It is no secret the printing industry is suffering from decreasing revenues and profits. As a product manager Working in HP I felt every day the pressure to innovate the company’s products on the one hand and it’s TOM processes on the other. World economic forum survey indicates that “companies are turning to digital technology either to drive down cost or increase top-line growth”. HP decided to approach both of this criteria with its “instant ink” program.
HP’s Instant Ink subscription offers customers the value of “never running out of ink”. Customers pay a monthly fee and receive ink deliveries as soon as the printer communicates that it is running low. The service leverages “Internet of Things” technology to monitor ink usage in order to “forecast, plan and automatically replenish replacement cartridges through a new supply chain fulfilment model”. This IoT functionality is aimed to replace the necessity for the customers to manually make a purchase from a supplier.
By creating this program, HP integrates it’s downstream value chain elements, leveraging it’s scale, into its product upstream offerings. In the words of the an article cited below “HP does not only manufacture the printers and cartridges but also introduces their proactive distribution to the customers as a separate service offering”.
From the top line perspective, in brief, the service enables HP to create customer “stickiness” and ensures the ink will be purchased through HP and not through competition. In a “razor blade” model, such as HP’s, where margins on the hardware are slim to none, this is a crucial part in the business model. This program may also increase the usage of ink by customers since it promises 100% ink availably (aka avoiding those instances customers do not print or use alternative methods since they run out of ink).
Moreover, the service creates convince which drives up customers satisfaction levels. As put by a fellow HBS student: “For me, this is all about convince. Before the new plan I had spent one hour per month purchasing at Target or Amazon. Now the ink just arrives and the bonus is the price, I save at least $30 a month”.
How did HP manage to put this system in order in a way that actually costs less to the customers? The secret is in the bottom line perspective where HP’s supply chain is the enabler of this cost effectiveness and therefore ultimately increases in margins and profits. As mentioned briefly, I believe this program is a direct benefit of HP’s economics of scale. HP holds manufacturing factories and warehouses in multiple locations. Without the large distribution capabilities this direct to consumer, JIT shipments, could not have existed.
But, the bottom line is not just the enabler. The program provides HP with the below downstream benefits:
Short term usage:
Accurate and predictable inventory management – Based on the number of subscriptions, HP can better evaluate it’s manufacturing needs and inventory levels. If before the program the company could only estimate based on the past when customers will purchase HP ink and when they will turn to competition, the program guarantees a known stream of ink based on exact location.
1. Environmental program – significant reductions in the environmental footprint related to the purchase and disposal of the cartridge can be achieved since it is now being returned to HP which can recycle it. Moreover, the cartridge parts that can be reused by the company can be put to order by HP and thus serve as additional optional cost savings on BOM.
2. To further increase customer loyalty HP can offer promotions and tailored plans based on the specific customer needs and production benefits (i.e. $2 discount if agrees to wait a day).
Recommendations: Enlarge the portfolio of offerings of the “instant program” to include other services such JIT shipments spare parts for corporate customers. This can actually be developed into a “preventative maintenance” program to drive near-term measurable benefits for both HP and the customer, such as reduced service calls.
For discussion: HP can offer the same program with supplemental items such as paper. In order to do that HP will have to align other organization’s ecosystems and its own. Since HP is not the manufacture of this item, multiple providers are required to deliver complex outcomes. What kind of partners will the company need to boost capabilities and deliver the desired outcomes? How can it ensure the process will not suffer from “whiplash” effect as studied in class? Should HP share the precious usage information it is getting from the program with outside partners?