25 Million Data Points
Since 2002, Quality Imaging Products (QIP) has been developing a proprietary, empirical database for its toner cartridges, which enables the company to predict the reliability of different build structures for specific toner SKUs. Based on over 25 million data points on more than 1 million cartridges, QIP has developed strong empirical evidence to support the hypothesis that there exists a linear relationship between cost and quality. Specifically, lower-cost cartridges contain more reused components (i.e., replacement of fewer components), while higher-cost cartridges contain a higher percentage of replaced components. Cartridges with fewer replaced components tend to have lower reliability and image quality than those cartridges with more replaced components.
Figure 1 includes a basic overview of QIP’s Proprietary Quality Database. Cartridge SKUs and build types are listed vertically, while component defects are listed horizontally. This information is aggregated on a monthly, quarterly and annual basis to evaluate return trends. Additionally, the information is correlated with pricing levels to maximize quality levels for different price points. While QIP, like all companies, certainly has room to improve, the Proprietary Quality Database provides our company with one of the most comprehensive information bases in the industry.
The company further breaks out detail on specific cartridges to evaluate pricing structures relative to build costs. Figures 2A through 4E all detail the specific results from the QIP database for the 4000X, FX6 and 2100A cartridges and include a corresponding margin analysis. QIP has similar data for all of its high-volume cartridges. This analysis enables the company to determine the impact that build changes and cost reductions will have on the reliability of the product.
Figures 2A through 2E represent a returns analysis for the 4000X (C4127X) toner cartridge from the database, which includes details on the following elements:
• Figure 2A: Defective Breakout for Entire Population. Allocates defects by month by defect type. For example, in January 2002, there were 75 total defects on the 4000X cartridge. OEM drums accounted for 18 of the 75 defects (24 percent), worn doctor blades accounted for 2 of the defects (2.6 percent), flipped wiper blades accounted for 16 of the 75 defects (21 percent) and so on. In March 2002, there were 110 total defects on the 4000X cartridge. In March, OEM drums accounted for 21 of the 110 defects (19 percent), worn doctor blades accounted for 8 of the 110 defects (7 percent) and flipped wiper blades accounted for 12 of the 110 defects (11 percent). Over the 24-month period of time in this sample set, there were an aggregate of 1,889 total defects. Of all of those defects, OEM drums accounted for 242 of the 1,889 defects (13 percent), LLD drums accounted for 81 of the 1,889 (4 percent), loose gears accounted for 0 defects (0 percent) and so on. It is clear that the largest contributors to defects are worn mag rollers (19 percent), OEM drums (13 percent) and flipped wiper blades (12 percent).
• Figure 2B: Cost-per-Category Analysis. Defines four different build structures for the 4000X cartridge with their associated costs and defect rates. On the 4000X product, QIP offers four different builds (Brand, Signature, Classic and Bid), which are differentiated based on build structure and component grade. For example, the QIP brand cartridge contains a virgin core with 100-percent new components and the highest-grade components. A QIP Signature series contains a virgin core and a percentage of new components, while the QIP Classic series contains a non-virgin core and a smaller percentage of new components. (The QIP bid product is for special contract customers purchasing more than 1,000 units an order and for whom price is the most critical element.)
• Figure 2C: Retail Cost Analysis. Evaluates the proposed cost structure for the product from the OEM price to the retail sales price to the retailer margin to the retailer cost and the remanufactured cost. On the 4000X, the retail price is $128.99 and, in this example, the retailer offers a 15-percent discount on its private label product. The retailer requires a 52-percent margin on this product and, as a result, is willing to pay $49.53. The remanufacturer adds in the retailer’s margin and determines that the build will fall somewhere between the Classic and Signature series, and, therefore, the defect rate should be between 2.63 and 3.29 percent. (see Figure 2D for an estimate of the defect rate).
• Figure 2D: Defect Category per Class. Allocates the total units sold (63,298 across the four different build categories) and the defect rate per category. On the 4000X, 14 percent of the product sold was QIP brand product, 33 percent was QIP Signature series product, 47 percent has been the QIP Classic series product and 6 percent has been the bid product.
• Figure 2E: Cost-versus-Defect Analysis. Correlates the product build cost against the defect history. In this instance, the QIP brand product has a 1.05 percent defect rate and costs $56.33 to build, while at the other end of the spectrum, the bid product is almost half the build cost with a defect rate of 6.85 percent—or six times higher.
Clearly, there is a substantial difference in cost between the QIP brand product and the QIP bid product. The cost structures for the builds on this cartridge range from approximately $30.85 to $56.33. A company selling a 4000X at $36 on the wholesale market or $39.99 on the retail market is most likely using a lower-cost build (or the company is losing money), which would likely correspond, based on QIP’s Proprietary Quality Database with a sample set of 63,298 4000X cartridges, to 6.5 times more defects than the higher-cost product.
