Printing has become a costly area of IT operations for today's large enterprise. According to Gartner, "Printers, the supplies associated with them and the support required to keep them operating represent 5 percent of the typical IT budget." * Furthermore, printers combined with other output devices – copiers, faxes and scanners – represent a significant portion of not just IT budgets, but also total annual revenues. Gartner estimates that "These output equipment fleets can cost an enterprise between 1 percent and 3 percent of revenue." ** Many professionals in large enterprises may find this surprising, because few realize just how much they spend on printing or, even more important, what they can do to reduce these costs.
A study by Lyra Research indicates that few network managers and IT departments track printing costs at all. * But, an accurate assessment of costs is essential to reducing them. By carefully evaluating the total cost of owning printers and other hardcopy solutions – the cost to buy them, plus the cost for supplies and support over the life of the devices – the large enterprise can establish a solid foundation for a plan to significantly reduce costs. CAP Ventures goes further, concluding that, "It is those companies that cannot consider hardcopy to be a core asset, but nevertheless produce large volumes of hardcopy, that are in the greatest danger of wasting money by not considering a total cost of ownership model in relation to their hardcopy output devices." **
Total cost of ownership (TCO) is the subject of a study of large enterprises undertaken by Gartner
Consulting for Hewlett-Packard (HP) in September 2001; the study was conducted "to understand and interpret the various factors that affect the TCO of printing." ¥ In this study, Gartner Consulting identified a number of cost categories that contributed to TCO for printers and other hardcopy resources in the companies surveyed. (The resources covered in Gartner's research included laser and inkjet printers, multifunction products (MFPs), print servers and printer server appliances, associated administration software and stand alone copiers.) In addition, HP has compiled extensive information about these cost categories based on its own studies of more than 100 HP customers (primarily large enterprises).
This paper will:
•
Create a context for understanding Gartner Consulting's cost categories by detailing the issues that affect hardcopy TCO in large enterprises today
•
Review the cost categories and related cost elements defined by Gartner Consulting, as well as related information gathered by HP from its own customer studies
•
Explore the potential for reducing TCO by outsourcing
Issues that affect hardcopy TCO
A number of trends drive hardcopy costs in today's
large enterprise. Understanding these trends can help
an enterprise determine what contributes to high costs
in its specific environment. To assist in this endeavor,
HP has identified the top five drivers of hardcopy
costs based on research by Gartner and other
industry observers and on HP's own studies of more
than 100 companies.
1. Ratio of printers to users
According to HP's studies, large enterprises tend to
have far more printers than they need, with an average
ratio of printers to users of one printer for every 4.4
people. ** This may be to some extent because the
purchase price of personal desktop printers has
become extremely attractive, which could be causing
more printers to find their way to more individual
desktops. Or it may be because, as Gartner points out,
"One of the major problems enterprises encounter in
trying to dispose of older printers is that employees
sometimes reinstall them in their own offices." * The
problem in either case is that the more printers an
enterprise operates, the greater its costs for supplies,
maintenance, support and management of them.
2. Use of desktop vs. departmental printers
This issue is closely related to the ratio of printers to
users. As individual desktop printers have dropped
in price, many employees have begun to use them
instead of using departmental or workgroup printers.
It is easy to attempt to justify this by citing the low
cost of personal printers. Some may even argue that
individual printers increase productivity because users
do not waste time walking to a shared printer. These
are fallacies. The purchase price of individual desktop
printers can easily be outweighed over time by the
cost of consumables; toner cartridges or ink cartridges
for personal printers tend to cost more per page than
those used for workgroup printers. § And shared
printers can be strategically located to eliminate the
potential for any detrimental effect on productivity.
