Rubber & Tyre Machinery World

Info on Equipment And Suppliers

What Will Rubber Machinery Industry Be Like In 50 Years?

6 Comments

A few days back, an industry friend asked me “Prasanth, what will rubber machinery industry look like in 50 years?“. As is mostly the human case, my first reaction was to quickly calculate my age 50 years from now. Then estimate the probability that I would be alive to witness the outcome of my forecast (….I instantly realized, I am in safe zone to make any outrageous forecast…).

However, shaking myself to the present, I clarified with my friend “TNP, why 50 years and not 10-15 years?”.

His reply was sharp and to the point – “In my last 30 years in business, I have hardly seen any change in rubber machinery industry’s business model. True, you have faster and efficient machinery with different levels of automation. You introduced newer concepts to reduce energy and time. You guys (manufacturers) are out doing each other to offer better products in your market. But, then who is your benchmark? Have you seriously taken what your customer wants? Is it only a Reliable, Quality, Aesthetic and Functional machine that matters? Look at other industries, where business models have been disrupted twice and sometimes even more times – all centered around customer expectations.”

Image-business-model

I admit that his answer with set of questions was thought-provoking and got me unsettled. B2C has many amazing examples like Amazon, Alibaba and the numerous e-commerce sites that spring up every day. Even B2B has leasing concepts in heavy machinery and airlines industry, brokered through equipment manufacturers. While, I did not have an answer to him then, here are my thoughts largely from a customer perspective (and I would like to hear from you as well).

Let’s first understand, what is the conventional business model for rubber machinery industry?

When you are a customer who desires to acquire rubber machinery, you

  1. Plan the machinery for your project requirement (or replacement) well in advance ranging from 6-18 months and budgets the purchase in your Capital Expenditure (capex) sanction. This could be from your own source of funds or through external credit source, like banks.
  2. If you have a budget or time constraint, you prefer to look for a used-machinery and there are fewer steps to purchase than a new one.
  3. If you plan a new rubber machinery, you seek quotations or offers from different suppliers in the world-market spanning different geographies.
  4. You evaluate the various offers techno-commercially (along with the repute and reliability of the manufacturer).
  5. After negotiation, you place a purchase order on the selected supplier (who normally is a machinery manufacturer) along with an advance as per the rubber machinery purchase and sale agreement terms.
  6. Mostly for a project, you select multiple suppliers and order different machinery or equipment as per their capabilities and product ranges.
  7. When the manufacturer’s design is submitted, you approve them for production as it is or with certain modifications. You trust the manufacturer to have more knowledge on machinery and hence quickly sign-off the design with a cursory glance. Modifications are mostly with respect to change of drive location or some minor re-positioning of ancillary equipment and that is it mostly.
  8. When your machinery is fully assembled and completed, you make a visit to inspect and approve for dispatch.
  9. When approved or accepted, you make the due payment as per purchase and sale agreement terms and the machinery is dispatched to your site.
  10. The rubber machinery is then erected and commissioned at site after which you release the retention payment.
  11. For you, the complete cycle time from planning stage of the machinery to its commissioning is generally >10 months (for smaller equipment it could be less as well).

Please note the above steps can have multiple drilled down levels to it, and I have only listed few key ones. 

So, what needs does this business model fulfill for you?:

  • You acquire customized machinery to suit your specific process and requirements.
  • Your machinery cost is fixed at ordering stage though delivery is after 6-18 months.
  • You are able to schedule the capital outflow, purchase and installation in a planned manner.
  • You may get the opportunity to jointly develop new designs (or build new machinery) along with the manufacturer that may also get exclusively patented for own consumption.
  • You are able to access product testing facility and trials before purchase.
  • You could inspect to check quality at any stage, if required, as your machines are being built.

And for a OEM or rubber machinery manufacturer, this business model is beneficial because they

  • Get good forecast and clear visibility of the orders being executed.
  • Build and maintain relationship with a select few large accounts for repeated business.
  • Can adopt a non-standard pricing/invoicing policy depending on the product or customer maximizing profit in certain orders.
  • Specialize in selected few machinery only.
  • Are able to commit with clarity to various stakeholders.
  • Have greater control through centralized decision-making.
  • Have as many processes as possible in-house which can in-turn facilitate greater control of quality of components and manufacturing process.
  • Utilize the advance received from you to reduce working capital borrowings.
  • Do not have fully assembled units lying in inventory when machines are made to order – hence working capital is not blocked.

Rubber Machinery Industry

Now, lets look at your intrinsic expectations. What needs are yet unfulfilled in this business model?

As a customer, you seek:

  • Immediate delivery of any machinery you select.
  • Quick implementation of new project/machinery replacement.
  • To reduce the risk of your project overrun costs when machinery delivery is delayed beyond accepted deadline or your supplier fails.
  • To fix allied costs like taxes and duties, men and material handling machinery, transportation costs, power costs, etc that may increase from the time of your purchase order to delivery after 8-18 months.
  • To reduce your project management efforts by selecting a supplier who could erection and commission the complete processing lines on a turn-key basis at affordable prices. Today, many manufacturers specialize only on select few machinery ranges.

