Open Business Platform
Third article
In the concluding part of our article series, we are looking for answers to what resources we need, and how long it would take to implement and develop the wet-end machinery within the framework of the previously raised open business platform (first part and second part here). In addition, we try to answer as many questions as possible which arrived from our interested readers in the meantime. As a reminder, in our previous article, we discussed in more detail the benefits of developing an entirely new platform. By getting rid of “Legacy data”, our engineers would work with better efficiency, freed up from convections. The concept of „Tabula Rasa” and the dedicated development team are the only way forward to achieve our goals with the right deadlines and budgets and to reform the current corporate operating environment.
We claimed that with a budget of € 8.7 million, we could develop a wet-end machinery line capable of a production speed of 500 MPM (1650FPM) with a production width of 2,8 meter (112”), while integrating state-of-the-art technologies in a coherent system such as virtual or augmented reality (AR / VR), Internet of Things (IoT), or various Industry 4.0 solutions, contributing to much better operating costs over the life of the machine. In addition, we would implement this within the framework of a completely open platform, for the operation of which we would need only a 10% margin based on the price of the machines and parts sold. The platform could even be used by external developers and they could benefit from its revenues by producing their own developments, thus strengthening the advantages and openness of the platform (community power). In order to cut development costs and control the time frame, we only think in terms of designs 112” size and orientation-independency, while guaranteeing that the production line is compatible with the installation space requirements of existing 98” wide machines.
According to our previous calculations, at current prices and exchange rates, the cost of a 5 Ply state of the art wet-end machinery line would be € 3.5 million if the cell concept is applied. This means that the smallest unit that can be purchased would be a cell – we would not even deal with stand-alone machines (Roll Stands, Splicers, Preheaters, etc.). This is because the required production speed – 500 MPM (1650FPM) – makes it essential for the cell components to operate in full and perfect harmony. No machine component could be the weak link, thus preventing maximum productivity of other machines. It is common for certain third-party components to prevent the assumed production values from being achieved. We want to avoid finger pointing between manufacturers, – which is quite often nowadays -, so that our cells would only use their own components and units for maximum harmony and reliability, thus contributing to the highest possible degree of integration, which is also essential to keep costs under control.
Significant engineering resources are required to complete a project of this size. With the involvement of the most qualified paper industry professionals, our team calculates that with the help of 20 engineers in 4 years, we could build this platform from scratch, including the basic research and academic collaborations needed to implement each new solution. This period can be 3 or 5 years, depending on the available resources.
From an engineering point of view, we would take a very “Lean” approach. We would only employ engineers and outsource the related G&A (general and administrative) tasks from the company. Accounting, administration and marketing would be outsourced, while in-house coordination would be done by the CEO / CFO.
In our experience, the optimal engineering distribution for such a task would be as follows, taking into account the higher technical standard of the new platform:
- 12 Mechanical Engineer
- One CTO, Chief of R&D, academic connections, mentoring
- One CPO Who coordinate all major R&D effort and align development
- One Dedicated Simulation Specialist (FEA)
- One Visualization and Documentation specialist
- One CAD/CAM specialist
- 4 Electrical Engineer
- 3 Software/Control Engineer
- 1 CEO/CFO, Coordinating the overall project.
In addition to the above resources, our strong academic relationships could help doctoral students and professors oversee the most critical areas of development, thereby increasing engineering standards and capacity. Primarily in the field of vibration analysis as well as AI / VR, they could provide essential university support and expertise, which would ensure the market leadership of the product. Thanks to our decades of experience in the field of engineering, we know how important it is to have an efficient work environment and an integrated system of development tools when performing a task of such complexity. For this reason, our first choice would be the Dassault Systems’ SolidWorks platform, which we already know and have been using for a long time. Using SolidWorks products, we provide designers with a complete development framework, enabling them to design CAD / CAE in an integrated environment. In addition to the unified PDM / PLM system, simulation modules, visualization and documentation tools are also available. In our opinion, SolidWorks products offer the optimal price/value solution for the challenge of the complexity and size of the task.
However, building such a platform and development environment comes at a significant cost from the beginning. If we look only at the number of engineering licenses required and the price of special modules, we are talking about an investment of hundreds of thousands of dollars. In addition, we also need to provide solutions that are essential in an enterprise environment such as running central servers, network devices, data security, virus and firewall protection, to name only a few. These things, which may seem like a negligible trifle at first, all result in significant costs in the long run, but their application is essential. Several large companies have already run into the problem of data loss due to unsatisfactory data protection, which is one of the costliest losses. We do not want to save on these, but we strive to build the safest redundant system within a reasonable framework.
