From the capital perspective, if the average toner costs the dealer $30, and they have 10,000 units in the field, and the average unit has two extra cartridges, that is tying up $600,000 of capital. From a profitability standpoint, that same $600,000 has been written off and would show up as an unneeded expense. This could have an impact on a dealer’s credit line or available credit. You only have to look on eBay to see the number of individuals selling supplies to know that misappropriation is a concern as well.
Why a Service Concern
In many dealers, the cost for toner is allocated to the service department. When supplies are shipped to the client, the cost 52
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shows up against the service department. When the toner is properly controlled the revenue for service contract covers the cost of the supplies and consumables. If the supplies are not properly managed the end result is the service department is not as profitable as it should be. When examining why service profitability is suffering, problems with supply expenses may not surface. This can result in pressure on technicians for more productivity and to reduce parts costs. This problem will probably show up when the client’s service contract is being evaluated for profitability, and may cause unwarranted increases in contract pricing and potentially open the door for a competitor to upgrade the equipment.
What Can Go Wrong
There are several factors that affect the toner shipped and also the toner consumed by a client: • They request it. How many times do you have a client call up and order toner and request an extra just in case they need it? Or perhaps there are multiple machines of the same type, and each user orders their own toner. Now not only do we have a little extra toner, we can wind up with several extra toners per machine. • We ship too much at installation. When a customer buys new equipment, most dealers automatically ship a set of spare toners. In many cases, especially with low volume units, they may not use any We Saw It In ENX Magazine
extra toner, or if they do, it may be a year or more down the line. • We sell a color device to a mono client. This is another area where toner is used unnecessarily. A color device will automatically perform color calibration on a regular basis. If the client only makes B/W copies, then toner and other consumables are being used with no revenue to cover the cost. • Clients underestimate color coverage. While this is not an over shipping issue, it is another area that can significantly impact the dealer’s bottom line. A sales rep visits the client and they show him a sample color document that has a little spot color. The contract gets priced and sold based on this coverage, then client brings back in house all of their full color work that was being outsourced. Instead of averaging 6 percent coverage, they are now averaging 30 percent coverage. This issue needs to be handled both by monitoring and by language in the contract limiting the amount of toner provided.
How to Fix the Issue
We will discuss two ways to deal with this issue. One is preventative in nature, and the other is corrective.
Preventing the problem
To prevent the problem, the dealer needs to implement policies that address the root cause. One of the key pieces of information that must be
continued on page 54
Toner Control and Service Profitability considered is the customer’s probable volume. This is information that the company should have. By using the customer’s projected volume, you can determine the approximate life of the toner installed in the machine at set up. If the customer will use a set of toners every year, you would not need to ship the second set of toner for 10 to 11 months. If it is a low volume device, you may never have to ship a second set. Make sure that the correct equipment is placed. It should be a company policy that customers who only generate monochrome output only get monochrome devices. This would preclude unnecessary color supply consumption. Monitor the customer’s toner usage. There are a variety of automated tools, both from the manufacturers as well as 54
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third party applications, which serve this purpose. If you do not have access to an automated tool, then the individual that ships supplies would need to review the customer’s volume and order history.
Recovering excess inventory
I strongly recommend that if you are not already doing so, you have all of your employees trained to look for and recover excess toner when they are at customer site. They can explain to the client that they are doing this to make sure the customer has fresh supplies when they need them and that internally you are monitoring the usage and will ship them when they need them. As you do this, if possible, the supplies need to be credited back to the machine they were ordered against. This improves the accuracy of service contract profitability. If that is not a possibility due to software limitations, at the very
least, they should be credited back to the service department, to accurately reflect department profitability. One way to increase the enthusiasm for your employees is to reward them for participating in the recovery effort. The reward can take many different forms such as a contest or a per cartridge bonus.
An Ongoing Process
The one thing to remember about toner control is that it is an ongoing process. Someone needs to constantly monitor the relationship between a copier’s volume and toner shipments. Customer’s will need to be reminded that you only ship toner when it is actually necessary, and the staff will need to remain vigilant when they are in a customer’s office to look for excess toner inventory. ♦
We Saw It In ENX Magazine
Printer Tech Tip
Performing Cold Reset - HP FutureSmart Firmware NOTE: Performing a cold reset will return the following printer settings back to factory defaults. This procedure is mostly used to default the network settings to DHCP (Dynamic Host Configuration Protocol) to have the printer automatically configure to a network – either on printer install or replacing a Jet Direct card or Formatter Board. Configuration/Network Settings Jet Direct Settings Customer Paper Size/type Settings Fuser Mode Settings Button LCD Control Panel • Turn on the printer, wait for the 1/8 to appear and press the “STOP” or “X” button to enter the preboot menu.
