As credit crunches and rising costs threaten the profits of cigarette manufacturers large and small, the industry is responding dynamically. The prevailing economic conditions are prompting many manufacturers to enter new markets and to develop new products or variants. They are also studying the cost and all other economic factors affecting their production ever more closely.
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While the investment required to re-equip a factory to ramp up production, or produce new types of products that existing machinery cannot handle, might seem daunting, the consequences of inaction may be worse in the long term as operating costs become increasingly less competitive as machinery ages and technology advances. This is a scenario that many factories throughout Asia are experiencing at the moment, and OEM manufacturers are certainly selling the latest, fastest, most sophisticated equipment to a range of customers in the region. But this option is not affordable or practical for many manufacturers, and the OEMs, recognizing this, have entered the upgrade and reconditioning market and have established departments to serve the growing demands.
"OEMs have recognized that not everyone wants a new machine," says Primary Engineering's managing director Keith Brooks. "Second tier manufacturers don't have cash or resources to maintain new hi-tech machinery. They are more comfortable upgrading or replacing with second-hand equipment."
Hauni, for one, has been able to capitalize successfully on its reputation as a supplier of quality tobacco machinery.
"Hauni is very focused on reconditioning and upgrading equipment - they recognize there is a big market there," Brooks acknowledged.
[b]Reasons be cheerful[/b]
The factors behind a decision to replace or upgrade used to be more about the cost of the equipment. But now factories are looking much more closely at other factors, including spare parts inventories, operator training and the quality of raw materials required to ensure trouble-free operation. Equally, there are often compelling reasons other than just the cost to consider upgrading existing lines. Primary lines, for example, can often benefit greatly from some relatively simple and inexpensive refinements, such as the addition of gauges and monitors, weighing stations and so on. In many instances, the investment to improve the line is paid back rapidly by savings in waste and rejected product and increases in quality and productivity.
"Older primary lines that employ manual production methods depend on the skills of their operators," said Brooks. "Consistency is the issue here. Computer control is very affordable now. Adding moisture gauges and perhaps an electronic weighing conveyor to an existing line, at a fraction of the cost of installing a new line, can significantly improve conditioning, flavoring and drying uniformity, and hence efficiency in the secondary."
Secondary lines are a harder call, said Brooks. "You have to ask yourself, 'do I want five older machines that work ok, or buy one new one that, if it breaks down, stops production?'"
Lower capacity machines offer more flexibility for multi-brand/type manufacturers, and operating several machines provides a greater safety net. They don't require the most perfect materials and are more forgiving on the production process. Plus the flexibility of operating several machines can offer a financial hedge in a volatile market. Companies such as Hauni and Molins Tobacco Machinery (MTM) have recognized the market for smaller capacity machines and serve it with new and reconditioned units.
[b]Influencing the decision[/b]
A high percentage of MTM's service business in Asia is in upgrading existing lines,"Certainly in Asia we are witnessing quite an increase in demand from cigarette manufacturers for overhaul and upgrade packages to suit their existing equipment," said Mark Aldridge, director of Molins in Asia. "Perhaps the recent global increases in raw materials and energy costs along with the ongoing 'credit crisis' is influencing the overhaul or upgrade versus new equipment decision, but we believe the judgment process goes deeper than that because other costs are now being considered as part of the equation. Parts inventory is good example: there is a loss that occurs because existing inventory now becomes redundant when new machinery is installed."
Other factors are also important in deciding which way to go for most manufacturers.
"Operator and technical staff re-training is also a consideration, as is the compatibility of new high speed equipment with the materials previously used by the substituted machinery," said Aldridge. "Changing raw materials to those of higher standards enables faster machinery to operate correctly, but obviously impacts profitability. In addition, consumer sentiment can be adversely affected if the smoke profile and flavor changes from the established norm."
Overhauling and upgrading equipment also enables the manufacturer to take advantage of the existing established OEM supply chain for most components, which means purchasing routes are already in place and machine running costs are not only known, but also competitively priced. High speed machinery with new technology will require purchasing and logistics effort to establish parts and replacement routines. Component costs also tend to be higher because of the technology involved.
Manufacturers with older equipment to automate or upgrade don't want to spend a fortune, and in many cases they won't have to. Contacting an unbiased, professional company for an accurate, professional assessment of existing parts and upgrade options is a final step towards deciding what, if any, upgrades are worth considering, taking into account cost- and waste-savings and downtime. Companies such as Primary Engineering can tailor a dedicated program to assess actual requirements and customize the upgrade.
"This option is taken by large multi-nationals and second tier manufacturers alike," Brooks pointed out, "who recognize the advantage of conducting an on-site evaluation. A regionally-based company with assets in place may be a better option for personalized, efficient refurbishment and after-sales service. Often, solutions can be found that can save many times the amount of investment required to upgrade a particular process, saving wastage and rejected product."
Frequently, the solution is simple. Perhaps an older machine that appears to be less efficient can be improved with simple, inexpensive modifications using new technology. A consultation is cost-effective way of finding out if there are benefits to be gained and allow economic assessments to be made.
[b]Capacity vs efficiency[/b]
The life cycle and operating efficiency of overhauled and upgraded equipment is comparable to that of a new machines. In addition if upgrades such as microwave weight control is included on making machines at the same time then product quality will also be comparable.
[b]Increasing capacity is another issue.[/b]
"Clearly upgrades can only take a machine design so far," acknowledged Aldridge. "To overcome this restriction certain manufacturers prefer to operate two highly efficient mid-speed machines to one of higher speed because the advantages in production flexibility outweigh the labor savings in operation of one machine."
Molins has considerable experience in rebuilding and upgrading older equipment particularly the MK9/Max-S combination, probably the ideal making combination for most production managers. The sheer number of these combinations still running in production and the scarcity of these models available for sale in the market place would appear to lend weight to the overhauling and upgrading option as a very real alternative to new high speed machinery.
Manufacturers seeking to introduce new types of cigarettes, such as super slims, may find that older machines can be retro-fitted with a conversion kit or module. A consultation with the OEM or a reputable company such as Colin Mear Engineering Limited (CME) or Primary Engineering will soon determine the facts and appropriate action can then be taken. Spares inventory is also a factor in deciding which way to go. Many manufacturers find keeping the same or similar machines a comfortable option as the operator and maintenance staff remain familiar with the kit and the spare parts inventory does not need to be replaced.
The choices facing manufacturers wanting to increase profitability and control costs by retooling their production facilities include reconditioning, upgrading, buying second-hand or new. Whichever option is finally taken, experts advise dealing with reputable, well-known and reliable suppliers with a proven track record. Opting for anything less could turn out to be a false economy leading to costly disappointment. Enditem
