By Beroe Inc.
By Sudharsan R, Senior Research Analyst, IT Hardware, Beroe, Inc.
While most Fortune 500 companies have started procuring managed print services worldwide, enterprises have little visibility of best practices and negotiation methodologies followed during the procurement process. Managed print services have evolved from a simple CPP (cost per page model) to different models like Base + Click and Base + Consumables.
This white paper highlights key pricing aspects to be verified by vendors, negotiation levers and pricing methodologies available in the market. It also discusses key aspects of the contract which include standard SLAs and penalties associated with the non-performance and desired availability levels practiced worldwide. This paper thus acts as a check list, thereby facilitating enterprises in making an informed decision while procuring MPS.
Managed Print Services Procurement
Currently organizations lack the transparency when it comes to the pricing of managed print services. While managed print services optimize the print cost of an enterprise, vendors do not pass the full benefit to the enterprise thereby creating a delta between the expected benefits versus the service provided by the supplier.
The key aspect of negotiating a best-in-class MPS contract lies in estimating accurate print volumes at the beginning of the contract. Enterprises are in a compelling need to formulate a strategy for estimating print volumes before signing any MPS contract. Most organizations estimate the print volumes by taking into account their volume history and factor the future digitization efforts before committing the volumes to the vendor.
How Prices are Calculated
Key Price Drivers
Please click on images to enlarge for viewing.
Model 1: Cost Per Page Model. The model is called CPC (cost per click), CPP (cost per page) or CPI (cost per impression). The model comes with a volume commitment to be given to the vendor during the beginning of the contract.
In this model, a charge is applied for every color or mono copy being printed. The vendor sets up the printers, manages the consumables, maintenance, spares and repair.
Once the client commits a volume, the vendor deploys software tools to estimate the number of printers required for the enterprise. If the enterprise fails to print the committed volumes, the vendor will not be able to cover the ROI thereby increasing prices during the middle of the contract.
The model can also act as an advantage to the enterprise when users print more than the committed volumes. In this case, organizations can even renegotiate in the middle of the contract citing their increase in print volume.
Cost Per Click. Typically vendors dictate the specification or model of printers required for different print requirements within the enterprise. Printers with high technical specifications are placed for high-intensity work locations and the prices are adjusted in the CPP. Organizations can increase their print volume commitments in the middle of a contract. However, enterprise have less flexibility when they look to expand the number of devices in the middle of a contract.
Considerations for the CPP model:
Model 2: Base + Click. In this model, the vendor charges a base price for the hardware procured separately and provisions the MPS service as an individual component. Though the TCO for both the models works out to be same, enterprises prefer CPP model to base + click due to the cash flow advantage associated. While enterprises pay a fixed base cost for the devices procured, the MPS service is charged separately. This model also charges the customer based on the number of pages or impressions printed.
Model 3: Cost Per Click Without Volume Commitments. In the model, the vendor hedges the risk of no commitments with the cost associated per page. With no volume commitments, vendors feel the risk of enterprises terminating the contract within lesser timeframes. In some cases, the vendor also commissions refurbished or second-hand devices to manage costs. It is less commonly used due to increased cost.
Model 4: Base + Consumables. In this model, the charge is based on a base price and the amount of consumables or toners consumed. The vendor calculates the number of toners required for an enterprise depending on the current print volume and yield. The charge is then predictably involved over the next 12 months and reconciliation is done at the end of the year based on the true consumption. The model will not suit companies with high graphics intensive printing as they mostly exceed the quantity of toners estimated during the beginning of the contract.
Model 5: Volume Plan. Through a volume based plan, vendors place their print device with a predetermined lifetime volume. Once the volume is reached, the device is being replaced with a new one. If the volume is not reached, organizations need to pay extra charge for terminating the contract. This model is mostly preferred by organizations with fewer print requirements.
Vendor Engagement – Managed Print Services
A five-year global MPS contract, managed regionally is the preferred printer sourcing model. OEMs such as HP, Xerox are hugely preferred owing to their global network reach (resellers and partners across the globe), breadth of services and expertise in maintenance and support activities.
OEM or Reseller?
Engaging with an OEM is the most preferred vendor engagement model. As OEMs provide competitive discounts due to economies of scale. Most global Fortune 500 enterprises engage with tier-one MPS OEMs like Xerox, Canon, Ricoh, HP and Lexmark. Most of these contracts are drafted at the global level and executed in the regional locations. Vendors like Kyocera, Konica Minolta and Toshiba are also gathering huge traction in the global marketplace.
