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Equipment Acquisition: The Drivers



A great deal of time and effort goes into the decision to purchase a new or used piece of equipment. Several converters share their thoughts about the process.



By Jack Kenny



Published May 7, 2009
Related Searches: Digital platemaking Embossing UV flexo Platemaking
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What are the reasons behind a converter's decision to acquire equipment? Perhaps the biggest is to meet and beat the competition. But there are others. A new niche might beckon. Existing equipment might be aging fast and needs replacement. Customers are acquiring more knowledge about print processes and are pushing the quality bar higher. Maybe it's to improve efficiencies, to reduce costs.

Sometimes a company will find that several reasons co-exist when they are looking to buy machinery. That's what is happening at Label World, Rochester, NY, USA, which has been on a major capital equipment acquisition program for the past 15 months. The first purchase was an EskoArtwork digital platemaking system, which, says President John McDermott, was basically a move to bring the company up to the present as far as prepress goes. Next was a turret rewinder from Keene Technology, followed by a Digicon converting unit from AB Graphic International. The final piece, soon to be installed, is a Ko-Pack letterpress, which the company plans to use to enter the health and beauty packaging market in a strong way.

"This is about the need to be competitive," says McDermott. "The turret rewinder helped us to become more efficient in the finishing of our lower-end food labels and blanks that we produce. We have a lot of orders for items with very small counts per roll. The turret has reduced our finishing time by 75 percent.

"The rest of the acquisitions are all about moving upstream to more high value added segments. The Digicon Series 2 converting unit satisfies our need for more productivity on the digital print side. It is equipped to do spot UV coatings, plus flatbed diecutting, foil application and embossing, a first for AB Graphic. This will greatly reduce the cost of tooling."

The acquisition process for the converting line, which complements Label World's HP Indigo digital press, took a long time. "First we wrote up a business case that was about nine pages long, with financial calculations and payback scenarios, trying to understand what the real drivers are, and whether we are getting the benefits we need or not," says McDermott. "We looked at three brands seriously, and we talked to a lot of people. We had quite a bit of internal debate, and the discussion about acquiring the Digicon went on for a very long time. It was not a quick decision.

"We also spoke with our customers. We were trying to get a sense, first of all, of the market opportunity for enhanced features, for spot UV coating, for foil application and embossing. We wanted to know if they are nice to have or must-haves. We looked at a whole range of features. We researched the differences between productivity and reliability among the machines of the various vendors. It takes time to quantify benefits."

The acquisition of the Ko-Pack press came about through the recommendation of a quality consultant retained by Label World. "We want to enter the prime label market and produce flexible materials, and we are also looking at the production of blister packs, ECLs, and other complex constructions. We started the discussion with the consultant in June, and by October of last year he got me to the point where I was convinced.

"We started working on the sales force last year," McDermott adds. "We had to put four things into place: First was some new sales reps, second was the digital platemaking system, third was a quality system, and fourth is the press."

The company looked at a new press, but decided to look for something pre-owned, and located one in Singapore. The Ko-Pack machine is a 10" wide, 12-color CI press with a hot melt coater. "We had looked at more traditional UV flexo presses, but this press brought with it so many interesting capabilities that we finally settled on it."

One challenge in the acquisition process, observes McDermott, is determining the level of trust a company is willing to place in an equipment sales rep. "Sometimes you get a lot of people who assert various statements as if they are truth, and when you are buying equipment that might tend to cloud your judgment. You have to see through that and find out exactly how suited the equipment is to your needs. You have to dig quite a bit to get at the facts versus the opinions."

A wealth of considerations


In his years as the head of a converting company in North Carolina, Elisha Tropper was involved in the purchase of quite a few new machines. Today, Tropper is president of T3 Associates, a business strategy consulting firm.

"What brings someone to consider or to want a new piece of equipment? First, they have to – their equipment is too old. Second, they want to add a capability because they have a customer who needs it, or a competitor has it. Third, they want to upgrade their existing equipment for efficiency purposes: They can become more profitable, or they are being told by vendors that they can become more profitable.

"A lot of converters have depreciated equipment off the books, and that is a big deterreent to buying new. When you cost out a job, you have materials, labor, and a burden rate on the equipment. But if you have depreciated a piece of equipment off of the books and it's paid for, then (a) it frees up money to get new business, or (b) it adds profit.