Figures 3A through 3E illustrate a returns analysis for the Canon FX6 fax toner cartridge from QIP’s Proprietary Quality Database, which includes details on the following elements:
• Figure 3A: Defective Breakout for Entire Population (facing page). Allocates defects by month by defect type. In this example, in January 2002, there were six total defects on the FX6 cartridge. OEM drums accounted for two of the six defects (33 percent), worn doctor blades accounted for one of the defects (16.7 percent), worn mag rollers accounted for one of the defects (16.7 percent) and so on. In February 2002, there were six total defects on the FX6 cartridge. In February, OEM drums accounted for all six of the 110 defects (100 percent). Over the 24-month period of time in this sample set, QIP experienced an aggregate of 99 total defects on a sample size of 12,085 units. Of all of those defects, OEM drums accounted for 35 of the 99 defects (35 percent) and worn mag rollers accounted for 25 of the 99 defects (25 percent). It is clear that the two largest contributors to defects are these two items and that 60 percent of all defects on this product can be addressed through a new drum and a new mag roller.
• Figure 3B: Cost-per-Category Analysis. Defines four different build structures for the FX6 cartridge with their associated costs and defect rates. For the FX6 product, just as for the 4000X, QIP offers four different builds (Brand, Signature, Classic and Bid), which are differentiated based on build structure and component grade. Build costs on the FX6 range from $32.98 to $59.11.
• Figure 3C: Retail Cost Analysis. Evaluates the proposed cost structure for the product from the OEM price to the retail sales price to the retailer margin to the retailer cost and the remanufactured cost. For the FX6, the retail price is $119.99 and, in this example, the retailer offers a 15-percent discount on its private label product. The retailer requires a 55-percent margin on this product and, as a result, is willing to pay $43.20. The remanufacturer adds in its margin and determines that the build will fall somewhere between the Classic series and Bid and, therefore, the defect rate should be between 1.06 percent and 1.44 percent.
• Figure 3D: Defect Category per Class. Allocates the total units sold, 12,085 across the four different build categories and the defect rate per category. For the FX6, 10 percent of the product has been the QIP brand product, 31 percent has been the QIP Signature series product, 49 percent has been the QIP Classic series product and 10 percent has been the bid product.
• Figure 3E: Cost-versus-Defect Analysis. Correlates the product build cost against the defect history. In this instance, the QIP brand product has a 0.25 percent defect rate and costs $59.11 to build, while, at the other end of the spectrum, the bid product is almost half the cost with a defect rate of 1.41 percent, or 6 times higher (just as for the 4000X).
And just like the 4000X product, there is a substantial difference in cost between the QIP brand FX6 product and the QIP bid FX6 product. The cost structures for the builds on this cartridge range from approximately $32.98 to $59.11. Somewhat surprisingly, despite the similarities between the 4000X and the FX6 cartridges, as evidenced in the consistent cost information, the return data is significantly different. The 4000X cartridge has a much higher defect rate than the FX6 cartridge. Most likely, this return differential is related to the fact that the FX6 is a fax cartridge, while the 4000X is a printer cartridge. End users have lower demands for a fax cartridge than a printer cartridge as they often suspect issues related to image quality are due to fax transmission problems. As a result, image quality defects appear less frequently with fax cartridges than with printer cartridges.
Figures 4A through 4E provide a returns analysis for the HP 2100A (C4096A) toner cartridge from QIP’s Proprietary Quality Database, which includes details on the following elements:
• Figure 4A: Defective Breakout for Entire Population. Allocates defects by month by defect type. In this example, in January 2002, there were 27 total defects on the 2100A cartridge. OEM drums accounted for four of the 27 defects (14.8 percent), worn doctor blades accounted for two of the defects (7.4 percent), worn mag rollers accounted for five of the defects (18.5 percent) and so on. In February 2002, there were 26 total defects on the 2100A cartridge. In February, OEM drums accounted for all six of the 26 defects (23 percent). Over the 24-month period of time in this sample set, QIP experienced an aggregate of 539 total defects on a sample size of 40,857 units. Of all of those defects, OEM drums accounted for 124 of the 539 defects (23 percent) and worn mag rollers accounted for 63 of the 539 defects (12 percent). It is clear that the two largest contributors to defects are these two items and that at least 45 percent of all defects on this product can be addressed through a new drum and a new mag roller.
• Figure 4B: Cost-per-Category Analysis. Defines four different build structures for the 2100A cartridge with their associated costs and defect rates. Like the 4000X and the FX6, on the 2100A product, QIP offers different builds (Brand, Signature and Classic), which are differentiated based on build structure and component grade. Build costs on the 2100 range from $32.10 to $62.33.
