Optimizing Service in Information Destruction:
Leveraging Remote Bin Monitoring Technology
Concepts, Insight and Analysis
Copyright 2010, Palladin Solutions, LLC
The Idea in Brief
The Information Destruction (or “Shredding”) industry faces challenges, including low barriers to entry, high transportation costs and relatively low differentiation among competitors.
Customer power has increased with providers frequently resorting to “price-taking” in order to win new business.
By innovating with new process technology, such as remote bin monitoring solutions, the astute Service Provider can overcome these challenges. Such innovation will have a dual impact:
· It will help lower the Service Provider’s cost profile while improving margins, and
· Establish a competitive advantage via a differentiated and valuable product offering
[i].
Customers Have Power In The Shredding Market
Given the fragmented nature of the Shredding Industry, there exist low entry barriers and a relatively low level of differentiation among Providers. The Shredding Service Provider recognizes that several elements are critical to its customers when they select it as a provider of information destruction services:
i) The customer’s need for service (Demand),
ii) The importance of security, risk management and legal compliance
iii) Expense incurred by customer and/or customer Total Cost of Ownership (TCO)
In verticals such as Legal Services and Financial Services, the need for (and value derived from) information destruction services is linked to regulatory burdens. These firms tend to understand their exposure and the “hidden costs” related to the risks of compliance or security breaches. Despite the need for high-value service that doesn’t “cut corners” with security or operational processes, these customers often demand the lowest price, and due to the fragmented state of the Shredding market, customers frequently achieve this objective. By sending bids out through an RFP process, customers exercise their power, forcing Service Providers to quote and price business similarly.
[ii], [iii] This pattern of behavior is consistent with the relatively low level of differentiation in the industry and is self-reinforcing in a negative manner. As more price-only decisions are made, services continue to be discounted, reducing differentiation and further perpetuating the cycle. Figure 1 illustrates this concept:
Figure 1: Price Shopping Mentality & the Discounting Cycle
In such an environment, a low cost strategy would appear to be the best approach. What better way to combat price erosion than by tightly managing cost and being able to offer the lowest absolute price?
Sadly, a cost leadership strategy cannot, by definition, be successfully implemented by many players.
[iv] However, players that are not the low cost leader can compete successfully by offering a more differentiated, valuable service that also meets the “points of parity” of competing offerings.
Remote Bin Monitoring: Optimizing Service
To improve profits and enhance the value proposition to end customers, the answer for the Information Destruction Industry is to move to an optimized service model that matches Supply provision with customer Demand. This model would necessarily require the adoption of remote bin monitoring technology.
In this model, service would be based on customer demand and optimized based on certain conditions. Optimization could consist of service events that are:
i) Scheduled and rebalanced based on insight into customer Demand and
ii) Considered against the Demand of other, proximate customers in the area.
The Service Provider could then collect more material per service event, shifting the bottleneck from shift capacity to vehicle capacity. It is quite possible that Fixed Asset costs could be driven out of the Service Provider’s cost structure, improving Return on Assets (ROA). By improving ROA and reducing the capital expenditures needed for Operations, resources would thus be freed.
The outcome of such a paradigm shift would be multifold:
i) Higher Service Yields & Service Margins
ii) Enhanced Customer Value Proposition & Total Cost of Ownership (TCO), and
iii) Reduced Risk To Service Provider & Customer[1]
The adoption of remote bin monitoring technologies and supporting systems can support such a paradigm. Academic studies in adjacent industries suggest that the combination of remote monitoring systems and a service optimized approach can improve service margins up to 30 percentage points while reducing transportation events by as much as 38%.[v]
Properly deployed and communicated (both internally and externally), the adopter’s perceived differentiation in the market would increase, with a technology leadership position established against its competitors.[vi]
Before shifting to such a paradigm, there are necessary considerations, including:
· Firm strategy, objectives and competencies
· Understanding where, why and how to deploy remote bin monitoring technologies
· Integration to the existing Technology Landscape
-e.g., When purchasing the technology, will industry experts help guide the implementation, or is the provider left with an “off-the-shelf” solution that can’t be fully leveraged?
· Implications on internal and external stakeholders and processes
Applications & Other Benefits
Several situations exist where service optimization and remote bin monitoring technologies can make a difference to both the Shredding Service Provider and its customers, such as:
· Management of enterprise or “strategic” accounts
· Distant customer sites that are costly to serve
· Customer sites where little material is collected per service event
· Customer sites where Demand is volatile and subject to fluctuation
Additional benefits would include:
· Marketing & Sales: “Edge” against the competition with a new selling tool
· Pricing: Disable direct price comparison, focusing on TCO rather than service price
· Back Office Synergies: Benefits to Account Management, Planning, Analysis, Service, etc.
Conclusion
It is our strong belief that a “win-win” outcome can result for both the Service Provider and its customers from the intelligent selection and adoption of remote bin monitoring technologies. The competitive advantage realized by the Service Provider and the value created for the end customer should outweigh the short-term considerations involved in executing such a change. By disengaging from brutal price competition, improving margins and offering a superior value proposition to customers, the Service Provider will be in a position to realize substantial rewards.
NOTES & REFERENCES:
[1] Fewer transportation events would reduce touch-points, miles driven and risk of failure/accident/breach on a service vehicle.
[i] Porter, Michael E., “Competitive Advantage: Creating and Sustaining Superior Performance”, pp. 119-162; 1985, The Free Press
[ii] Industry Knowledge, 2000 - 2010
[iii] Industry Knowledge, 2000 - 2010
[iv] Porter, Michael E., “Competitive Advantage: Creating and Sustaining Superior Performance”, p. 13; 1985, The Free Press
[v]Ketzenberg, Michael E.; Metters, Richard D.; Geismar, Neil; van der Laan, Erwin, “Managing Retail Inventory Remotely”, 2010
[vi] Porter, Michael E., “Competitive Advantage: Creating and Sustaining Superior Performance”, pp. 164-200; 1985, The Free Press