The importance of Total Cost of Ownership
in a world of Digital Convergence

Synopsis

For hard copy output to be managed effectively, a clear understanding of the dynamics surrounding the cost of printing and copying is required. This encompasses far more than the most commonly included visible costs - purchase and consumable supplies. CharisCo Printer Labs believes that commerce should expect to be able to manage costs and make purchasing decisions based on solid and consistent data and deserves the best information possible in an environment of openness and integrity. This can only be achieved through the establishment of real testing to a consistent methodology, tied to the introduction of an analysis tool that offers maximum customisation and flexibility rather than being tied to a notional Cost Per Page (CPP) 'norm'.

Holding a complementary view (and forming the basis of the cooperation in the preparation of this report), CAP Ventures analysts believe that convergence of printer, copier, and fax machines provides an opportunity and an urgent need to establish a single TCO testing standard. Such a standard, supported by the industry, would go a long way toward stimulating MFP sales by allowing prospective buyers to compare at least one aspect of MFP ownership on a quantitative basis. Far from creating a plethora of look-alike products, it would encourage manufacturers to design true differentiation into products, adding value in non-TCO areas. While TCO will always be a major consideration, users also care about ease of use, space efficiency, and other benefits. The winners would be the producers of the best products, and that is as it should be.

TCO, as a concept, accounts for both the direct, visible costs and also the indirect and invisible costs. It is in the interpretation of what the indirect costs comprise, and how they should be accounted for, that much of the controversy lies. The real key to the definition is that it is a detailed, long-term calculation. Customer interest in TCO is seen to be increasing, particularly within the largest companies (with the most formal financial structures), as demonstrated by the fact that customers now put TCO as the third priority in making a purchase decision whereas ten years ago it was only the tenth priority.

While measurement of supplies yield (toner, drum, developer or cartridge) clearly forms the backbone of any TCO test methodology, the testing and calculation model has to go considerably further than this also to include aspects of reliability and performance and account for all types of device downtime (whether refilling of paper trays, replacing of toner cartridges or service/maintenance downtime). It is this need for exhaustive TCO testing that makes it so expensive to undertake, thereby resulting in currently published data not representing a true TCO. Manufacturers are suspicious and scathing of any information produced by another manufacturer and, indeed, express the belief that currently there is no source of data that is sufficiently independent and detailed to fulfil the needs of the customer.

Furthermore, a strong case is made that TCO on its own is not the whole story, but just a component part. In many environments, more paper is produced than is necessary. Most of us would like to reduce the amount of paper we have cluttering our work and living spaces. So we can ask ourselves:
-> is it necessary to have a hard copy?
-> at what quality is it necessary to have that hard copy?
-> is it necessary to have full size and single sided hard copy?
-> what will happen to that hard copy in - 1 day?; 1 week?; 1 month?; 1 year?
-> where and how will it be stored during that period?
-> how will that hard copy be disposed of when it's usefulness diminishes?

Savings could be made through simple measures like:
-> reducing the number of documents output to hard copy for filing purposes - this reduces paper usage, toner usage, filing time and filing space, all of which are TCO elements
-> not printing emails simply to read them
-> outputting draft, temporary or file copies at reduced size - 2-up on a sheet
-> outputting draft, temporary or file copies in duplex (double sided)

When computed out, these savings could be far more significant than merely reducing TCO by a fraction of a cent per page. Included in the report is a table of parameters and their related inputs that can, in some way, be measured or accounted for in a test methodology along with the elements mentioned above and therefore could be included in a reasonably comprehensive TCO model. Most TCO models ignore the vast majority of these.

TCOIllustrator, a highly interactive application developed by CharisCo Printer Labs, is provided with this report. This is a first stage in CharisCo's development of a fully-fledged Total Cost of Printing analysis tool, TCPAnalyser. The full analysis tool will include many more parameters than is currently possible (before real testing is undertaken), thus providing a highly customisable and personal analysis of print costs based on real, realistic, consistent, thorough and comparable testing of print engines.

In keeping with CharisCo's belief that the user should have full control of any cost analysis, TCOIllustrator features the facility for customising pricing for all basic items (right). Thus the analysis reflects real prices quoted by the organisation's real supplier instead of an 'average street price' researched across the market.

Default prices are provided, together with specification data researched from the manufacturers, as a starting point. It is intended that TCOIllustrator be used for illustrative purposes at this point in time rather than for detailed competitive analysis.

Also featured in this prototype is the facility for the user to customise a number of usage-related items to further personalise the illustration (left). These range from the number of pages printed through the length of the working day to creating a personal profile of the company's typical hard copy output.

