What is hampering manufacturing at Canon toner cartridge production lines such as this one?

Many industry publications and websites, including Actionable Intelligence, have been following news of toner cartridge shortages for months now. Word of a shortage of the HP CE285A, or 85A, black toner cartridge emerged early this year, and in March we learned that HP and its manufacturing partner, Canon, also had difficulty meeting demand for the HP CE278A, or 78A (see “HP Toner Cartridge Shortage: It’s Not Over”). HP publicly confirmed the shortage of the 85A, attributing it to a stronger-than-anticipated spike in demand for the HP LaserJet P1102W and the HP LaserJet M1212 MFP printers, but neither HP nor Canon have provided much in the way of specifics on why Canon’s manufacturing facilities were having trouble meeting demand for this SKU. But then the situation for Canon and indeed many Japanese printer OEMs grew much more dire roughly three months ago, when northeastern Japan was devastated by an earthquake and tsunami on March 11 that shuttered some production facilities, including not only OEM facilities but those of crucial components suppliers, limited power supply, and disrupted transportation systems. Our premise has been that this natural disaster would exacerbate manufacturing difficulties for Canon and lead to further shortages of HP/Canon SKUs as well as lead to potential hardware and supplies shortages for other vendors. This thesis seemed to gain some credence in April, when HP announced that it would be restricting distribution of some toner cartridges (see “HP Warns Distributors That Japanese Earthquake Will Impact Toner Cartridge Availability”).

In recent weeks, we have been interviewing various industry participants to see what they have actually been experiencing in terms of OEM product shortages and have published some insight from ILG and MSE (see “MSE Says Reman Cartridge Industry Is Healthy, Currently Unaffected by Japan Quake” and “ILG Ups Reman Cartridge Production, Expands Empties Collection”). Interestingly, these two competitors have divergent ideas about what the industry is already experiencing in terms of shortages, although both remanufacturers have made preparation to cope with any shortages that may materialize. Recently, we had the opportunity to speak with research firm Gap Intelligence about toner cartridge shortages. Gap Intelligence regularly monitors prices for inkjet and toner cartridges (as well as PC, printers, and other peripherals) in numerous retail and e-tail channels. Thus, the firm can provide valuable perspective on which products may be in short supply.

New Shortages

According to Katie Hess, a senior program manager for Gap Intelligence who is responsible for tracking channel inventories, HP and Canon have made some headway in solving one product shortage. Ms. Hess says that supply of the 78A “is no longer constrained.” However, Ms. Hess says, “The 85A is still in short supply.” Moreover, Gap Intelligence has seen supply shortages for some additional cartridges.

The cartridge that seems to be scarcest is the CE250X, a black toner cartridge compatible with the Color LaserJet CP3525 printer series and Color LaserJet CM3530 MFP series. This cartridge was not in stock when we visited the HP Shopping website (see screen capture below). Ms. Hess says that there are “huge back orders” for this SKU. “Channel inventories are basically dry,” she says, with many retailers not expecting more inventory until July. Indeed, the SKU was also out of stock at both Staples and Office Depot (see screen captures below), although OfficeMax’s website promised to have had the SKU in stock when we visited this afternoon.

You can’t buy the CE250X at HP’s own site … 


or at Staples … 

or at Depot

According to Ms. Hess, inventory levels are “very low” for the C9730A (or 645A). This black toner cartridge is used in the Color LaserJet 5500 series. Similarly, inventory levels are very low, according to Gap Intelligence, for the CC530AD, a twin-pack of black toner cartridges used in the Color LaserJet CP2025 printer series and the Color LaserJet CM2320 MFP series. Ms. Hess indicates that HP recently indicated that it was temporarily out of stock of these two SKUs, although both SKUs were in stock when we visited HP’s retail website. When we spoke with David Mullen, business development manager for ILG, he mentioned the CC530AD, as well as the single cartridge version, the CC530A, as examples of SKUs that have become scarcer since the March earthquake.

Ms. Hess adds that Gap Intelligence has also seen low inventory levels of the C8061A (or 61A) black toner cartridge used in the monochrome LaserJet 4100 series and the CC364XD, a twin pack of the high-yield 64X black toner cartridges for the monochrome LaserJet P4015 series and P4515 series printers. Both SKUs were in stock at HP’s site, but Ms. Hess says that many in the channel are reporting they are temporarily out of stock.

With the exception of the C8061A or 61A, all of these SKUs were on the managed allocation list that HP sent to some distributors in April.

Why Black?

We have noticed that while HP put some color cartridges on its managed allocation list, all the SKUs for which shortages have been reported to date are black toner cartridges, some for monochrome products and others for color products. It may be that this is simply because the monochrome products in which the cartridges are used are particularly popular, the color products are popular as well, and users burn through more black cartridges even on color devices due to the large amount of monochrome-only output produced in some offices.

However, we cannot help but wonder if perhaps instead Canon is having difficulty obtaining some component for certain black toner formulations. Perhaps this component was in short supply even before the earthquake and shortages grew worse after the earthquake?

HP and Canon have yet to provide this level of detail about how its supply chain has been impacted. We doubt the manufacturing partners will do so, unless shortages grow worse and more widespread, and the companies are pressed to make explanations to investors.

We noticed that when HP launched the LaserJet M4555, which uses a chemical toner, marking a change from the previous series, it said availability would be limited in some markets due to a limited supply of machines coming from Japan (“HP Launches New M4555, Sends 4345 MFP Out to Pasture”). The LaserJet M4555 uses new cartridges. It may be that these cartridges too are available in only limited quantities, thereby restricting the supply of hardware, although HP would not confirm what specific components were limiting hardware availability for the M4555 in some regions. It is also worth pointing out that this is the first specific example we have heard of limited hardware availability following the quake.

Verdict Out

Are these shortages isolated incidents or the first harbingers of more widespread shortages to come? Will other vendors, too, be affected? The verdict is still out on how extensive and pervasive these new toner cartridge shortages will prove and if others will materialize. But, to our eyes, the steps both ILG and MSE have taken to prepare for shortages appear to be wise precautions.