Open business platform
First article
„The usual business model is to sell „relatively cheaply”, on cost your products, lock your clients’ to yourself and milk them through spare parts and services as long as you can, then count your profit while talking about trust and partnership.” Seems easy, isn’t it?
The large manufacturers trying to sell their premium priced services as a real value, however mostly they are just marketing bluff from the customer perspective. Is there any better option, really?! If you have also experienced this outdated sales strategy, stay with us in the following: We are seeking the answer in our three-part article series.
We see, the model is working great in several sector, like the automotive industry and for various custom machine builders, including the packaging industry as well. To protect their markets and customers, manufacturers do everything they can, including relabeling suppliers’ products and making it impossible to identify the original distributor. This protects their own business model and ensures that services can only be accessed through them on the terms and pricing they dictate, and they emphasize the mainstream tag: “added value“, sounds familiar? In our industry, service fees of thousands of euros a day are not uncommon, while the buyer has to bear all other travel, catering and accommodation costs, however, customers are on a forced path. If a large industrial manufacturing company shuts down due to a machine failure, the revenue thus lost can be an order of magnitude higher than the daily service fees. Then, can we say that it’s justified and there is no better solution?
Illusztration about “fair” services.
Perhaps the business model changes taking place in the software industry, – today’s most dynamically evolving sector -, can help us map and understand the right direction. How can we create a novel platform for the engineering industry that is more open to everyone, getting closer to the model of free Linux or paid Office 365? Before we would continue, I would like to mention it in a few words why we would target the packaging industry. Because we think the current model is at the expense of innovation and cost-effectiveness, and does not represent real added value for customers, even though we are talking about a really cost-sensitive sector where everything should be about sustainability.
Our colleagues have spent several decades in the world of packaging technology, especially in the field of corrugated board production, where, thanks to their knowledge, they have earned timeless merits. As engineers, we have been involved in the design and development of several new generations of high speed (300-450 MPM) corrugated paper machines, including Single-facers, Double- facers, Glue Machines, various preconditioning technologies (Infusion steam systems), while we constantly adapted to the customers on the market. We developed upgrade packages based on their specific needs. The time and positions held at competing companies have greatly contributed to the development of a market approach that builds on customer focus and puts the needs of customer first. The comprehensive knowledge of wet-end process technology helps us to accurately understand not only the manufacturers, but also even our customers’ business model and help them achieve their goals.
So, we have to ask ourselves, what is the real value for the buyer? If you can report the error through a telephone customer service? Which, by the way, in itself raises a lot of questions, from language barriers to the technical readiness of the person at the other end of the line. Not to mention time zones and 0-24 availability. Maybe the online, digital spare parts catalogs or constant dealer contacts whose are trying to continuously sell everything through renumbered third party product on higher prices? Perhaps the promised service availability, so we can count on a colleague to be available within days, – in many cases weeks -, and whose preparedness is also often questionable due to the high workforce fluctuations?
We know exactly how low the efficiency of large enterprise systems. In many cases, only a fraction of the time spent on R&D development can be utilized because professionals are overwhelmed with “Legacy data” maintenance, day-to-day problem management, local firefighting, and troubleshooting. Multinational companies tend to deceive themselves with different efficiency measurement methods. They typically set an efficiency goal level of 70-80% in front of the engineering departments, which, when achieved on paper, reassures management that they have provided „world-class” performance. However, they confuse absorptions with efficiency. In reality, the efficiency of research and development often does not exceed 10-15%, unless we are talking about a dedicated development team, which is not typical of custom-made products. Only in the world of mass production, there is the capacity for a separate department to deal with the optimization of each major component to the extreme, – as they can amortize their costs on huge volumes.
This helpless ballast, typical for all department, paralyzes the operation of large companies and leads to high prices, slow innovation, and the business strategy outlined in the introduction, as they have to amortize their huge costs. The best way to generate profit and amortize your cost, if the revenue is generated in a predictable way over the complete lifecycle of the product. This is coupled with the strategy of iterative technology development and the protection of the existing market to minimize risks. If we look back at the innovation in corrugated board manufacturing for the last 20 years, we can see an extremely conservative industry.
We believe this could be done much more efficiently, within an open platform that focuses on innovation, transparency and efficiency, as opposed to costly organizational structures, telephone customer services and retail chains.
