What is Your MPS Hidden Factory?2 Feb, 2015 By: Sarah Henderson, West Point Products
Dealers do not have to be a black belt in Six Sigma processes to know that the Managed Print Services business model has resulted in new sales, service and administrative processes, product categories, software applications, and additional expenses. For many of the imaging dealers that have been selling MPS actively for many years, MPS sales opportunities often have often been driven by end users demanding a lower Cost-Per-Page. The pressure of driving lower costs to win deals has forced dealers to investigate and reevaluate factors affecting pricing and margin risks within MPS.
Imaging dealers should begin their evaluation by seeking out vendor partners that will provide competitive pricing for supplies, parts and equipment. Dealers should then take the steps to apprise ancillary program management expenses related to software subscriptions, training, and value added services that many of the industry leading MPS programs provide. After a dealer completes these steps, the challenge becomes finding the ‘hidden factory’ related to MPS.
If you are not familiar with LEAN process, the ‘hidden factory’ is defined as, “activities that reduce the quality or efficiency of a manufacturing operation or business processes, but are not initially known to managers or others seeking to improve the process” (businessdictionary.com). Six Sigma initiatives focus on identifying ‘hidden factory’ activities in order to eliminate sources of waste and error.
The hidden factory activities, also known as waste, are where the most time, money, and resources are spent in an imaging dealer’s MPS business process and workflow. If that doesn’t motivate a dealer to uncover these areas, then consider the fact that money spent on hidden factory activities has the greatest negative impact on competiveness and profitability, according to the Center for Organizational Excellence.
These striking figures should resonate with the majority of imaging dealers. In fact, the true costs of hidden factory activities are often the area most underestimated within an organization. The reason for this is the hidden factory coexists with the actual visual factory. Hidden factories may not be easily spotted within an organization because they are often the processes and workflow that exist because it is the way it has always been done. Dealers may also have employees that are resistant to change and do not want to give up or alter their current processes. Unless a hidden factory is exposed and corrected, it will continue to undermine an MPS program’s success.
As further evidence as not to ignore the hidden factory, research from the Center for Organizational Excellence reveals that it is easier to cut costs as opposed to make up the deficit from money spent. Since numbers and the bottom line are important in business, dealers and their leadership team should apply a simple waste calculator to estimate the amount of revenue it would take to make up for the waste.
An example would be as follows:
Cost of Waste = $15,000
Desired Profit Margin = 30% = .30
Divide 15,000 by .30 = $50,000 (in additional sales or cost cuts to make up for the $15,000 in waste).
The hidden factory affects everyone within a dealership, so employees and business unit leaders should be made aware of the effects, and be involved in identifying and eliminating sources of waste. For a typical Managed Print Services program, dealers should examine the workflow related to the key areas of service-call-triage and management, supply fulfillment, contract management, and the sales process.
An example of a typical supply ordering process within an imaging dealer’s MPS program is as follows:
- Step one: The customer calls the dealer to inform them they are out of toner; a customer service staff member fields the call and notes the order.
- Step Two: The Customer Service staff checks with the MPS administrator to determine if the client needs the desired supply.
- Step Three: The MPS admin checks the remote monitoring software reports to verify the toner is needed.
- Step Four: The order is routed back to Customer Service.
- Step Five: The order is entered into the dealers ERP system.
- Step Six: The dealer orders the cartridge with their selected vendor via an email to the vendor.
- Step Seven: The vendor processes the order and sends tracking information back to the dealer.
- Step Eight: Customer Service agent enters tracking information on the order within the ERP system.
Steps one through eight are a common scenario within MPS contracts; but it doesn’t always flow this smoothly. The steps to follow, which are also common, can be identified as the hidden factory activities.
- Step Nine: Customer calls back and inquires about toner order; client is upset.
- Step Ten: Customer Service looks up order and verifies delivery.
- Step Eleven: Customer must now determine where the supplies ended up within the client site because, although the supply was delivered, it was not placed in the right machine.
- Step Twelve: Client calls back and requests another toner for the machine needing the toner originally because other cartridge has been misplaced or misused.
- Step Thirteen: Customer Service enters the order into the ERP system.
- Step Fourteen: Customer Service orders the cartridge with the supplier, this time with overnight shipping to make client happy.
- Step Fifteen: Supplier processes order and providers tracking information.
- Step Sixteen: Customer Service notes tracking information into ERP.
The majority of dealership leadership teams will recognize steps nine through sixteen happening within their MPS programs. There are also areas of waste within steps one through eight as well, such as initiating the first supply order from the remote monitoring software, which can be best identified when a dealer’s process is listed out or charted. Imaging dealers striving to increase profitability with 2015 are wise to dust off the tried and true process of LEAN, and identify hidden factories within their MPS program. Additionally, seeking out partners that will assist in streamlining workflow, understanding a dealer’s business, and that are invested in mutual success in MPS, can empower dealers to increase market opportunity and capture even more revenue.