However, engaging with a reseller will be beneficial in the following cases:
Industry Trends in Vendor Engagement
Instead of managing multiple OEM relationships, organizations have started moving towards vendor neutral/ independent managed print service suppliers.
Independent managed service providers do not have any affiliation with single OEMs(Original Manufacturing Equipment). This enables organizations to avoid disposal complexities or procure new equipment as the vendors are capable of implementing MPS in the existing ecosystem.
Vendor-neutral MPS suppliers are capable of implementing new technologies and experiment with latest capabilities without having to depend on a single OEM.
A reseller also has good local level (ground level) presence when compared to an OEM.
Points to Consider When Replacing MPS Vendors
It is imperative for organizations to analyze the nature of current set-up before replacing vendors. When devices are procured under the CAPEX model, it is not advisable for organizations to change the MPS vendor if the hardware is purchased under the CAPEX Model. MPS vendors will either charge more or insist organizations for a buyback if the organizations has a different printer brand in-house.
When all the devices are procured under the MPS contract, replacing vendors could be deployed after careful consideration.
A detailed business case needs to be proposed citing the cost and process benefits associated with the vendor change and a detailed RFP (Request for Proposal) needs to be run before replacing vendors.
It is also imperative for organizations to take a hybrid approach whereby organizations slowly decrease the support from the previous vendor and increase support levels with the current vendor.
Recommendation: The new vendor should be replaced only during the end of previous contract, terminating an MPS contract halfway may attract huge termination costs to the organization.
Engage with Tier-Two MPS Providers
Fortune 500 enterprises prefer engaging with tier-one vendors considering the global reach, effective discounts and value added services they provide. However, organizations can engage with tier-II vendors provided the vendor provides both cost and value added advantages.
Fortune 500 enterprises are mostly deceived by the low cost provided by tier-two vendors; they are not capable of providing value added services like tier-one vendors.
Recommendation: Conduct an RFP involving both tier-one and tier-two vendors and mix and match the contract pointers provided by both the vendor groups to enable efficient negotiations.
How to Estimate Print Volumes for Volume Commitments
Most organizations rely on meter readings to calculate the print volumes. The practice may not apply to an enterprise implementing MPS for the first time.
However once implemented, organizations can physically monitor the number of pages printed through meter readings on every single device and generate periodic reports to ascertain the exact print volume consumed.
The data would be very useful to renegotiate with the vendor in case of exceeding print consumption and can also be used to ascertain the cost savings achieved by migrating to a MPS model.
Can vendors charge more for replacing devices? No, they cannot charge extra to replace end of life devices. It is imperative for organizations to add a clause in the contract that the pricing will not be changed or renegotiated in the middle of the contract irrespective of the device deployed. In case of an end of life model, the vendors are entitled to change or replace a device of exact technical specification.
When there are no devices with the exact technical specification the vendor should give prior notification to the organization and reasoning for price increase. Once accepted by both the parties, the price revision could be applied.
Additional SLA Benchmarks
After five repeated service calls or if there is more than a five-day delay in repair, the troubled unit to be replaced with a similar unit until the device is repaired without any cost implication.
Bi-weekly or a quarterly review for reporting, hardware and service statistics to be presented. Vendors to furnish recommendations for software or hardware upgrades, employee-printer ratio, efficiency improvement, reduced print volumes, or lower overall costs.
Delivery and Uptime Parameters
All MFDs (multifunction devices) under the MPS contract should have a minimum availability of 95%. Any device below the recommended uptime should be replaced without additional cost.
SLA penalties include: Shortfall in SLA target or compliance by 1%-2%, with a penalty of 1.5% of the monthly invoice amount; shortfall in SLA target/compliance by more than 2%, with penalty of 3% of the monthly invoice amount.
Technical support must include support for all equipment and software on the MFDs. This includes proprietary as well as any third-party software.
The MPS environment needs to be 100% networked.
Conclusion (Key Parameters for Negotiation)
Sudharsan R works as a Senior Research Analyst in IT Hardware and specializes in procurement of PCs, Storage and Mobile Hardware. He has four years of experience in IT Hardware Domain and has published more than 50 reports. He holds an PGDM from the Institute of Technology and Management and B.Tech from Anna University, Chennai
Download the Procuring Managed Print Services: The Most Efficient Approach PDF file
Beroe is a global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight. For more information, visit Beroe Inc. online.
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