ROI: ‘Return On Investment’ or ‘Rethink Our Industry’?

The words “capital investment” sound like music to the ears of our industry suppliers. It is a magical combination of words, meaning that business is improving and the future looking so bright that you need to prepare for higher demand by investing. But what is the reasoning behind a capital investment? I think it is worthwhile to explore a few of the factors motivating the decision to spend money.

Guy Goldstein

I won’t go into financial details or analysis here. The bean counters within your organization will do this better than I ever could, based on your own internal criteria, which are specific to your company and depend a lot on whether you have to pay dividends to your shareholders. Investments are always seen as money not being distributed and that can have a negative influence, with the stock market tending to take down the value of the company's shares if it is publicly traded.

WHY SHOULD YOU CONSIDER A CAPITAL INVESTMENT? Perhaps your market is growing or you want to increase or maybe even just maintain your market share. Or possibly you want to go after new markets, either domestic or export. You want to steal volume from your colleagues or competitors...and you have capital (that magic word). You probably don't want to put your money in the bank, where it would be safe, because the returns are so low.

Internally you have decided that the ROI or financial return as calculated by your finance department should be five to seven years depending on the amount of money you put on the table, tax considerations and the cost of borrowing it. You are in fact likely to look at a straight payback on the order of two years. It means that you take into account the manufacturing savings plus the margins generated by the extra volume (which undoubtedly you are going to sell at least at the same high price). One is, of course, always neglecting the influence of competition which is watching and will do everything to spoil your returns and derail your project.

SO WHEN SHOULD YOU INVEST? THE ANSWER IS, SOMEWHAT UNFORTUNATELY, ALWAYS. You may need new capacity to service your customers or perhaps you want to introduce new products to the consumers. You want to break the vicious circle which over the years brought the prices down and squeezed your margins. You absolutely need new references and products.

THE OTHER REASON why you need to invest is that your relative manufacturing costs are going through the roof due to your competitors investing in new, modern, fully-automated lines with virtually no people running the equipment. Thus you have become a high-cost producer as your once-competitive equipment has now become expensive to run. Think of how many rewinders are still around with a capacity of 12 to 15 logs per minute when new lines have been proven at 60 logs/minute!

If you were to replace four or five lines by one state-of-the-art machine needing only three people per shift, compared to the present four in your case, that is a saving of 39 to 51 persons based on three shifts. Increased quality is also in general a bonus which may or may not lead to higher prices for your products but will certainly give you a more consistent production and an edge over other people.

ALL OF THESE IMPROVEMENTS I AM REFERRING TO ARE AVAILABLE NOW. I am not even talking about things like flying splice or quick change embossing with sleeve changes in less than 10 minutes. Soon you will be able to do these changes by just talking (nicely, of course) to the machine.

Markets are changing too, which somewhat explains the gaps in converting strategy between North America and Europe. More and more the US will be confronted with customers wanting differentiated products. Lower sheet counts are already being seen, as well as more and more embossed and decorated variations which modern equipment delivers at the turn of a switch.

Automated sheet count reduction/increase can be done sheet by sheet. Ply lamination is becoming standard, replacing the “ugly” edge embossing which gives the product an unfinished/cheap look.

Packaging has evolved too, allowing fully automated changes from one pack to almost whatever you can think of. Auto-palletizing of product direct to in-store displays is now common with laser guided vehicle transfer to shipping or loading of trucks, and then on to the retail outlet.

IT HAS ALREADY BEEN DEMONSTRATED THAT YOU CAN GO FROM THE TISSUE MACHINE WINDER UNTIL SHIPPING, OPERATING WITHOUT MANPOWER EXCEPT SUPERVISION. Robotics and smart computers are lowering manufacturing costs to a level which seemed unattainable five years ago, while at the same time improving quality and minimizing waste.

The mills of tomorrow could have been designed by George Lucas or Steven Spielberg! In many industries smart robots, computer controlled, capable of performing without fault and working relentlessly without tea/coffee breaks for 24 hours a day are a reality!

For many years, especially in converting, centralisation of tasks like central palletisation was thought to be the optimal solution, with miles and miles of conveyors moving cases all over the place. Today the thinking is more about moving complete loads with the shortest lines possible in order to gain floor space. While Big used to be Beautiful, it is now seems that Smart is Sensible and the theme of all thinking.

FOR MANY TISSUE CONVERTERS WITH LAYOUTS FROM THE 1980’S AND 90’S YOU NEED TO THINK ABOUT MODERNIZING AND CLEARING SPACE FOR THAT NEW LINE UNDER THE VERY SAME ROOF. We need to consider possibilities in the future to be able to modify internal organisation of machines in order to make them more efficient and easier and, most importantly, more profitable to run.

In my opinion, R.O.I. could also very well mean: Rethink Our Industry!•

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