Forum redefines converting: bring on the information managers1 February 2002
When Converting Today and Picon brought together senior executives from converters and equipment suppliers to debate the future of converting, the two hour, non stop discussion predicted a sea-change in manufacturing. Pauline Covell reports from the first Converting Forum.
Jürgen Bräu, managing director, Erhardt + Leimer (a leading international supplier of process controlled web guidance systems)>
Michael Cronin, managing director UK & Ireland, Alcan Packaging, Lawson Mardon (global major in flexible packaging converting of plastics and paper for food, tobacco and pharmaceutical industries)
Bernhard Grob, managing director, Edale (a leading manufacturer of narrow web flexo and converting presses)
Andy Leet, managing director, Burall (holding company for eight subsidiaries which include self adhesives labels company Buralls of Wisbech, creative packaging company Burall PlasTec, Burall InfoCard - magnetic tickets and 'smart' cards, electronic data transfer system solutions company Burall InfoSys and Label Link - label and repro outsourcing for retail packaging)
Jonathan Levy, group marketing director, Fort Dearborn Company (Chicago based group which specializes in packaging graphics management, print and electronic media)
Ian Macgregor, director of marketing Xaar (ink jet technology development company targeting the industrial printing market through XaarJet, the manufacturing arm)
Bob McLellan, chief executive, D S Smith Packaging (a division of D S Smith plc, the largest UK owned board packaging operation, with plants throughout Europe, concentrating principally on the manufacture of corrugated packaging and sheeting)
Mike Wilkinson, vice president, business development, Valmet Converting (major producer of gravure and flexo presses, coating and laminating machinery, slitter rewinders and vacuum metallizers)
John Brazier, chief executive, Picon
Pauline Covell, editor, Converting Today
Key issues at the London based Converting Forum centred around facilities management, information management, new technologies such as digital print, the converting super plant, globalisation, brand owner control and effective supply chains. Over-arching all these considerations was the never-ending search for taking cost out of the business and the customer's business.
Jonathan Levy (JL): On the issue of facilities management we have found our role has changed a lot from the traditional reprographics and pre-press company. More and more we are being asked to help manage the graphics supply chain by working with designers and printers to make sure that the customer gets what he is expecting and, increasingly, more cost effectively and faster. That has resulted in a number of conversations about the pros and cons of facilities managed print on site. Brand owners are asking us to examine the economics of that; the dialogue is taking place.
The question we have to ask is what business are we in? Are we going to be dragged by default into becoming facility managers or are we going to find partners in existing printers who serve these companies already and will rise to that challenge?
Mike Wilkinson (MW): In-plant print was the vogue some 20 years ago. There were people who put that work out. Why? Because their business was, say, chocolate manufacture. They were not print houses and couldn't afford to keep up with the converting technology. With the cost of today's modern technology I can't see many people going down that route.
Bob McLellan (BM): I can understand that, but I see a slight move the other way. With the possibility of digital print being relatively cheap, I think a lot more in-house shops may go back into the big organizations. I know that P&G, for example, are looking to put back in-house some of the operations that were non core peripheral on the basis that they are going to save money and actually control it a little better.
Andy Leet (AL): There tends to be a traditional way of thinking about putting this tech- nology into the point of manu- facture. I think it more likely there will be a step change in the whole philosophy of printing for packaging. This concept will really take off when people who are managing data on behalf of the brand owner can interact with the digital print head and convert that directly onto certain packaging. The skill levels needed and the amount of capital investment will be very different from what we know. It will be less and less.
Ian Macgregor (IM): Control is the key issue. The brand owner wants to maintain control because it gives them competitive edge so they can get product out faster and more flexibly in terms of targeting promotional and personalized campaigns. They are not going to want to have that control shared with anyone else. And that could have a major effect on business relations with their partners.
AL: It is a question, too, of speed of delivery. If you put a traditional line beside a filling line – that big piece of capital investment may not run at the same speed; it may be under utilized. And that may mean the facility management route may run out of steam. It comes back to how to manage data.
BM: Some companies are becoming second tier suppliers as, for example, transport companies move into the whole service provision. That can take packaging suppliers three steps back from the end user. You have to decide if you want to actually drive your business out of its manufacturing core competence into a more total fulfilment operation. There will be those who do that successfully and those who fail.
Bernhard Grob (BH): As a press manufacturer, I see brand owners and retailers looking for competent partners in printers and converters of narrow web labels and packaging. They are looking for alliances to ensure the whole management, not just the quality of their print.
AL: You do need commercial drivers, but it is a question of at what level the retailer starts to help us take cost out. We have been talking about integration. It is really a question of what access to information we have. There is now technology that allows retailers to share information throughout the supply chain much more effectively and what we have up at the back end of the supply chain is to be able to access that information so we can print more effectively and more economically. And, hopefully, share some of the benefits of taking out obsolete stock and inventory.