Major controversy surrounds the issue of page coverage, which users typically are not familiar with, let alone in a position to determine coverage associated with pages printed.

To assist in visualising page coverage, clicking on 'View Example' shows the user a thumbnail image of a page that represents the coverage indicated. By testing product using a suite of pages similar to those shown here (instead of the nominal 5% cover used by manufacturers), realistic data will be offered based on higher density printing of text, data and graphics, as well as low density text only printing.

Results of the illustration are displayed in tabular or graphical format indicating the total expenditure over the period of ownership, together with a cost per page. In addition, a breakdown of the overall cost is displayed for the total period, as a cost per page and as a percentage of the overall cost.

Also displayed are figures relating to the number of consumable items and major services that will be required in each year. The application will check that usage data entered is appropriate to the model selected and will display alerts or comments.

Data upgrades to include manufacturers data for current models of hard copy output device will be available on a subscription basis. As CharisCo's testing program proceeds, individual data sets for models tested will also be available on a 'per model' basis. This data will encompass all aspects of performance, reliability and TCO.

Can TCO issues be addressed by establishing standards?
This report highlights many of the issues surrounding TCO, from comparison of the markets for printers and copiers to the effect of local country conditions and what factors should be included in a TCO analysis, and provides information on digital convergence history trends and futures. These issues can and must be addressed in order to provide customers with a valuable tool that they can use to assist in their business financial planning and purchase decisions.

Manufacturers are divided in what they believe should happen with regard to TCO as a market tool - dependent on the advantage they perceive that they have over their competition. Some believe that a standardised TCO should be pursued vigorously because customers will increasingly want to compare products on an 'apples-to-apples' basis, and others that it will be detrimental to the industry (and would seem to prefer confusion to continue). It would certainly be a mistake to focus solely on TCO instead of the application to which the devices are to be applied. If this were the case, the result would be products that are made more cheaply simply to produce a lower TCO, thereby being less reliable and forcing manufacturers out of the market. Manufacturers, for their part, accept that this is inevitable regardless of the TCO concept. They point to recent pressure on the stock markets and the various mergers and takeovers in the past few years as proof.

The whole question of standards raises temperatures around the industry. Traditionally, printer manufacturers have quoted yield based on 5% page cover (and this report does not intend to even begin to go into the argument over what constitutes 5%, how it is measured and how it should be tested!!), while the copier industry has used a 6% cover standard and the fax industry a 3% cover standard (Slerex Letter). Just to complicate the matter further, the printer industry has also used the Dr Grauert Letter (ISO 10561), often misquoting it as 5% when it is actually measured at approximately 3.2% cover, a number of manufacturers have quoted yield at 4% and even at 2% (for IBM IPDS protocol). Added complications are that every manufacturer has its own unique test page and target, its own test methodology (designed to favour their own print technologies), its own methods of calculating the yield from the cartridge and its own ideas about what figure should actually be quoted (average, maximum, minimum, 95% confidence levels).

There is much debate over what parameters and inputs should be included in a TCO model. The reason can be summarised by two questions: which parameters favour the technology and market approach; and how easy/expensive would it be to obtain adequate test data? The report includes a table that lists parameters and inputs and categorises them into those for which test data must be acquired, those that are essential to the calculation but are user inputs (including pricing) and those that are technical or information inputs obtained directly from the manufacturer or reseller.

Publicly, each manufacturer pays lip service to the importance of developing standards for yield testing and a standard TCO model. Hewlett-Packard, Lexmark and Xerox are publicly promoting standards for monochrome, laser printer, yield testing through the NCITS proposals. However, the very fact that the entire industry has not yet come together to support the NCITS, or any other proposal, speaks volumes for the real situation. It should also be underlined that the liaison between Hewlett-Packard, Lexmark and Xerox is largely the result of their common interest in keeping third party manufacturers, refillers, remanufacturers and recyclers at bay and not related solely to standardisation or the TCO issue.

While some printer manufacturers believe that asset management will mean that the acquisition paradigm will move towards an outsourcing style, and are putting contracts into place because they believe users will want to pay for pages and not buy printers, copier manufacturers expect the paradigm to move more towards purchasing.

Whichever purchasing model ultimately dominates, the key for the customer is that yield and cost per page, as quoted by the manufacturers today, must not be considered to be comparable and that the customer must be provided with alternative, adequate, and higher quality TCO data that is truly comparable and reliable. This means that the development and adoption of an industry standard, or suite of standards, addressing a wide range of TCO elements is essential.