October 7, 2019 - Patricia Ames.
The industry has been a hub of activity lately, and we’ve watched some fast-paced events unfold that show a market in flux. It’s no secret that HP formed a new partnership with Xerox and is getting very aggressive with their new supplies programs for dealers and resellers, LMI Solutions recently went into receivership and the assets were then acquired by Clover, and a flurry of new patent lawsuits have been filed against Chinese cartridge manufacturers by various OEMs. All of these events could make you wonder about the health of the U.S. remanufacturing industry — but why sit and speculate when we can go directly to the source and find out what’s going on? I’ve known the chairman of Clover, Jim Cerkleski, for over a decade now, so I picked up the phone and had a revelatory conversation with him. Here’s the story.
Does the U.S. remanufacturing industry have a future?
Absolutely. Every time you turn on the news, you see more research on consumers’ adoption rate of environmentally conscious products. In fact, I just read a study the other day that “72% of respondents reported that they were actively buying more environmentally friendly products than they did five years ago.” We have a story to tell here. In the last 10 years alone, we have diverted over 455 million pounds of waste from landfills and reforested over half a million trees to offset paper consumption. Our cartridges have a 51% smaller environmental footprint and consume 44% less natural resources than OEM cartridges, and we need to get this message out to businesses and consumers alike, because environmental sustainability is not going away. Take Aldi for example – they recently put out an article saying that by 2025, the packaging of their products are going to be 100% reusable, recyclable or compostable. We will never sell direct, but we are taking our environmental message and going to large corporate end users — corporations that have ambitious sustainability initiatives.
The beautiful thing about remanufacturing is it’s not just about the “green” benefit, it’s also about the cost savings. Recycled copy paper comes at a premium cost compared to new copy paper. Companies are forced to take a price increase to lessen their environmental impact. With remanufactured printer cartridges and refurbished printers, you get a cost reduction by being green. That’s a big benefit to corporate America. We’re now having that conversation with executives and we’re going to start promoting this expansively. The OEMs are going to have a hard time playing the green card. Remanufactured cartridges are highly superior to new builds in terms of their environmental impact.
The second reason why I think the channel will continue to embrace remanufacturers is that remanufactured products are simply less commoditized than the OEMs. We provide dealers a way to differentiate their product offering with a unique high quality, environmentally friendly brand at a compelling price point. Our partners know we don’t go direct, margins are higher and it’s not as easy for end users to price shop.
Lastly, and maybe most importantly, is the role remanufacturers play in regulating prices. Competition is a good thing! Remanufactured cartridges offer a tremendous cost savings to businesses and consumers without sacrificing quality, which has always been the issue with clone product. Without a high-quality alternative to OEM cartridges, OEMs will essentially have a monopoly. They will raise prices and decrease margins which is bad for all involved – except for the OEMs who continue to rely on imaging supplies to subsidize the lack of profits on their hardware sales.
And what about China?
China is a real threat. We can’t be the ones to defend OEM IP. They need to wake up and realize that they have to start really defending their IP and coming out with technology that is truly differentiating, and then they will win. And the remanufacturing industry will win because of “right to repair.” But China is not going to stop. They’ll never stop. Some good things for U.S. companies are happening, like the tariffs, but stealing intellectual property is beyond the reach of tariffs. The federal government has to stop them and intervene and give OEMs back their ability to make a profit from their designs. At the end of the day, unless the OEMs start to more aggressively fight for their intellectual property rights, the Chinese new builds will become much more attractive to the marketplace and all the clone manufacturers are going to flood the market because they don’t feel like there will be repercussions.
Are you concerned that OEMs won’t continue to defend their patents?
They are defending, but not aggressively enough in my opinion. I think they’re a little fearful of the Chinese patents that are popping up. Some OEM lawyers are concerned about the IP that the Chinese companies manufacturing the new builds are getting patents on in China. There may be patent areas now where the Chinese companies can challenge the OEMs on IP. But OEM efforts to defend their IP can have powerful results. HP and Epson have histories of aggressively enforcing their IP on inkjet technology and there are far fewer HP and Epson inkjet clones out there compared to other OEMs that don’t have the same history of enforcement. If Canon did the same thing with laser toner cartridges, you would see far fewer laser clones available I don’t think the OEMs defend their patents enough.
Where are you investing the most within your company next year?
Without a doubt, it’s MPS and helping dealers understand the potential of our MPS portfolio. We developed our own auto toner replenishment tool that is easy to use and implement — MPS-in-a-box, if you will. It makes it very easy for our partners to sign up their customers for an automated program that helps them manage their printing costs. Ease of use has been the big hurdle in the past; the smaller dealers have been afraid to sell MPS because they think it’s complicated. Our system is proprietary and helps our partners lock in their transactional business. This segment of the business has typically been left to the OEMs, and the OEMs want every single customer in the world under a managed print contract so that they can control the dealer.
We’ve also developed, in close partnership with Microsoft, an artificial intelligence machine learning platform. This technology has helped us significantly reduce our supply chain costs and is a platform we are now taking to our partners.
Where do you see growth?
For us, it’s working with our dealers to teach them how to sell managed print and secure that contractual business so that they renew at a 95% rate as opposed to them waking up one day and it’s gone. Secondly, the federal government is a massive opportunity for us, so it’s important to help our dealers get in front of decision-makers within the various branches of the government and show those folks that there is a safe, legal solution at a cost savings to the federal government. They are a $700 million customer. $700 million. If Clover can work with its partners to win just 25% of that business, we will all see massive growth.
And finally, the other growth for our business is centered around artificial intelligence and machine learning. We have developed, in partnership with Microsoft, a platform that is massively improving our customers’ supply chain. We have a team of developers that analyze customers’ systems and run reports that point out the inefficiencies within their current buying process and where their supply chain might be broken. Then we show them how we can save them millions of dollars a year through better planning. This helps not only their business, it helps their customers’ businesses. For example, we can show companies ways to save large amounts of money just by stocking and ordering properly and managing their inventory differently. It’s been an eye opener. We can immediately help them improve one of their most precious assets — their working capital.