Michael Cronin (MC): When I hear the words facility management what we are managing is information. We are running the supply chain for a lot of our customers already. The integration is end to end – from customer right through to supplier. And that's what we've got to get better at; that's the challenge our business faces. Most of us think of hardware when we think of facilities management. But managing information is where the sea change is.
Jürgen Bräu (JB): Yes, I see the hardware as replaceable – with all the globalization it doesn't really matter where the packaging is being printed. Some food packaging will stay local, but with outsourcing the brand owner won't be interested where it is bought from as long as it meets their specifications.
MC: What the brand owner is looking for is brand identity and reproducibility wherever that may be. For me that's managing information – even down as far as digital printing. That is how you output the information management.
BG: To offer the whole management of information brings with it proper partnerships – like the open hearts systems in Japan.
JL: We are seeing a desire from our customers to outsource and to reduce their printing rosters considerably. They want to move away from the printers holding lots of different information in lots of different ways and for it to be held centrally. There is some debate as to where that is, but they want to control it in some way even if it is outsourced. They then have the flexibility to choose which printer, which product, when and at which price depending on competence, price and capacity. That's being accepted readily in the UK and Ireland, but across the rest of Europe there are examples of traditional reprographic practices at the printer. A lot of people are going to be forced into having to conform to this management of information or fall by the wayside.
MC: What the brand owner wants to manage is the brand. That's where the value is. It's not about having a printing company at the end of the product line. He looks to us to make sure his brand looks the same no matter what part of the globe it is printed in. Personally I don't think small units are a way of the future and small units are what digital printing could lead to. The real world – the reality – will drive super plants; faster plants, plants that are able to produce at a lower cost. Digital print will be a niche market, but in my lifetime I don't think I will see a wholesale change to digital printing.
BM: You are right in the main. But there will be an element of change. We have customers saying they want to get inventories down really low and to get their brand on the box on the line. I agree that super plants are the way forward, but there will be space for small plants – maybe 20 per cent of the corrugated industry. The sheet plants will get a lot more flexible by developing digital equipment.
MC: We have had a digital press in our research facility for two years. They are only held back by the power of the processor. They will get faster, no doubt about it, but I still believe that they will be for the shorter run bits of the business. They are not going to be used on a wholesale basis.
MW: I agree. They are not going to replace the flexo and gravure processes.
IM: I see digital printing as another part of the integrated plant. We try to discourage any hype that there's a conflict between digital, flexo and screen.
MW: I see hybrid super plants. Digital may well be included in a narrow web machine, for example.
MC: I'm absolutely clear that for short run work – for focused design work - you do need digital. There is a place for it within a super plant, maybe indeed as part of a hybrid operation. You may, run the plant slower to allow the digital flexibility, for example.
MW: I know of a gravure/flexo plant in Israel, which does that for test markets.
AL: The big problem with that is it comes back to consistency of the brand. Digital print may be a component part of the super plant because you want to regionalize something. The key thing is the integration – the joined up thinking. It is the outsourcing that will drive the different forms of facilitation.
A few years ago I had the opportunity to set up a business at a major retailer – effectively an outsourcing company. The initial challenge was that the retailer had 70 different label suppliers. We put an independent company together, managed by an MD who reports to me, a facility that resides at the retailer. It liases with all the businesses involved and all the departments – legal, trading, marketing/brand owner and it interfaces with the suppliers. We now have a dozen printers. And the key thing is to manage the information. It is a genuine look at taking cost out of the chain. There is no production, but it is a wholly owned business of our group.
And now we are starting to source labels from China – the labels would be printed in China anyway, but we will now control the process and quality.
If you think about brand control and identity, the technology allows control of the repro. It ensures that the same specification is applied wherever that may be. The process of control is based at an independent company with half a dozen desks at the retailer who has no ownership of that.
Why would the retailer do this? Previously they didn't have control; there was a lack of skill in his business and there was a cost that was intangible to him. Now he has in-house expertise and we have demonstrated tangible cost savings. In simple terms – when involved in a design brief we are able to say, "if you take 2mm off the size of that label you'll get four across the 250mm web instead of three".
JL: We're seeing the same. It's not a separate company, but we are placing people with brand owners to do just what you have described – to be a catalyst - to get a head start. We are finding designers who were wary now welcoming this because they know they have an ally whom they can work with to help achieve their design vision.
MW: I'm not surprised that print is being supplied from China. I recently went out to dinner with an Indian who delighted in telling me all evening that a well known UK brand of soap was wrapped in a label printed by him in India.