What if the complete documentation of the machines and production lines we purchased would be a 100% open and accessible for the entire life of the machine? Here we are thinking not only of the assorted parts accumulated in the manuals, but with equal access to our design engineer colleagues, where the complete technical documentation of each part is available in native 3D format along with CAD drawings and control Software programs including the last screw! Customers can see the actual (real) manufacturer part numbers and even access all related documentation needed to build the machine. They can order it thru an online platform, or directly from the original manufacturer. If new technologies such as AR / VR / AI would be natively integrated into this platform and the maintainer had all the necessary documentation to troubleshoot the machine immediately, be it mechanical, electrical or software related? In many cases, factories are facing negligible problems that local maintenance could easily solve in possess of the necessary information.
Think about it, if in 15-30 years, – even at the end of the life of the machine -, all the documentation would be immediately available for a piece of equipment after just entering a serial number? If you resell the machine, there is no need to worry about missing documentation anymore. Would you convert, modify, upgrade your equipment but don’t know the exact specifications? No problem, you can retrieve data for any item with a single click, and even see all part revisions and developed upgrades made to the machine configuration over its lifetime, so you can check what upgrades are compatible with your machine configuration. Moreover, based on the usage data of other machines, you could immediately estimate the ROI that can be expected from a given upgrade, and this does not require dealers or service colleagues who are touring the world at your expense and then try to sell the same with a 30-300% profit margin, – technology that is only available natively for their new machines. It is natural that it is not the taxi driver who manufactures the car himself. But let’s keep in mind that if everything is available to make the product, we can entrust the most suitable professional manufacturing company near us (a local Excellence center or trusted vendor, machine shop), to make the parts and you can receive a solutions that is 100% guaranteed to be compatible and functional with your equipment. We don’t have to get the parts from the original manufacturer at the other end of the world, – pay for shipping, duties, dealers, and pay the check with the built in expected profit, if the company still exists at all 30 years from now.
What if you could modify your existing products in the form of a free license or anyone else could make upgrades and software for the machines? Community platforms have huge support around the world, be it the Raspberry Pi or even Linux. In this way, you could rely not only on the manufacturer’s scarce engineering capacity, but on any developer in the world. Yes, but how could you finance a platform like that?
Because all data is digital and you don’t have to maintain merchants, manufacturing companies, and a host of things that a traditional company does, the maintenance costs of such an online platform are orders of magnitude lower compared to a traditional multinational company. Not to mention that a fully integrated (MCAD-ECAD) 3D-designed platform is free from the usual “Legacy Data” and maintenance problems, thus giving a clean slate to the platform’s hands and maintenance. We are committed to manufacturing products through centrally accredited companies that can be diversified based on geolocation. For the American market local US companies could manufacture the equipment’s (to make America great again) while for other territories like Europe and Asia local or third-party manufacturers can be accredited. We would be primarily responsible for quality and accreditation, as well as providing service and necessary platform components. Different profiles would be available to customers, manufacturers, and third-party developers who could all access the data they need under a single platform, – similarly to a PLM (Product Lifecycle Management) system. After a registration, anyone could access the platform and configure their machine online in the usual way, see what native or third-party solutions are available. End-users would pay for the operation of the platform based on the volume produced (million running meters of paper / $ X) and based on the price of machines and parts purchased through the platform.
According to our calculations, such a system can be operated with a coverage of about 10% after the amount spent on development in case of the paper industry, which is significantly lower than the cost structure of current manufacturers (25-40%) not to mention the 30-300% profit on sold spare parts. Depending on the community activity and number of users this can be lower in the long term. As all technical documentation is completely public for the participants, the actual cost of the machines and parts can be well controlled thru internal monitoring by the users. The above would mean that orders for any machine or spare part would be passed through the system at a margin of around 10%, and if third-party extensions were purchased, their developers could even receive dividend after it. The above margin is necessary to maintain the professional design engineering team and operate the platform. We tried to put the amount so low to not worth tricking around, stealing data and get out. Although it would be possible to purchase parts outside the platform, we would protect the complete avoidance of the platform with a strict license key and firmware authentication on the machine side, thus protecting other users from quality and theft.
Based on the above, we would like to develop first a completely new wet-end corrugating section based on a free license, which is free from the current manufacturers restrictions, and later we will include additional processing machines under the platform. Those companies who would be interested in a platform like that (International paper, US Corrugating, West Rock, Mondi, DS Smith etc.) would later get back their investment by reducing the stated 10% margin for them temporally, thus providing some kind of interest-free loan to bring the initiative to life.
In our next article, we’ll go over what kind of next-generation corrugating line we’re thinking about, and how low the entry limit can be for developing the platform by sharing the cost between parties with mutual interest. We hope this article will be mind-blowing, and we can make a new aspect of view about machinery services – not only in corrugating industry. Please let us know, if you agree or disagree, share your thoughts with us!
In our next article, we will be more specific. Just stay tuned, it’s coming soon!
– BBM –