While personal printers have their place – for bank
tellers working at individual customer windows, for
example – shared printers more often lead to lower
costs at minimal inconvenience to users. §
3. Number of printer models and technologies
used for printing
The absence of a coordinated strategy for managing
hardcopy resources, along with the reluctance to
dispose of aged equipment, inevitably results in a
hodgepodge of printer types, models and
technologies in the enterprise. This in turn leads to
money and time wasted on having many different
types of supplies in inventory, operating under
multiple maintenance contracts, keeping up with a
variety of printer driver updates and coping with
increased help-desk demands. In one instance
documented by HP, a company had 559 different
models of printers from four manufacturers, requiring
help-desk personnel to know how to troubleshoot for
hundreds of types of printers. In another case, the
existence of multiple types of printers and the failure to
manage printers resulted in an entire group of printers
from one manufacturer continuing to be serviced on a
contract basis – even though the printers had actually
been disconnected and placed in storage.
4. Age of printer fleet
Gartner estimates that, "For most enterprises, more
than half of their printer fleet is over five years old." *
Like any piece of equipment, a printer is more likely
to break down more often if it is an older model.
Consequently, service costs go up due to the number
of breakdowns that occur, and productivity goes down
every time a printer is out of commission. In addition,
older printers tend to be inefficient; it is not unusual to
find printers tucked away in the enterprise somewhere
that print no more than eight pages a minute. Finally,
the cost of supplies for older devices tends to be
higher; ink cartridges for older models, for example,
often have lower yields and therefore need to be
replaced more frequently, adding to the cost per page
for printing. For all these reasons, eliminating older
printers helps to reduce hardcopy costs. The older
devices may be phased out altogether if the ratio of
printers to users is unnecessarily high. Or, they may be
replaced by reliable, efficient new printers or by MFPs,
which consolidate print, copy, fax and even scan
functions into a single device.
5. Inefficient supply chain
Typically, the payer, supplier and user of hardcopy
devices operate completely independently of each
other in the large enterprise today. (This must have
been the case in the example described earlier, in
which a company continued to pay for a service
contract on printers that were no longer in use.) One
example of supply chain inefficiency resulting from
this disjuncture is the tendency for the purchasing
department to stock up unnecessarily on toner, paper
and other supplies, in some cases perhaps even for
devices which are no longer being used. Another is the
problem of individuals bringing in personal printers
without telling anyone and using general funds to pay
for supplies. Not only that, individuals may also keep
personal printers without authorization and then stock
up on supplies on their own at an office-supply store
and charge the cost to the enterprise.
TCO cost categories and cost elements
Gartner has determined from its research that when
calculating TCO, a number of cost factors must be
considered beyond the direct costs of purchasing
equipment; HP's experience with its enterprise
customers bears this out. It is these cost factors
considered together that determine the TCO, or,
as CAP Ventures describes it, the "entire costs
surrounding the ownership and operation of an office
equipment hardcopy output device over a specified,
extended period of use." ** As the chart below shows,
Gartner Consulting's cost categories and cost
elements include not only direct costs, but also
management, maintenance and other indirect costs.
Cost categories and cost elements ¥
Cost category
Cost elements
Hardware
Acquisition cost (lease or purchase), hardware upgrades (such as finishing products, memory, hard disks, high capacity input trays, legal trays and print servers)
Software
License costs, support licenses, upgrades, customization of printing systems software or print-enabling software
Management of the network, network costs (allocated on a percentage of use), administration, asset management, installation and configuration
Infrastructure
Planning the deployment of hardcopy devices, physical space (costs for space for equipment, property taxes, heating, cooling, energy consumption, etc.), upgrade costs
End-user operations/ lack of availability
User training (training users how to use device), user-required maintenance (clearing jams, loading paper, adding toner/ ink cartridges, etc.), document delivery (manipulating document before being used such as stapling, collating, etc.), human interaction (retrieving and waiting for document to be produced), installation and configuration, downtime, business cost of lack of availability, cost of using alternate hardcopy solution, cost of poor hardcopy device performance (speed, response time problems, old technology, poor print quality, reprinting, calling help desk, etc.)
Maintenance/ support costs
Maintenance contract costs, warranty/ support costs, costs of unused assets, help-desk costs, hardcopy device maintenance, facility management, disaster backup and recovery
Source: Gartner, November 2001.
