Running of a successful business
The fundamental issues behind the running of a successful business today are being challenged and influenced by many factors’, says Paul Brauss, president of Mark Andy, Inc. who highlights key investment considerations and opportunities for the converter.
The TLMI and the FTA have provided some wonderful research around the industry this past year. We couple this with the intense ‘Voice of the Customer’ (VOC) sessions held with Mark Andy and you can get an understanding of the many issues on the minds of the converters today.
With every new opportunity there is fierce competition and old supplier/partner relationships are being challenged, as pricing pressures impact converters business plans. Flexo quality improvements still challenge other printing technologies and there is more success with combination printing in-line as well. Quality, process capability, service and price will be the battle grounds of differentiation for the converter. That is a pretty high level view of things but what we see underneath this blanket is a very mixed bag of activity. To boil it down to just a few trends is like cooking without any spices. Beneath the surface let me assure you things are spicy!
Many of the converters are looking to the fundamentals of running a successful business
Many converters are looking to the fundamentals of running a successful business and they are in different zones of progression, depending on the market they serve and where they are located. For example, the prime labels market is being influenced by developments in film. Better anilox and film densities help create sharp graphics, at first pass, and are believed to be very cost competitive. Some of this will change with the rise in price of petroleum based products and with continued product differentiation demands. It is clear to see that graphics on film are exceptional. Additionally, CPC’s are demanding the ‘high value added’ graphics at the price of ‘prime label’, forcing current converters to evaluate alternate processing and equipment needs. Our own additional studies have indicated the average age of equipment in this market sector is about 13 years. This equipment is becoming increasingly difficult to maintain and will not handle the newer materials seen as the differentiator in the future. The developed markets understand this requirement as trends of equipment evaluation is up over previous years. A quandary for converters is that in the emerging economies there is an advantage of learning from already developed economies. Today’s emerging economies do not have the interference of established, older equipment that tends to limit the potential of new opportunities. Their focus is on newer technology and simplified technology. This creates a dilemma for the converter in the developed economy because he has not kept up with equipment upgrades. They are put into a position of a higher cost structure in the developed regions over emerging markets where new equipment purchases are growing.
A critical step to maintaining the business is for these experienced converters to attack ‘waste’ in their processes with the help of ‘World Class’ activity such as ‘Lean’, ‘Six Sigma’ and various other initiatives. This activity is very important to the process performance of the converter but also to the future design of equipment. Immediately, we think of the need to optimize the performance of the press with faster speeds and faster change over ability to create less waste while maintaining quality levels that are challenged by other technologies. This idea is only one of many solutions to improve converter productivity and margins.
If you examine the needs carefully, there is a need to find a balance between equipment that is highly flexible to achieve differentiation versus equipment that is more simplified allowing much faster changeover for smaller runs. Clearly, there is a place for both types of equipment and it is important to understand that both types of equipment are a must. Many converters have achieved poor ROI trying to optimize the flexibility of their equipment by planning many jobs that would be better suited on a smaller less complicated piece of equipment. Their drive is to load up the highly complex press as a way to justify its acquisition. On the contrary, they may have indeed created a bottleneck.
The overall answer isn’t that buying a new press is going to make all the converters’ troubles go away. The emphasis should be on process disciplines aided with the selection of the logical equipment to support the business opportunity for each converter. With a disciplined production process and modern equipment, the converter is equipped to approach applications that will lead to higher margins and maximized productivity.
More time will have to be spent understanding overall work flow. It is one thing to enhance the press but how does that fit into the overall results of getting more shipments out the door. There has to be a culture shift in many organizations that focus on the entire process from the time an order is received until the order is shipped. If you think about every aspect of this process then the print floor is only one piece in the overall puzzle. Recently we’ve used the term ‘World Class Converting’ to discuss the entire business aspect. There are many building blocks to a successful business. These focus on macro buckets of people, the procedures and the plants. The successful business owner will find the balance between all of these aspects and then work to improve them continuously.
In 2005, there will be nearly 500MM labels supplied with RFID capability
As an example, some of the best technology breakthroughs will have nothing to do with the speed of the press but with the speed of drying. Over 50% of the production runs in this market segment deal with run quantities of 50,000 repeats or less. The presses are fast enough but drying slows the throughput. Additionally, converters who look to run film and paper stock on the same press will find different performance levels of drying because of the characteristics of the ink on different substrates. Anilox improvements will also aid in this process with improved dot clarity and less ink on substrate. This aids the drying process and allows converters to take advantage of the true speed of the press.
Another technology advancement is built into the press with the ability to diagnose and generate operational performance. Software enhanced equipment will talk to ERP systems and provide real time performance at every print station. This information will be made available through quality assurance documents, job set up information and historical performance. Taking advantage of this technology will be the task converters wrestle with in their operational practices. Additionally, remote diagnostic technologies will aid the converter in maximizing up-time by eliminating lost production time due to performance issues that can be resolved remotely and without costly technical visits.
Future technologies that will also affect the industry include RFID, inlays within labels and the manufacture of RFID enabled labels from scratch. We’ve all heard the mandates placed on CPC’s by Wal-Mart and the DoD’s plans to use RFID in various applications. Many argue the exact impact and the timing in which this will all roll out extensively. Well, the time is now. In 2005, there will be nearly 500MM labels supplied with RFID capability. This estimate is larger than previously projected and well on the way to hitting the one billion label mark within a very short period of time. Inside of five years the market will be billions.
The solutions for this market opportunity are still seen as suboptimal but improvements are being made daily to achieve that $0.05 label talked about in the industry. Latest numbers from the ‘inlay price wars’ would allow a finished 4x6 label with inlay to be converted at 9˘/label (50K qty). Although straps have not been included in the price wars, if straps saw the same percentage reduction as inlay, an equivalent label produced with a printed antenna and strap would cost 8˘/label. As a result of the opportunity, several companies are posturing to lock-up the technology as broad patent applications flood the market, but very few practical solutions are being presented at the quality levels that are required. However, quality improvements from just one year ago are impressive and advancements in this aspect of the design will only enhance the value of this market.
The converter is well positioned to take advantage of the RFID phenomenon as demonstrated with in-line press designs. They understand the operational benefits of in-line processing and have learned to insert either straps or inlays into labels and with successful antenna printing continue to advance toward a value-added proposition. The in-line process makes good economic sense and maybe isn’t flashy but it sure is practical. Many converters are taking a ‘wait and see’ posture around this market opportunity and those not participating soon will spend time catching up in the near future. The opportunity is available and will continue to develop rapidly.
We continue to unravel problems to be solved as we push the limits of the process and challenge other technologies for profitable solutions in the narrow web markets. The markets continue to sub segment with specialty requirements that must be answered. Solutions are as vast as the global economies and the geographies. Market strategy, branding and product positioning are all terms the average converter must understand.
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