The document discusses the challenges faced by machine suppliers to the corrugated board industry over the past 25 years. Many suppliers have gone out of business or been acquired due to financial difficulties. The high costs of innovation and low profit margins on machine sales have made it difficult for suppliers to invest in new technologies. Additionally, consolidation among box makers and pressure to lower machine prices has reduced opportunities for suppliers to earn returns. Unless the industry supports suppliers through responsible purchasing, the long-term sustainability of innovation is at risk.

1. SUSTAINABLE SUPPLIERS
1 INTERNATIONAL PAPER BOARD INDUSTRY
T
he corrugated industry has
to thank a lot of individuals
and companies for their
innovations and support that has
lasted for more than 100 years.
Without innovations like the
rotary die-cutter, fingerless single
facer, razor slitting, continuous
feeding, vacuum transfer, servo
technologies and just now the
ongoing evolution in digital printing,
the landscape of paper-based
packaging would look a lot different
than we know today. In addition,
if there had not been a number
of great minded entrepreneurs
in the corrugated industry who
were willing to take risks with
new technologies, the world of
corrugated would not be where it
is now.
Great innovations were made
by a large number of companies
that are no longer around, or that
have shrunk to a fraction of their
former size and significance.
Some of these suppliers have
changed ownership, some have
THE MACHINE BUILDER’S
DILEMMA!
AN ARTICLE BY
ANDREAS TINGVALL,
CONSULTANT PARTNER AT
TRENECO AB.

2. SUSTAINABLE SUPPLIERS
INTERNATIONAL PAPER BOARD INDUSTRY 2
formed alliances and joined other
companies. Many have simply
disappeared.
We all know of many choices
of machine brands there were
just 25 years ago. That was a
long time ago, but a large number
of corrugated production plants
currently have machines in use
that are even older than that.
Interestingly, the average lifespan
that an OEM would expect from
their supplied machines is defined
as being exactly that amount of
time — 25 years.
Here a few of those companies
that have changed ownership over
the past 25 years or disappeared
from the market:
Why do some machine suppliers
disappear and others evolve? Some
may call it natural selection and
others may call it betting on the
wrong horse. Or is it simply bad
management that pushed these
companies over the edge?
Besides the fact that most of
the common business rules apply
all over the world, the corrugated
industry has gone through some
of the same changes that have
affected other packaging types —
for example, the metal can or the
- Peters
- Bendazoli
- Agnati
- Marquip
- Langston
- Eterna
- Terdeca
- Ward
- Pallmac
- Klett
- Simon
- United
- Fosber
- Curioni
- Sodeme
- Roda
- Rapidex
- Celmacch
- Massenzana
- Cuir
- Martin
- Ringwood
- Fossaluzza
- Alliance
- Castaldini
- Serco
and many
more
While a number of these
machinery businesses have been
merged into larger groups and
become successful under a new
ownership structure, we can’t
ignore that others are on the verge
of disappearing or have already
disappeared. Furthermore, we
have seen the number of suppliers
shrink in the USA and Europe while
we have to note that new suppliers,
mainly from Asia, have come to the
global market.
Suppliers to the industry of yesteryear: S&S (top), Peters (below) and Simon (bottom).
MANY COMPANIES HAVE CHANGED OWNERSHIP OVER THE PAST 25 YEARS OR
SIMPLY GONE OUT OF BUSINESS.

3. SUSTAINABLE SUPPLIERS
3 INTERNATIONAL PAPER BOARD INDUSTRY
glass container industries. There
is just one major difference. While
the can and the glass container
industries outputs have shrunk in
volume, the demand for corrugated
has been growing steadily all over
the world. So why is it that so many
great machine companies get in
to financial trouble in a growing
market?
What comes to mind is the
following:
n The number of corrugated
production sites has shrunk over
the past 30 years;
n Mergers and acquisitions
of boxmakers leads to
consolidation of businesses and
periods of low investment;
n Corrugated producers have
learned to improve machine
utilisation and cut down on new
machine investments.
Although these reasons have
had an influence on the corrugated
industry’s machines suppliers,
those can’t be considered as the
true causes for their struggles.
The opening of eastern Europe has
actually even resulted in some very
successful business years for a
number of suppliers.
The true reason why so many
suppliers to the corrugated
industry changed ownership or
shrank to insignificance lies with
the low sales volumes per machine
model, the high development
cost for innovation and the low
sales prices for these machines.
When we compare prices for full
corrugators from 20 years ago
with today’s prices, we can’t ignore
the fact that a 300m per min 2.5m
corrugator is cheaper today in real
terms compared to then. If we now
add in the supplier’s innovation
costs for improved speeds, higher
automation, safety, accuracy and
quality we must ask how did these
suppliers pay for these investments
in their technology?
Lets just look at the following
example. A company decides to
develop a new converting machine
like a servo driven rotary die-cutter
or flexo folder gluer. If such a high
end machine sells for €2,000,000,
that machine supplier would
normally have a profit margin of
less than 10 per cent.
The prototype and the
Converting machine names of the past: Langston (top), Klett (below left), Simon (below
right) and Deritend (bottom).
WHY IS IT THAT SO MANY GREAT MACHINE COMPANIES GET INTO FINANCIAL TROUBLE IN A
GROWING MARKET?