BG: We see really advanced plants in China, India and Russia producing really high quality work. They started these plants more recently than many in Europe so the technology is more up to date.
MC: What you have done (speaking to AL) is redefine your business. You have said you are not going to manufacture. You are going to manage information without the hardware.
AL: But we still do manufacture and we supply that organization.
MC: To polarize the debate, if we take it to the extreme, if you can manage the information you don't need to manufacture. Because if we take the technology and the control mechanisms for printing then we can manage the supply chain without ever having to invest in equipment, which in the UK environment is very interesting.
AL: It is a question of redefining the business, but we mustn't take that out of context. For example if you take a fresh food environment – you're not going to label that in China.
JB: I see the brand owner's key issue as control. He will licence some converters and leave them to sort everything out with the rest.
MC: He might even licence someone to be the supplier. But you don't have to go to China. You can look closer to home.
MW: I recently bought corn on the cob and beans that had been produced and packed in Kenya – truly global.
BG: For security that sort of thing has to be labelled locally so I'm pretty convinced that the production of the packaging is going to be regional. The management can be here.
MW: We will get packaging coming in. It won't be purely for regional use. China manufactures 500,000t of BOPP film per year. In 18 months it will have a declared capacity of 750,000t. I know where the 12 new lines are going to be. Where's that all going? It ain't all for China.
MC: I don't see that as a big threat. I see it as a threat to our manufacturing business, but I see our business as more than manufacturing.
IM: If you are the information manager, none of this matters. You know the best place to go for each bit of the process.
BG: Is it going to be printed packaging coming in or packed products?
MC: Both. I can give lots of examples of our customers bringing in products already packed. And what we hope ideally is that they expect us to control the supply of the packaging – either made by us or through someone else we pick. We are talking about facility information management. And we would typically like to work with a partner who manages the brand image data because that's not a core business of ours. We would like to connect to someone's resources and have it sent wherever – but we control the output device.
BM: So you are creating a trading environment. You've reinvented your business, too.
MC: We've had to in order to survive. The threat to manufacturing in the UK is that it is too costly. But customers want to deal with us because of our expertise. They have redefined our expertise and it is not manufacture. It's supply chain management.
BG: So closing your eyes, in 10 years time. Where would you be?
MC: If I can use that hackneyed expression, we would probably be a virtual company. We would have a collection of people and a business managing the supply chain and having its manufacturers in different locations.
MW: We still have faith in the future. We have manufacturing in the UK and Italy. In another part of our business, not converting, we announced today (late November) that we are opening up two manufacturing plants in China next Spring. We are also opening a new technology centre, dedicated to the development of flexible packaging, in Italy.
BM: So is there a future for UK manufacture or do we all have to become virtual companies? It's a pessimistic picture being painted. In a macro sense that is the way it's going to go. But in the short term there can be winners who have operational strategies that do recognize what markets you can be in. Those companies will also recognize that there will be some shimmering at the edge and that there will be some core business that goes.
If you take corrugated, it is a vastly over supplied sector with poor results for the share- holders for years. Frankly, it takes time for a dying dog to die and for some of the companies to go. We will see realignment, but I wouldn't be as pessimistic as some of the others.
MC: Actually I see it as very optimistic. We are investing. The business is growing. It is our UK manufacturing base that we are pessimistic about. But we are still investing a lot of money and we are making a reasonable margin.
The next 12 months
JB: We have had 18 tough months, but before I came here I was slightly optimistic! People are investing more in retrofits at the moment.
MC: The toughest 12 months we've ever had. We have already announced lay-offs. Demand is going to be flat and prices squeezed. But we'll invest.
BG: Up to Labelexpo we had seen our best two years in the UK. Our enquiry level in the UK and from export markets is still high, but a signature on a cheque is something different – we are very positive about the prospects. Our emphasis will be on total "Web mastery" printing and converting solutions for label, packaging, security, medical and many industrial applications. New press developments are still moving forward. There is a future.
AL: We will have to put more volume through to get the same value. Most investment will be in MIS systems. We will give more time and energy to developing the smart chip sector.
JL: Challenging. Yet we are still going to invest to keep up with technology and continue with shrewd management planning.
BM: We have downsized and right sized. We'll have one or two investments this year in speciality areas. And we see service, EDI, smart chips, etc, as key issues along with today's key theme of managing information. We see that as a lock-in. I've said this is as good as it gets, but it's still tough ahead.
IM: Digital is growing. We have protected the R and D at Cambridge, but it's become more efficient to focus all production in our plant in Sweden.
MW: Times are tough. Our clients are under pressure and so are we. But we are investing in new converting technology centres and customer service support. We think there will be a lot of converters upgrading older equipment.