If we examine the composition of the planned budget of € 8.7 million in the light of the above, we get the following distribution over a five-year period or broken down by year:
It can be seen that wage-type expenditures dominate, but a significant amount is also needed to provide the right development environment, which requires a one-time investment of nearly 620 thousand Euros (Software, Hardware, Security). Our team envisages a significant academic partnership and does not want to save money on the cost of the necessary test equipment’s, – which are essential for success. There are R&D areas that can only be properly tested through prototype production before live deployment. State-of-the-art simulation solutions and scaled-down test models could help in this. The various depreciation expenses, annual software tracking fees, office rent, internet, telecommunications, and data security are all significant expenses under the duration of the project. Breaking down the above costs and examining their effect on the hourly rate, we obtain the following sunburst chart, showing the distribution of the various components in the hourly rate. The distribution of costs may vary depending on the development period (3-5 years), but it can be seen that the entry price of such a platform is no longer so high compared to the size of the corrugated machine sales market, – estimated at $ 1 billion per year.
In the United States alone, more than 450 corrugated paper mills are still active, and there are thousands of mills worldwide. As the volume-to-weight ratio of the produced corrugated product is unfavorable from the transportation point of view, it is not worth transporting after a few hundred kilometers because the associated transportation costs start to dominate the price of the product. For this reason, the various corrugating mills have a geographically well-defined location. If we look at the fact that the investment cost required is no more than the cost of building a single modern corrugating plant, we might be able to put this EUR 8.7 million into the right perspective. If this cost would spread over only 100 plants or possibly later 1000 plants, no single investor would need to contribute more than € 87000 / € 8700, which is an insignificant amount compared to the level of investment in the industry. Even In the former case, we are only talking about the list price of a pair of high-tech Peripherally heated Corrugating rolls. We mentioned earlier that, depending on equipment, the installation of a modern production line ranges from $ 4.5 to $ 10 million. The price of the € 3.5 million machine family we plan would be competitively priced on the market, and the 10% coverage inbuilt would be a huge saving over the life of the machines for the platform users, not to mention the stability and predictability that comes with it.
When evaluating the purchase of new equipment, too many companies disproportionately focus on the initial purchase price. Unfortunately, this neglects the fact that for many devices, 85% of the total cost incurred over their life expectancy, after purchase. If operating costs are high, initial purchase savings quickly evaporate, costing you for years to come. To ensure you are getting the most cost-effective solution, you need to calculate the TCO (Total Cost of Ownership).
If the Initial Purchase Price only represents only about 15% of Total Cost of Ownership (TCO), what other costs must be captured to build out a TCO for a corrugating machinery? Be sure to include each of the following:
- Initial purchase price
- Installation, commissioning & training costs
- Cost per square meter (SQM) paper production (Depending on point 4-9)
- Consumables, accessories cost (Starch, Steam, Water usage)
- Maintenance related costs (parts, maintenance contracts, etc.)
- Labor costs, operation related expenses
- Energy cost components (Electricity, gas used etc.)
- Costs related to the product/system management (configuration/changes)
- Production downtime, errors
We also mentioned earlier that, in addition, the amount to be invested would be returned to investors little by little later by reducing the 10% coverage ratio for them (5% ÷ 8%). So, they would support the investment with a so-called interest-free loan, which we would later return to the investors through the price of the purchased products and services over the years. Following the development, the engineering staff can be reduced, thus minimizing costs, or involved in the development of additional machine families within the framework of the open platform. Of course, we would prefer the latter. In this way, it would be possible to migrate the dry-end machine family later, and then the various processing machines, within the framework of the platform. In a 10-year perspective, the entire product family of packaging process machines could be migrated to the new framework, thus fostering innovation and breaking down market prices. Other development groups and industries could join the working concept, thus completely reforming the market for custom machine building and services. We believe that the safest way to achieve sustainable predictable development is to use open standards and systems, resulting in significant cost savings over the entire life of the machine. The valuable Know-How, – knowledge -, must not be kept secret and protected by patents, but made available to everyone for the brighter future. Once someone has invented the wheel, we don’t have to reinvent it, but build on the knowledge we’ve already accumulated to create a better world.
We hope that with our series of articles we have managed to raise an interesting topic and concept. So far, we have received many inquiries and we continue to try to answer the questions asked through our contact details. Don’t be afraid to meet with us and our expert partners.
We believe that together, we can see the new horizon of paper industry and create a more effective business system.
Contact us with confidence, if you agree or even disagree, and don’t forget: Easier Together.
– BBM –