How to revolutionize a “dying” industry by attacking simultaneously top and bottom line – HP’s “instant ink” success of implementing IoT into supply chain and creating customer value
It is no secret the printing industry is suffering from decreasing revenues and profits[1]. 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[2]”. 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[3]”. 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”[4].
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.
Midterm opportunities:
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?
[1] https://www.ibisworld.com/industry-trends/market-research-reports/manufacturing/printing-related-support-activities/printing.html
[2] http://reports.weforum.org/industrial-internet-of-things/general-findings/2-3-key-near-term-opportunities-and-benefits/
[3] https://www.gartner.com/newsroom/id/3725717
[4] Gerpott, Torsten J; May, Sebastian. Info : the Journal of Policy, Regulation and Strategy for Telecommunications, Information and Media; Bradford Vol. 18, Iss. 2, (2016): 53-63.
HP’s instant ink program certainly meets consumer needs and solves the biggest and most expensive problem that consumers face regarding their printers (finding and purchasing expensive ink). However, this appears to me to be a shorter term solution in a rapidly maturing industry. The printing industry as a whole seems to be facing greater macro pressures including declining usage due to movements to reduce paper waste (both for sustainability concerns and a mindset/technological shift towards virtual solutions that require decreased use of physical paper). Although big businesses will likely always require printing services, I do believe they will be slowly shifting away from heavy reliance (resulting in less ink usage) and therefore I wonder whether this solution is addressing an overall dying market? Should HP be focused on innovating for other solutions that address a 10-15 year horizon vs. small improvements?
Interesting! A few thoughts —
1. Is there a high amount of customer adoption currently? Are mostly enterprises or consumers being targeted? I ask because I know some IoT home devices have had a hard time with market penetration and usage adoption in the US — low usage metrics in the consumer sector after the devices have been bought, because of difficulty and laziness in setting the device up. Does HP help with this?
2. If JIT delivery cannot be achieved, can the devices be made smarter to use another color with a higher ink level, forecast higher levels of usage for the second color, and deliver both accordingly? I’m wondering if there’s a machine learning piece involved, in addition to the level reporting.
The environmental impacts are great and I hope this is marketed to the users! Excited to see how this puts HP ahead of its competitors.
This is a great article focused on the printing industry, but I think its implications are far broader: how can companies leverage IoT to create value for consumer goods? Not just for my printer, but also for laundry detergent, orange juice, etc. And second, is HP the right partner to deliver ink? Would, eg, Amazon be a better option?
I personally think that HP is right to adopt this technology. Not only does it give them perfect data about consumers’ printing needs, it also gives them demand information before the demand actually materializes! HP can watch as ink levels dwindle and predict, probably very accurately, exactly when a customer will need a new cartridge. I think that will be the greatest factor in eliminating the bullwhip effect you ask about–in this case, not only does HP have PoS visibility, it has visibility into demand before it even materializes. HP could use that information to pre-stock needed cartridges in strategic locations and really smooth manufacturing and distribution demand over time, eliminating the bullwhip effect.
More generally, I think using IoT to add value to consumer goods is likely to become normal, as everyone has an incentive to participate. Corporations love the idea because, as in the HP case, it gives them perfect information about usage, behavior, etc. and even demand before it materializes, thus reducing distribution complexity, the bullwhip effect, and in turn cost. Companies can then pass some of those savings on to consumers, who would then be incentivized to participate. One could even see advertisements or promotions being pushed through the IoT channel to reduce costs even further.
Of course, there is a privacy tradeoff, and many consumers will be reluctant to allow HP or other companies such intimate access to their data. I think those concerns will diminish over time as the normalization of IoT progresses and cost savings materialize.
Great article with fantastic broader implications!