• Figure 4C: Retail Cost Analysis. Evaluates the proposed cost structure for the product from the OEM price to the retail sales price to the retailer margin to the retailer cost and the remanufactured cost. On the 2100A, the retail price is $98.99 and, in this example, the retailer offers a 15-percent discount on its private label product, selling the 2100A for $79.19. The retailer requires a 40-percent margin on this product and, as a result, is willing to pay $47.52. The remanufacturer adds in its margin and determines that the build will fall somewhere between the Classic and Signature series and, therefore, the defect rate should be between 1.13 and 1.41 percent.
• Figure 4D: Defect Category per Class. Allocates the total units sold, 40,857 across the four different build categories, and the defect rate per category. On the 2100A, 8 percent of the product has been the QIP brand product, 25 percent has been the QIP Signature series product, 63 percent has been the QIP Classic series product and 4 percent has been the bid product.
• Figure 4E: Cost-versus-Defect Analysis. Correlates the product build cost against the defect history. In this instance, the QIP brand product has a 0.26 percent defect rate and costs $62.33 to build, while, at the other end of the spectrum, the bid product is almost half the cost with a defect rate of 2.50 percent, or 10 times higher.
Just like the prior two cartridges, there is a substantial difference in cost between the QIP brand 2100A product and the QIP bid 2100A product. The cost structures for the builds on this cartridge range from approximately $32.10 to $62.33. The Classic series products sell at a two- to three-times higher volume than the Signature series product on this cartridge for a couple of potential reasons:
1) The retail price point is so low relative to the wholesale cost that there is little margin for dealers to sell the product. As a result, dealers try to maximize the margin and look for a lower-cost product.
2) The return differential between the Signature and the Classic series is 0.3 percent, a nominal difference for most end users. As a result, the $13 additional premium may not be worth the value for customers.
The gradient between different build structures varies widely by cartridge type, by channel and by components used. High-grade components used in the Signature and Classic series can minimize the incidence of defects. Low-grade components used in the QIP brand and Signature series can increase the incidence of defects.
QIP’s Proprietary Quality Database enables the company to provide its high-volume private label, OEM and other interested customers with detailed quality information on each SKU for different product build levels. Additionally, the database enables QIP to provide strategic build advice to customers considering high-volume bids for individual end user accounts. For example, Figure 5 compares build structures for the remanufactured 2100A cartridge. QIP Costs versus Build Specs shows detail on the relative costs versus estimated defect rates. QIP Part to Defect Analysis shows the contribution of different components to the overall defect rate. For example, drums contribute to 25 percent of the defects. Using a new drum can eliminate virtually all of the drum-related defects. Mag roller defects contribute to 18 percent of all defects. Replacing the mag roller can virtually eliminate all of the mag roller-related defects.
It is important to note on this SKU that replacing the drum but not replacing the mag roller, wiper blade, doctor blade or PCR creates a higher defect level than not replacing the drum while replacing all of the other components.
It also is important to note that manual defects account for approximately 6 percent of all defects on this SKU, and shipping issues are responsible for 15 percent of all defects on this SKU. Therefore, material failures are responsible for 79 percent of the total defects. The data bears this out, as a 2.5 percent defect rate on the bid product reduced by 79 percent (assuming all new components) results in a 0.52 percent defect rate. The brand product, which contains all new components, has a 0.26 percent defect rate. The difference between the two defect rates can be accounted for by: 1.) the different channels through which the product is sold, and 2.) the cumulative effect of all new components interacting in a system versus only a portion of the components being replaced.
As in all of the examples provided, there is a substantial cost difference between different build structures, which results in a significant increase in returns. Granted, there could exist situations in which manufacturers are able to lower costs through: 1.) more effective sourcing, i.e. lower cost components, 2.) direct acquisition of cores, 3.) a core exchange program with customers, 4.) a distinctive production process that increases the reliability of reused components, 5.) a performance database which bears out different results, and/or 6.) some other method. QIP’s Proprietary Quality Database does not preclude other alternative methods for improving quality levels. However, in all substantive sample sets that QIP has evaluated, lower cost cartridges have higher failure rates, lower product reliability and inferior image quality.
Performance Evaluation
of Different Cartridges
To test the results from QIP’s Proprietary Quality Database, the company tested the performance of cartridges with different builds, both produced within QIP and other cartridges offered within the market. Figure 6 shows the build analysis of three different HP 4000X (C4127X) cartridges purchased in the United States and tested at the Rochester Institute of Technology (RIT).
Competitor #1 employs a build structure with a virgin core and all new components. Competitor #2 employs a less expensive build structure with a virgin core and no new components. Competitor #3 employs a different build structure with a non-virgin core and some new components. Each of these products will produce different results.
