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The Negative Impact of Poor Machine Placement

30 Mar, 2009 By: Jack Duncan imageSource

The Negative Impact of Poor Machine Placement

In working with dealers over the last five years, I have seen the same problem time and time again – a large copier, MFP,
etc. – with a small volume. Too often I have seen 45 – 55 PPM equipment at less than 10K per month. This seems to be the predominant issue.

Analyzing the information it became apparent that many managers, sales people and others feel that the Cost per Page of Model X is $0.0045 and that’s that (Fictitious numbers). Therefore if we sell service for $0.009, we should make money. What we need to realize is that
operating cost varies greatly as the volumes change from low to high. The lower the volume, the higher the CPP. The cost begins to drop as we add volume until we reach a point on the higher volume extreme where the cost rises again as we pass the point of reliability. It’s like
an inverted bell curve going from high to low and then high again.

What are the contributing factors?

Consider the segment 5 or 6 machine with all the bells and whistles running at 10K per month. The more features we add, the more the opportunity for a service call increases. I can’t print – I can’t staple, etc. Also, there are things that must be replaced when they reach a
certain number of prints OR X number of days. In a nutshell, it’s sort of like driving a race car from stoplight to stoplight. You can do it, but you’re going to have to work on it!

So what happens as a result? In this scenario with a large machine in a small volume, the service call frequency and related expense will be such that the revenue stream that is created is not large enough to offset the expenses. The effect is diminished or there’s no profit
from that machine. In some cases, I don’t care if you could sell it at six cents per page, you couldn’t make a profit. But then sometimes we’ve GOT to do it. Sometimes we can’t avoid this situation so what can we do? First and foremost we have to be smart enough to explain to the
customer that if they really want to “Drive a Cadillac” they must spend Cadillac money for service. Maybe it’s in a multiple machine deal and we can stand one of these for that company executive. In any case, the revenue steam created must be able to offset the higher cost of
service in order to maintain profitability.

Another issue I seem to encounter frequently is the “No Minimum” contract. This is where you just became The Bank for that customer. Adding insult to injury, I’ve seen it on color equipment. You’ve just spent as much as $1,000 to “Fill the Tank” with color toner & developer in
hopes that your customer will run the pages so you can bill them for it. In today’s business climate, can you afford to “Be the Bank?” 

With today’s economy, we must certainly exercise every means possible to ensure our profits (Future). Cost containment in terms of labor, travel, parts & manpower must be practiced and enforced to ensure survival. No stone can be left unturned, but some things that we have
previously discussed may be beyond your service department’s control. When volumes are low and service costs are high, I would ask the question “Is this the Problem – or the Symptom?” *A planned session on this topic is available at ITEX’09 on March 18, at the LVCC in Las Vegas;
Jack Duncan is the featured speaker.

Jack Duncan has held positions from Service Manager to VP of Service in Dealerships and manufacturers. He founded Jack Duncan Consulting and works with  dealerships in specializing to increase  profitability, productivity and proficiency while educating managers for service
through training classes & webinars. www.jackduncanconsulting.com

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