The following section examines Gartner Consulting's
cost categories and cost elements and how they
contribute to TCO. It also makes suggestions, frequently
based on HP's experience with its own customers,
about factors it may be helpful to consider when using
these categories as a basis for calculating TCO.
1. Hardware
While hardware costs comprise just one of several
cost categories associated with TCO, they are
nevertheless important to consider in evaluating an
enterprise's hardcopy TCO. When attempting to
determine specific costs associated with this category,
HP's experience indicates that it is important to take
into account the mix of devices in the enterprise (such
as how many color and how many monochrome
printers, or how many networked and how many
personal printers), as well as the percentage of the
fleet that is purchased or replaced each year.
2. Software
For purposes of calculating cost of ownership,
license costs are defined as those software license
costs associated specifically with hardcopy output.
Customization costs are the costs for custom software
applications related to output.
3. Consumables
These costs are growing rapidly; Gartner notes that
"Budgets for supplies are growing by 20 percent
to 40 percent per year due to increased graphics
printing (e. g., Microsoft ® PowerPoint and web pages),
the costs of the four separate consumables required
by color printers, and because most inkjet printers
are now color-capable." * Gartner also estimates that,
in reference to desktop inkjet and laser printers,
"Over the life of these printers, supply expenditures
can total two to three times the actual acquisition cost
of the printer." *
4. Network management/ administration
Network management and administration costs are
among the indirect costs of hardcopy output. HP's
experience suggests that to calculate them accurately,
the following enterprise-specific information about print
network management, installation and configuration
costs must be taken into account. (If it is difficult or
impossible to determine specific costs within an
enterprise for some of these categories, the enterprise
may consider using the default amounts based on
HP's experience with large enterprises.)
Number of printers per each server that is used for
file, print and application services, as well as
number of printers per each server that is
dedicated to print services only
Percentage of costs related to printing in any
general-purpose server (i. e., one that is also
running other applications)
Printer-to-user ratio
Average acquisition costs, or the cost per printer
based on the weighted annual total print server cost
Windows NT ® server licensing based on the
number of seats required
The following installation and configuration costs
should also be taken into account.
Estimated time and cost-per-hour for installation,
handling, de-installation and asset administration,
as well as the estimated cost of disposal per printer
(estimated by HP to be $120)
Cost to process a purchase order (for printers,
supplies, maintenance, etc.), which HP calculates
to be about $110, and cost to pay an invoice,
which HP estimates at $28
Number of devices covered by each purchase order
and each invoice
5. Infrastructure
While the cost per square foot for space devoted to
output devices and supplies will vary from enterprise
to enterprise, HP suggests that certain assumptions
can be made about the amount of physical space
these devices and supplies require. Based on HP's
studies of enterprise-level customers, the space
requirement for a printer can be assumed to be
approximately nine square feet, while the requirement
for a print server is approximately 30 square feet.
The estimated amount of space required to store
paper is about four square feet, and the estimated
space required for supplies is about six square feet.
In considering space costs, it is important to keep in
mind that the more printers and other devices an
enterprise operates, the more space it must lease (or
the less space it will have available for more valuable
use). Therefore, the more older models the enterprise
retires, or the more of the fleet it replaces with MFPs,
the more significant the impact of this cost category
on TCO.
6. End-user operations/ lack of availability
As Cap Ventures succinctly sums it up, "Time wasted is
money wasted." ** Gartner has identified specific areas
where time is wasted and productivity is lost to
inadequate, inappropriate or poorly functioning
printing equipment; these are described in detail in the
list of cost elements that comprise this cost category.
HP's assumptions about the productivity costs
associated with these areas are that estimated
productivity costs equal approximately 10 percent of
other costs such as direct costs and management costs.