In addition to conducting its own internal testing, QIP had the products shipped off to RIT for testing. The results of the tests appear in Figure 7 (on the facing page).
Competitor #1’s cartridge, with the virgin core and all new components, has yield levels above the OEM, density levels above the OEM and grey scale almost equal to the OEM. Competitor #2’s cartridge, with a virgin core and no new components, has yield levels well above the OEM, declining density levels that are, at all times, above the OEM and fair grey scales. Competitor #3’s cartridge, with a non-virgin core and some new components, has a yield level below the OEM, declining then increasing density levels and fair grey scales. While all three of these cartridges worked to end of life, there is most likely a higher probability that Competitor #1’s cartridges would perform to end of life on a more consistent basis than Competitor #2’s or Competitor #3’s cartridges.
These cartridge results are for a single unit from each competitor and do not represent a statistically significant sample size to draw a definitive conclusion. However, the performance variability amongst the three cartridges on the single SKU lends additional support to the argument that not all cartridges are created equal. And while there is not a direct correlation between the number of components exchanged and the performance of the cartridges (build information is not provided for the second set of cartridges), the cartridge with the highest percentage of new components has the best overall performance when taking yield, density and grey scale into account.
Highest Quality Products Not Wanted by all Customers
Not all customers want the highest quality products. It is possible to overbuild products for a particular end user application. The value proposition for remanufactured toner cartridges is the price savings versus the OEM product. For many users, saving more money is worth the risk of reduced reliability or lower image quality, particularly when purchasing in large volumes. For example, a large end user, such as a public school, purchasing 2,500 4000X cartridges per month, may want to save $20 to $30 per cartridge, recognizing that the defect rate may be as high as 6 to 7 percent. Annually, this will result in a $600,000 savings. Provided that the remanufacturer that services such an account minimizes the “soft costs” of a defect and provides a 100-percent warranty, the value proposition for the public school may be well worth the savings.
In contrast, for a large professional services firm, such as a law firm for whom the cost of imaging supplies represents a fraction of the total costs to run the business and for whom graphics-quality text is critical, a $600,000 annual savings may not be worth the risk of presenting a bad image to a client or having to deal with the inconvenience of a failed cartridge.
There is a place for high-quality cartridges within the remanufactured toner cartridge industry, and there also is a place for
low-quality cartridges within the
remanufactured toner cartridge industry. The critical challenge for remanufacturers is to match the right cartridge with the right business model with the right customer for the right price. When this occurs, customers will be happy, remanufacturers will be profitable and our industry will maximize its value proposition.
The Winners and the Losers
In the end, the quality game is relatively easy for large-scale toner remanufacturers. Process controls are widespread throughout the industry, and any large-scale remanufacturer that has grown its way to 30,000 cartridges per month or more should be able to consistently produce a high-quality cartridge, provided that the remanufacturer is replacing all of the components within the cartridge.
The challenge for remanufacturers of toner cartridges is determining which components to replace on which cartridges at which point in the cartridge’s life cycle. A remanufacturer can increase the reliability of a particular cartridge by increasing the percentage of new components within a cartridge. A higher percentage of new components will increase the cost to build the product, but may make the product too expensive for certain customers. A lower percentage of new components will decrease the cost to build the cartridges, but it also will reduce the reliability of the cartridge and may make it unattractive to certain customers. Remanufacturers should provide their customers with all of the vital information necessary to make an informed decision on which product will serve them best.
However, currently remanufacturers provide limited transparency on the performance of their own products, since almost everyone sells a product that is “equal to or better than the OEM” with a 100-percent quality guarantee. Despite this marketing pitch and the functional nature of quality, remanufacturers offer price points that range substantially on similar SKUs. Given that there are no orders-of-magnitude sourcing or cost advantages for remanufacturers of the same size, substantial price discrepancies must be the result of lower component replacement ratios.
Over the past three years, QIP has developed the evidence, both in its Proprietary Quality Database and its performance results from RIT testing, to support the claim that there is a linear relationship between cost and quality. As a result of these efforts, QIP sells a multi-tiered product offering specifically tailored to different customer segments with varied price and performance expectations. This tiered-product offering conforms to the micro-segmentation that has occurred within the industry and enables QIP to offer the best product for every type of customer.
Today, the winners in the quality game are those remanufacturers who provide high-quality products for end users for whom quality is important, as well as those remanufacturers who provide cost savings for end users for whom price is the highest priority. The losers in the quality game are those remanufacturers who promote their products as being of the highest quality even though they have the lowest-quality build. These losers misrepresent the actual performance of their products and do a disservice to the entire industry. Ultimately, their fate will rest in the hands of a market that rewards successful business models over time.