• Scroll down and select “ADMINISTRATOR” • Scroll down and select “STARTUP OPTIONS” • Scroll down and select “COLD RESET” (will put an “X” to show selected) • Use the back arrow or home button to main menu and select “CONTINUE” Touchscreen Control Panel • Turn on the printer, wait for the 1/8 to appear and press the center of the touchscreen to enter the preboot menu. • Scroll down and select “ADMINISTRATOR” • Scroll down and select “STARTUP OPTIONS” • Scroll down and select “COLD RESET” (will put an “X” to show selected) • Use the back arrow or home button to main menu and select “CONTINUE”
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FEBRUARY 2018
Display Advertisers Index All Leasing Services................ 37 Phone: 1-866-727-3750 Fax: 1-949-727-3850 www.alscopiers.com BEI Services............................... 4 Phone: 1-307-587-8446 www.beiservices.com BTA........................................... 53 www.bta.org/BTANewOrleans CET Group.............................. 54 Phone: 1-508-802-9959 sales@cetgroupusa.com CETGroupco.com Clover Imaging Group......... 5,25 Phone: 1-866-734-6548 Phone: 1-800-624-6991 www.cloverimaging.com Copier Exchange International............................ 50 Phone: 1-972-416-3000 www.ceicopiers.com Digitek...................................... 19 Phone: 888-353-0301 www.digitek.com ECI Software Solutions.......... 17 Phone: 1-866-342-8392 www.e-automate.com 56
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EPSON....................................... 3 Epson.com/ WorkForceEnterpriseProfit
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Escalera.................................... 54 Phone: 1-800-622-1359 www.escalera.com
ITEX......................................... 60 Phone: 1-954-903-7900 www.itexshow.com
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LD Products Channel Partner Division.................................... 49 Phone: 1-866-780-9385 Email: cpd@ldproducts.com Demo: cpd.ldproducts.com/demo Mars International.................. 45 Phone: 1-973-777-5886 Fax: 1-973-777-5889 www.marsintl.com Mps&IT................................... 47 Phone: 1-888-823-0006 www.MPSandIT.com/fusion Nation-Wide Repair Service.. 51 Customer Service:1-866-655-8676 Technical Support: 1-800-798-1814 www.nwrsinc.com www.fusionimagetech.com National Copy Cartridge........ 41 Phone: 1-619-562-6995 www.nationalcopycartridge.com
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Display Advertisers Index Pinnacle Sales, Inc................... 35 Phone: 1-440-734-9195 www.psi-ohio.com
Supplies Network...................... 7 Phone: 1-800-729-9300 www.SuppliesNetwork.com
Ninestar Technology Co., LTD........................................... 61 Phone: 1-800-817-0688 www.ninestartechonline.com
Ross International................... 45 Phone: 1-973-365-9900 Phone: 1-800-240-ROSS Fax: 1-973-473-8800 www.ross-international.com
Supplies Wholesalers......... 62-63 Phone:1-866-817-8795 www.SuppliesWholesalers.com
NuWorld Business Systems............................... 10-14 Phone: 1-800-729-8320 Fax: 1-800-829-0292 www.nuworldinc.com
Static Control............................ 2 Phone: 1-919-774-3808 Phone:1-800-488-2426 www.scc-inc.com
Nectron International Inc....... 33 Phone: 1-281-240-2222 Phone: 1-800-456-4678 Fax: 1-281-240-0468 www.nectron.com
Nominate Your Candidates for the Document Imaging Industry’s
2018 DIFFERENCE MAKERS Help us Identify the Difference Makers throughout the Document Imaging Industry. Who are the individuals making the key contributions to the industry or to your organizations? Send your recommendations along with a sentence or two as to why and/or how they are making a difference.
TonerCycle-InkCycle.............. 23 Phone: 1-877-894-8387 www.inkcycle.com Toshiba..................................... 64 Contact National Distributors ACM Technology 1-800-722-7745 Collins Distributing 1-800-727-0884 IDS 1-888-372-3700 Supplies Network 1-800-729-9300 Town Business Center............. 47 Phone: 1-570-602-1640 www.tbccopiers.com
engage ‘n exchange Submit your nomination at www.enxmag.com or email to: susan@enxmag.com
e ‘n exchange
UniNet...................................... 21 www.uninetimaging.com
NOMINATION DEADLINE: FEB 28, 2018
Brief profiles of those selected will be featured in the May issue of ENX. Note: Anyone featured as a 2017 Difference Maker is not eligible for inclusion this year. engage ‘n exchange
engage ‘n exchange engage ‘n exchange
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World Of Fax........................... 59 Phone: 1-800-634-9329 Phone: 1-866-FAX-PARTS WorldOfFax.com CopierPartsStore.com
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