Q/A with OfficeMax explains trend
Susan Avery -- Purchasing, 2/9/2010 4:16:49 PM
Even as the economy begins its recovery, there is growing interest from companies in outsourcing activities they don't consider to be core competencies, as a way to reduce costs and improve internal efficiencies. Think of sourcing processes for some categories of indirect goods and services such as MRO, travel and print. Recently, Purchasing interviewed Jim Durkin, executive vice president of North American sales at OfficeMax in Naperville, Ill. on trends he is seeing in the outsourcing of managed print services (MPS). Here are excerpts from the conversation:
PURCHASING: What is managed print services?
JIM DURKIN: We think of managed print services as business process outsourcing and, then, the fulfillment of supply, service and parts as it relates to a customer's total print environment. A customer's total print environment is made up of multifunction devices, copiers, printers, all the office devices that are attached to their network.
Services the client chooses helps determine a program and fees that are charged for it. Traditionally, this cost per page fee consists of the cost of the equipment, service over time and supplies fulfillment to keep the equipment running.
We also consider, and what is unique to OfficeMax, document outsourcing and document management. We have a business unit that is separate from our managed print services group. It's our digital print business that's branded ImPress. This is for customers who produce large runs of print documents such as presentations. They can come into one of our stores or go to our website to do this.
We talk with clients about how to optimize their print fleet. If they have people running high-velocity print jobs on their network, there may be more cost effective ways to do that. We look for ways to do the jobs at our production facility. We take advantage of services we provide outside of managed print services.
PURCHASING: There is a growing trend among companies in the recession to do more outsourcing. Is this something that you're seeing? Why the interest in managed print services now?
DURKIN: Absolutely. We are seeing a large increase and we expect to continue to see that over the next five years. Gartner has done some forecasts and they project some significant increases in how companies procure print and a big migration to the managed print solution as a way to do it. We see it as a strong and growing trend.
As we talk with clients, they are looking for innovative ways to save money and take significant costs out of their business, or if they are challenged because they have already taken significant costs in terms of headcount and workflow out of their business, they are looking to push off work to suppliers like us.
PURCHASING: What do companies spend annually on print?
DURKIN: HP and Gartner say companies spend up to 3% of annual revenue on print. One challenge, and I don't want to be misleading here, we do use the figure in our discussion with customers as a starting point to give them a sense that there are a lot of dollars spent on print, is that the numbers are really all encompassing and can include offset printers a company uses. A managed
print solution is not going to replace that. MPS can include outsourced document management. So, print as a category is very large.
It also varies significantly by vertical market. If you look at paper-based industries like healthcare and legal that print a lot of office documents they will have a much higher percent of that 1% to 3% range as sitting under the MPS umbrella. As you think of that figure, 5% to 15% or 20% of that is addressable in the MPS space.
PURCHASING: Which functions are responsible for managed print services programs and what is purchasing's role?
DURKIN: Because these devices are on the network, it is almost always IT that manages the print category. Plus, there's software on the network that helps manage the fleet that IT also oversees.
Traditionally, procurement has had very little to do with IT (which manages the network) and facilities (which manages areas like print and furniture). But what we see now is that IT and facilities are turning more to procurement for its expertise in contact negotiation, supplier selection and supplier management. So, while it's primarily an IT-led activity, we are seeing procurement more involved than in the past. I think that the driving force there is that as people are challenged to drive costs out of their operation they are turning to the professionals in the organization and saying, "Help us benefit from your expertise in terms of supplier selection, negotiations, competitive bid processes and so forth." We are seeing procurement playing an important role there but it is almost always owned by the IT group.
PURCHASING: That said, what do you find to be some of your clients' biggest challenges today?
DURKIN: Change management is one. Any time management tells employees that it wants them to use certain print devices and that it's going to benefit the company, it needs to communicate the cost impact and why it is so important. We've seen some clients do very effective internal communication campaigns to gain support for their print initiatives. Cost is a key driver. Clients tell us that while employees may be frustrated that they've taken away their printers, they respond that they rather "lay off printers than people."
We've also seen clients use a sustainability message to gain buy in to their print initiatives; they switch to devices that use less energy or they ask employees to make double-sided copies that reduce their paper consumption. Finding something that captures the emotion of their internal folks in communication and managing that change really becomes a key part of gaining support for it.
PURCHASING: What are benefits of managed print services?
DURKIN: It goes back to the driving forces for doing it. With an MPS program, companies don't consume expensive IT resources to manage the break/fix portion of the printer fleet. They can outsource that and have us do it and do it very reliably for them in a lower cost model. They reduce their cost over time by optimizing the printer fleet.
Companies may also be able to consolidate a couple of devices into one because of the new equipment that's available in the marketplace. Certainly energy consumption is another.
PURCHASING: How do you help clients meet their companies' environmental goals?
DURKIN: I think MPS plays a very big role. Often times, our clients tell us that one thing that they are challenged with sustainability initiatives is that there a tension between cost and achieving their goals. The beauty of MPS is that it reduces costs and helps achieve sustainability goals.
One way it does this is by developing a process for upgrading equipment when it's past its useful life-most new equipment is far more energy efficient. Another is by determining the optimal number of devices per employee. We often see customers with three employees to one printer. It's different for every customer but we think of an optimized environment as being 10-12 employees per device. So, we can take devices out of a print environment, which reduces energy consumption. It consumes energy when it is plugged in, it consumes energy even if equipment sits idle.
Then there's all the supplies that go into the devices. As you optimize them you reduce the consumption of supplies used in the print environment. We can suggest remanufactured toner or an OEM toner. We do it differently with different customers based on their preference but we can absolutely deploy remanufactured toner which has a sustainability and cost savings component.
The last thing I would highlight is how a company sets up its printers. The whole idea of setting defaults to black and white copies and double-sided printing which reduces paper again is cost savings and a sustainability initiative all at the same time. One of our clients has an initiative to reduce paper consumption by one ream per employee per year. They did an internal campaign around that as they were launching it and have a sustainability goal around it, but it's also has a cost-saving goal as well.