"Some converters fall behind because they don't move up with the technology. They're OK as long as they satisfy their customers with their existing machinery, or until someone shows them how different it can be. They might say 'Show me why I should change? I'm going to have to produce 50 percent more to break even on it.' "

Sorting through the sales pitches of vendors, Tropper adds, "is the hard part. You have to determine what you need versus what they offer. For example, a press manufacturer says that his machine can print four-color process at 750 feet per minute. That sounds great, but it really didn't make that much of a difference. A 5,000 foot roll at that speed isn't significantly different in time on press than at 500 feet per minute. No one has jobs that long in narrow web. It's a great feature to have, but who cares?
"Once you get down to what it is you are looking for, and why, then you cost out the equipment, understand what you can afford and what your return is going to be on it.

"Even after you put all the data down," Tropper says, "it's completely subjective how you interpret it."

Interchangeability


Craig Moreland, president of Coast Label, Fountain Valley, CA, USA, traveled last year to New Jersey with his director of manufacturing to examine a Nilpeter FB press for sale. It was a recently built model with low hours, and the machine passed muster with the Coast Label team. The decision to buy that press, Moreland says, was effectively made years ago when the company bought a Roto Press. Nilpeter acquired Roto Press some years back, and its FB line of presses is related to the Roto Press model.

"We are essentially a job shop, like so many label companies," says Moreland. "We don't have one or two big customers with specific requirements. We have a very wide variety of customers. We're always trying to figure out how to say 'Yes, we can do that' as often as possible. I'm always looking for reasonably broad capability and versatility, because I don't know what kind of job I'll be doing next. We're small, and orders tend to be small.

"That said, I like redundancy in equipment, and I like interchangeability. By that I mean I don't want a piece of equipment that, if it were to go down, would leave me dead in the water. I want to be able to have the versatility to move jobs among pieces of equipment, to move tooling and parts among equipment, and allow operators to move from one machine to another fairly seamlessly.

"The Nilpeter FB we bought in the fall is essentially a Roto Press. We already had a Roto Press. We were starting to run up against the situation where jobs on the Roto Presswere causing a bottleneck, and we needed to free that. We have some three-color and four-color presses. Our Roto Press is a six-color, with the most diecutting capability, and it holds the best register. We had too much work that needed to be on that machine.

The Roto Press and the Nilpeter are almost exactly the same: the print cylinders and dies interchange, as do the turn bars, stackers, the delam/relam unit." The press acquisition, he adds, was brokered through Styers Equipment.

"We've bought new and used," Moreland adds. "If you can buy something that does the job and is used, you can save a bunch of money."

Additions and replacements


Last year, Luminer Converting Group, Lakewood, NJ, USA, bought a production system to produce pharmaceutical booklet labels. The equipment included a fully servo flexo press/converting unit from Rotary Technologies, a high-speed sheetfed Xerox printer, a folder, a guillotine and a flat diecutter.

"This was new to us," says Tom Spina, president. "We know the market we wanted to go into. We are in the pharmaceutical market and we saw the need for this product, especially in short runs. Customers said they found it very difficult to get booklet labels in small quantities. So we combined digital with continuous flow presses, and came up with a solution that works well."

The planning for the acquisition, Spina says, involved six months of gathering information, talking to manufacturers, making decisions and buying equipment. But that is only one equipment purchasing circumstance Luminer faces today.

"The more problematic decision is what we are going through now. The presses we use for our regular business are getting a little long in the tooth, and it's time to put them out to pasture. Now we have to upgrade the equipment we use on a daily basis. We are hoping that it takes us in new directions, but we just can't say to customers, 'Hey, we have a new press, so why don't you buy more from us?'

"So we have two presses to replace – the oldest two and the hardest working. The question becomes: Has technology improved to the point that we can bring the work of two into one? Another
consideration is that we are not very big into prime label, and our equipment probably isn't capable of delivering the absolute best in prime label products. If we are going to invest a half million dollars in a new press, does that open up market segments for us? Yes.

"Finally, if we are going to spend a significant amount of dollars in equipment, perhaps it might be a better idea to look at acquisitions, to look at someone who has the equipment and buy them. We are looking at that also and will consider it. There's too much capacity in this country," Spina says. By buying a new press we will add to that. Buying a company will kill two birds with one stone."



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