4. SUSTAINABLE SUPPLIERS
INTERNATIONAL PAPER BOARD INDUSTRY 4
development cost for this machine
would most likely be somewhere
between three to five times the
achievable market sales price of
a single machine. This means that
the machine supplier would have to
invest at least €6,000,000 into this
new product.
This means that 30 machines
would have to sell at a 10 per cent
margin to get a hint of payback
for their investment. The machine
introduction into a market might
take a minimum of two years,
which in consequence leads to a
starting point of the ROI after year
three. There are very few machine
suppliers that have big enough
market share and capital that allows
them to afford such investment in
innovation.
Furthermore this can hardly be
called serial production. Almost all
machines used in the corrugated
industry have a high content of
custom engineering and must
therefore be seen as custom
machines solutions.
At the same time, we must
recognise the burden that is put on
the machine builders through the
CE conformity regulation. Nobody is
thinking about the cost of producing
and maintaining full documentation
in at least eight different languages
over a period of 10 years. Machine
companies define those costs
(dependent on the machine model)
at approximately €50,000 per
language. For most machine
builders, this often represents a
significant portion of their cost.
As a consequence and because
of the cyclical nature of global
investment patterns, many
companies end up in financial
difficulties after they decided to
develop new technology simply
because their projected ROI does
not come through.
At the same time we have a
large number of Asian suppliers
pushing for recognition in the
western machinery supply business.
By offering significantly lower
prices for what appears to be
similar specifications, a smaller,
traditional western machine supplier
will struggle to be competitive. A
worthwhile example is the intense
struggle that the Italian machine
manufacturers have faced over the
past 10 years. It was the Italian
manufacturers who first tried to
counter their eroding market share
with innovation and low prices. The
result of that can be seen from the
number of Italian suppliers that
have merged with other suppliers or
gone out of business.
The only way to remain
competitive for the western
machine suppliers is by providing
superior product quality, innovation
and service. But this also requires
significant investment in people and
infrastructure as well as a critical
volume in orders to achieve a
reasonable payback.
When one looks at the annual
reports of the suppliers that
have the critical mass to remain
successful, we see that their
profits on new machine sales are
far below those of other industries.
Even the most healthy, large and
strong suppliers achieve less than
10 per cent profit with their new
machine sales. In a market that is
influenced by low price alternative
offerings, the initial sales price is
hard to increase. So profits are
made with spare parts, service and
other ‘after market’ products. This
is something that we have become
used to as a concept from the
suppliers of office printers. While
such printers are cheap because
of the strong competition, we pay
a disproportional high amount of
money for the ink cartridges.
It is not difficult to copy such a
strategy if your market is showing
similar indicatiors.
Over the past 10 years, the cost
for spare parts, consumables and
service has risen disproportionally
to other costs, with the only other
exception being the price for
energy.
Machine suppliers had no
choice but to consolidate in order
to generate revenue and profit
opportunities. In a pressured new
machine profit situation, the pricing
of spare parts, service and after
market products represent the only
earning opportunity.
This has lead to significant
price increases and it has been
the subject of many budget
discussions in the corrugated
industry. The nature of budgeting
and annual reporting does not leave
room for large price increases on
maintenance and consumables over
the course of a business year for
most corrugated manufacturing
companies.
In the corrugated industry, box
price increases are typically driven
by the following four justification
triggers.
n Paper prices
n Energy cost
n Transport cost
n Labour cost
These are the reasons that a
THERE ARE A NUMBER OF ASIAN SUPPLIERS PUSHING FOR RECOGNITION IN THE WESTERN
MACHINERY SUPPLY BUSINESS.

5. SUSTAINABLE SUPPLIERS
5 INTERNATIONAL PAPER BOARD INDUSTRY
corrugated manufacturer would use
to argue his price adjustments in
front of their customer.
As boxmakers have become
accustomed to lower machine
prices and alternative suppliers
of low cost consumables, their
attention to the potential cost of
ownership for a production machine
has faded. The pressure to deliver
on two to four year paybacks for
investment to be approved adds to
the pricing dynamics for everyone
involved.
Unfortunately, this situation
increases the pressure on machine
prices further. Instead of sitting
down with their most important
machine suppliers to discuss
reasonable win-win solutions, many
boxmakers continue to search
for even lower cost alternative
suppliers in China or elsewhere.
This has resulted in a worsening
market condition for the traditional
western suppliers.
And this is where we close the
loop!
If one were to ask which of the
Chinese or Taiwanese suppliers
has made significant invention or
innovation in corrugated production
technology, you would find that
hard to answer. Everyone will admit
that almost all of the significant
technology innovation that we
know of comes from the traditional
western suppliers with the only
exception being a few selected
Japanese machine manufacturers.
Consequently, we must accept
that if we expect those Western
and Japanese suppliers to continue
inventing and investing, we must
also continue the dialogue with
them about what is affordable and
what is truly needed. If you agree
with that, one must also agree that
it is in our own best interest to
support these western suppliers at
least until a point of time when our
new Asian suppliers have started to
carry out significant innovations by
themself and have developed full CE
conformity.
It is essential for any industry
to understand their upstream and
downstream dependencies and it
is of outmost importance for the
corrugated industry to recognise
how their investment decisions
influence their own long term
sustainability.
Corrugated industry associations
like FEFCO and TAPPI have done a
fine job integrating suppliers with
their events, nevertheless there
is more that needs to be done
for the benefit of both. The word
for this is ‘Buyers Responsibility’.
Many individuals that buy for
the corrugated companies have
little experience in buying large
expensive equipment. The focus is
on the money and respectively on
the payback. This is understandable
at first. But if you think about it,
one must come to the conclusion
that it makes sense to strengthen
those that support your business in
the long run rather than aiming for
short term gain. n
Andreas
Tingvall is
a consultant
with Treneco
AB. He can be
contacted on
A.Tingvall@
Treneco.com
IT IS ESSENTIAL FOR ANY INDUSTRY TO UNDERSTAND THEIR
UPSTREAM AND DOWNSTREAM DEPENDENCIES.
MAXDURA