Heidelberg has announced the first customer for its Subscription service, where printers pay a monthly fee rather than buying a press outright, a move it describes as a "potential game changer" for the industry.
German print group Weig has installed two XL106's at a factory in Emskirchen near Nuremberg which will specialise in folded carton production. As well as supplying the presses, Heidelberg will provide all consumables, software and services for an agreed monthly payment over five years. At the same time the press supplier will guarantee productivity levels for the company, involving maintenance, trouble shooting and advice.
This is the first of a number of deals that the press manufacturer is in discussion about. It says it is in talks, via specialist Subscription teams, with 100 prospects. Some of these are currently customers of other press suppliers. It aims to convert 30 of these by the end of the year. Each press supplied under these terms is reckoned to return €1 million a year in income to Heidelberg for the five-year duration of the contract. If each press produces 50 million saleable sheets a year, this is a cost to the printer, excluding substrate and labour costs, of 2¢ a B1 sheet.
Heidelberg positions Subscription as answering end customer needs as the world become more digitally aware. It requires push to stop technology and a full Industry 4.0 connectivity for the press manufacturer to monitor performance of the press. In a promotional video launched last week, Heidelberg describes the new approach as enabling printers to stay up to date with technology and to maximise profitability. “The only way is to maximise productivity is through automation and networking. In the digital world only the leading technology will keep you in the game,” it says.
Negotiation between printer and supplier will result in an agreed volume per month and therefore the cost per sheet printed. This is based on existing performance levels, customer profile and set up, making the KPIs bespoke to each print business. This is a key difference between Subscription and the click charge model levied by digital press providers and which more and more printers are used to.
The costs of digital presses are based mainly on “their own costs and not on their customer’s business model” says Heidelberg. It is closer to principles adopted in the “pay per use trend in mechanical engineering”. Future growth for Heidelberg will not depend solely on selling and installing printing capacity it adds. The indication is that Subscription will only be offered to customers that can show an increasing print production volume.
The printer will pay a monthly amount up to this agreed output and then a per sheet price above this level, sharing the benefits between printer and press supplier. Both are therefore incentivised to improve efficiency and productivity through the right selection of consumables and consultancy.
The strategy requires full implementation of Prinect to optimise a workflow for Heidelberg's technology. Feedback from that equipment, via Industry 4.0 protocols, allows Heidelberg to spot bottlenecks or where intervention is needed. This will increase up time and availability of the machinery by through predictive and preventative maintenance actions.
It also requires the use of Heidelberg plates, inks and coatings, on press chemistry, blankets and washes to eliminate as many variables as possible. The substrate being printed will be about the only element outside Heidelberg's control.
The appeal for the first customer lay in the reduction of risk. “We’re looking to turn our Emskirchen site into a folding carton business that leads the way when it comes to availability and flexibility. We’re therefore entering into a partnership with Heidelberg in which our strategic and business interests are aligned. Under the new business model, Heidelberg will no longer make its money by supplying press components, but solely by achieving agreed productivity and growth targets,” explains Toni Steffens, commercial director of Weig Karton.
The benefit to Heidelberg comes with greater predictability of revenues and capacity utilisation. It will lead to a big increase in consumables business and will ensure a predictable order intake for the factory. Currently the company has no control over the inflow of orders, hence was knocked sideways after press sales collapsed following the 2008 recession. It will help achieve the additional €500 million in revenue that will take Heidelberg to its €3 billion sales target by 2022.
By the close of the third quarter of this financial year, Heidelberg sales and order intake showed a slight dip from the same position in the 2016/17 financial year. Sales have reached €1,657 million (€1,680 million) with orders at €1,912 million (€1,990 million) following a burst of business in the last three months of 2017. It reported a pretax profit of €17 million having produced a loss of €7 million at this stage 12 months previously. The explained that lower secondhand sales and reduced consumable revenue had contributed to a fall in divisional revue from €880 million at this stage last year to €826 million this financial year.
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