7. Maintenance/ support costs
HP's experience with large enterprises suggests that
the following factors should be taken into account
when calculating maintenance and support costs:
the number of printer-related help-desk calls per year,
the percentage of help-desk calls related to printing,
and the average cost of a help-desk call. (The cost
of a help-desk call will vary from enterprise to
enterprise; HP estimates based on its own experience
and research that the average cost per call is $35.) 8. Cost of capital
Gartner does not list financial costs among the
specific cost categories that must be determined to
calculate hardcopy TCO. However, HP has identified
financial costs as a category that is likely to
contribute to TCO. This is especially apparent in light
of the recent trend against capital purchases, as
financial pressures push customers toward a contract
approach instead. ** Outsourcing eliminates the
financial costs associated with capital investments
in printers and other hardcopy devices.
How outsourcing can reduce TCO
Gartner has suggested on several occasions that the
total cost of owning and operating printers may be
controlled through outsourcing on a cost-per-page
basis instead of purchasing and managing printers
and other hardcopy assets internally:
"Using output outsourcing, in which services are
procured in lieu of purchasing equipment and
service contracts, can lead to lower costs and
higher service levels." §§
"By developing a comprehensive approach that
includes rightsizing, procurement based on cost
per page and ongoing management of the fleets,
enterprises can reap significant savings." **
"The practice of buying printers outright must
be weighed against the benefits of a selective
outsourcing contract." *
Outsourcing involves contracting to pay a set amount
per page for a given number of pages per month,
instead of buying devices outright. This alternative
can reduce TCO by enabling enterprises to reduce
costs, redirect resources more strategically, eliminate
the need for capital investment, raise cost visibility
and improve productivity.
Recognizing the potential savings and other benefits
of outsourcing, more and more companies are
electing to pursue this alternative to outright
purchasing of printers and other hardcopy solutions.
"By year-end 2003, 50 percent of networked-printer procurements by Fortune 1000 companies will involve purchasing pages rather than devices (0.7 probability)." * – Gartner 7.
The key benefits of outsourcing are summarized in
the following section.
Cost reduction
Contracting to pay a specific fixed amount per page
locks in costs for the buyer. This eliminates the risk of
cost overruns and budget surprises for the entire term
of the contract.
Strategic redeployment of internal resources
Outsourcing relieves internal IT personnel of the
burden of purchasing and managing equipment and
supplies. It also eliminates the need for end-user
support personnel to spend a disproportionate
amount of time support for printers and other
hardcopy devices. These groups can then be
redeployed to work on more strategic priorities.
Elimination of capital investment
The per-page pricing model eliminates the enterprise's
capital requirements for equipment, boosting cash
flow and freeing capital for other purposes.
Cost visibility
Enterprises that outsource no longer have to calculate
hardcopy costs themselves; instead, they receive
regular statements detailing these costs. They can
then use this information as a basis for decision-making.
For example, rather than attempting to
evaluate printing fleet uptime, the company will be
provided with a report of break/ fix incidents, amount
of downtime experienced by the printer fleet and
other information about downtime-related costs.
Improved productivity
The enterprise that outsources maintenance and
management of its hardcopy assets is assured of
having a carefully planned fleet of well-maintained,
up-to-date equipment. This can help to improve
productivity through:
Elimination of unreliable older devices
Reduced demand on help-desk resources
Strategic placement of equipment for more
efficient use
Incorporation of MFPs
Access to the latest features and functions
associated with new equipment
Conclusion
The cost of printing in today's large enterprise is
likely to be far more than the enterprise estimates or
realizes. To accurately calculate hardcopy TCO, the
enterprise must take into account a variety of factors
that represent both direct and indirect costs. Gartner
has defined these factors in terms of specific cost
categories and cost elements. In addition, HP has
garnered information about these cost categories
through years of study of more than 100 customers.
A calculation of TCO based on these cost categories
can serve as a sound basis for a plan to reduce
hardcopy costs in that enterprise. Outsourcing is
one viable alternative for reducing hardcopy costs,
and an increasing number of enterprises are
choosing to outsource.
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