Recently we addressed the ongoing back-order situation on Fridays with Frank. It evidently hit a sensitive area as we heard from several dealers. One that we have known for many years, Mark Steadman of Stan’s Office Solutions in Woodstock, IL, pointed out how had become a very serious issue.
“Thank you, CJ, Frank and Scott, for today’s Fridays with Frank! Very good topic!” Mark wrote, “From where I sit, this is the #1 issue for my dealership in 2021-2022: backordered machines.”
As we noted in our Fridays with Frank episode, the backorders are occurring because the supply chain is broken. Take a good look at either an A3 or A4 machine. You can safely say that the raw materials, conversion of same to plastic, or some other material has already required two different entities. In most cases that material is mined in one country and then shipped to another for conversion.
Who is to say what impact the pandemic has had on this part of the manufacturing process? The journey continues. From this same material sub-assemblies are built and then sent to a third country. In some cases, those parts of the machine could be shipped to a factory in a fourth country where the MFP is finally assembled. Most machines manufactured/assembled come from China.
In this case, the predominant port of entry is Long Beach, CA, followed by San Francisco, and Los Angeles. We are told that due to the high level of back-ordered products there are container ships waiting for docks to unload. MFPs are not the only products on back order.
The U.S. distributors of their company’s products are hard pressed to tell you when those back orders will be filled. We believe (only our opinion) it will take four to five months before deliveries will become predictable.
Mark stressed that our suggestion for using reconditioned machines was an expensive solution as it entailed additional cost. If you had not seen the latest Fridays with Frank, we encourage you to do so. You will then have a better understanding of what this is all about.
Our rationale for suggesting use of reconditioned hardware is simple. You advise the client that a machine or machines are backordered. To get them up and running you (the dealership) will provide reconditioned product which is fully guaranteed and will be replaced as soon as it becomes available.
The suggestion we made was to utilize a company that recovers leased machines from virtually all the leading financial companies. The one we are most aware of is MARS International in Clifton, NJ. MARS can service a wide area from the East but certainly not all over the country. There must be companies like MARS in the Midwest, South, and West. What we are suggesting is that there are many other companies that currently handle returns for the major leasers. If so, they can also offer what MARS provides.
From our vantage point it all depends on which kind of machines are required. Is it A3 or A4? The A4 MFP is the more cost effective for dealer purposes. Providing a used A3 product will engender a greater cost.
There are two things that the utilization of used hardware will provide. The customer will receive a completed order that can be billed. The dealer can then provide the necessary serial numbers to process the order to the leasing provider. When the units on back order are delivered, they are switched out.
Dealers can have the backordered machines delivered to MARS who will then prep, deliver, and install the new machine and retrieve the old one. The dealer never touches it.
In MARS’ case, when they receive the leased returns, they have an obligation to do their best to sell as many as they can. They have also indicated that in some cases the leasing company will grant them permission to use their recovered machines as loaners to the dealers.
MARS employs technicians that can recondition, deliver, and install machines. They are already shipping large numbers of machines and installing them as far as 300 miles from New Jersey.
Yes, there is an added cost and that must be fully evaluated. The dealer never has to touch it as MARS delivers and installs the product. You will need to ask, in this case, Raj Thadani, president of MARS International, what is the cost per machine? He indicated to us he can come up with a customized solution for each situation.
We have been told what a typical charge will be. You would be surprised just how low that cost can be. The dealer will not hear from the customer until he either calls for service or places an order for the contracted supplies.
Can you do this with every order? We think not. What we suggest is that you cost it out and figure out how badly it impacts the margin. At the very least it is something to think about. We know it will impact margin but it sure will improve cash flow.
One thing we did not suggest on our Friday’s program was for dealers to talk to your primary leasing source. Some of them have come up with creative programs that allow dealers to get paid for an incomplete order. Much of that depends on how strong the relationship is.
Mark Steadman asked us to stay with this story and keep the dealers informed. We fully intend to do so and hope this problem is rectified much sooner than we anticipate.