And, you are not alone. Even your manufacturer has some needs that remain unfulfilled in this model like

  • Controlling the cost of raw-materials and bought-out components as they may increase or change during the course of order-execution. Hence, difficulty in predicting the profitability of the order upfront. This changes further, when you fail to take delivery of your machinery after completion for reasons specific to you (I have seen it happen repeatedly in greenfield projects where either a statutory approval is not in place or a matching equipment is delayed from another manufacturer or there is a rework in layout, etc).
  • Optimum utilization of their Plant, Men and Machinery is difficult as order booking may vary throughout the year.
  • Scaling up of business/turn-over is a constant challenge
  • Securing the delivery of the raw-materials and bought-out components on time as per assembly schedule for both internal and external reasons – any delay may lead to loss of revenue through penalties.
  • Each order loss is a major loss in revenue for them.

What this means is the conventional business model though not the best is time-tested and the cost of disruption could be significant for your equipment or machinery manufacturers.

Disrupt

With the context in place, let me try to outline what new needs are likely to emerge in the future for them?

  • Quality will not to be considered a differentiator by the customer anymore with all manufacturers maintaining a minimum acceptable quality in their machinery. Geographical perceptions of West, East, South East or China will be irrelevant with reputed manufacturers setting plants across locations capitalizing on the local cost economics.
  • Customer will look for innovations and regular improvements of technology in existing products every 12-18 months. Data backed results for these improvements will also have to be reproduced more frequently for the customer’s specific need. For example, new internal mixer versions being launched regularly for high productivity with correct, consistent quality and auto systems. Each customer may seek ready-to-refer data analysis of mix characteristics for their own recipe. A design facility would become a must for every manufacturer.
  • Customers will seek immediate delivery. For example, say within a month for internal mixer module
  • Customers may want to pick and choose different components from a display point with options at the time of assembly (as delivery time gets nullified, there would not be much time lag between machinery finalizing and assembly stages). This is similar to what happens in computers now where a user can select specific components for assembly. When it comes to rubber machinery, every manufacturer may be required to build research center, increase their investment on infrastructure to assemble higher capacity machines and display finished components/machines.
  • Manufacturer acquiring control of facilities for all manufacturing activities to control costs end-to-end.
  • Customer will demand Rate-contracts for lifetime of the equipment with manufacturers for spares. Bench marking by linking the rates to inflation or macroeconomic credit cost changes will pose challenges.
  • Customer will demand availability of critical spares off-the-shelf from manufacturer. Equipment designs will need to be standardized, analyzed, and optimize across the similar machinery categories so as to churn out designs faster, have fast moving components in inventories that will reduce machine assembly time, facilitate off-the-shelf deliveries of critical spares, and offer rate-contracts to customers.
  • Customer will demand turnkey execution of projects from a single source – say complete mixing room, extrusion line, calendering line, etc. Similar to projects that happen in real estate sector, there will be more collaborators on-board  in every machinery manufacturing company.
  • Customer will seek Quick Interchangeability – for example replacing a 2 wing with 4 wing rotor or 6 wing rotor in an internal mixer (or say changing cored roll to peripherally drilled roll within a fortnight in a mixing mill or calender or TSS) within the equipment’s main power and drive limitations.
  • Customer will seek interest free payment holidays (say 6 or 9 months from the date of commissioning). Factoring in this cost of delayed payment or an equivalent insurance tie-up for security will have to be worked out (does it mean to innovate around value-added service?)
  • Customer will seek lease options in rubber machinery exploring off-balance sheet options to increase their return on equity/capital. This means equipment manufacturer will have to formalize tie up with leasing companies or financial institutions to offer machines on lease. Some may set up their own leasing divisions. So like the airline industry, does it mean that the financing company will be the major customer on records and the machinery end-users different?
  • Customers may want to exchange their old machinery with new machinery directly with manufacturer or seek Buy-back options/guarantees from the equipment seller. This means equipment manufacturers will have to formalize tie-up with used-machinery traders or capital equipment auction companies to offer Buy-back/Exchange Options to customers.
  • Customer will demand to pay for solving their problem rather than the machinery by itself – for example. customer will agree to pay monthly for the number of batches mixed without taking responsibility of machinery purchase, service or maintenance, something like Full Maintenance Contract plus Production Contract directly from the manufacturer. Does this mean, manufacturer will transform partially as a custom compounder or alternately collaborate with custom compounding companies to meet the demands of this section of customers.

So, have you started seeing some of the transformations listed above in machinery manufacturers? I bet yes.

Is it disruptive yet? No.

Can few manufacturers initiate disruption in immediate future? Quite likely.

Is there any sustainability risk for manufacturers? Yes and the risk needs to be mitigated. Hence, going forward, innovation is required not only in product but also around the business.

Will the rubber machinery industry disrupt and change business model? I think it is inevitable.

While all of these happen, every rubber machinery manufacturer will continuously seek to streamline their utilization of resources by removing non-value added activities from their end. And this makes a simple question “What Will Rubber Machinery Industry Be Like In 50 Years?” sensitive, exciting and interesting.

What do you think?


If you liked this article, please do share with your colleagues, customers and friends. And If you would like to be informed of our articles regularly, please register with us for free updates today.

Author: Prasanth Warrier

Co-Founder | #B2B Strategy, Marketing & BD Consultant | Speaker | Trainer | Enjoys Traveling, Reading & Meeting People | #SocialSelling | #Blogger | Knowledge Sharing | Blessed with Loving Family & Friends | Voracious Reader | Business Leader serving Rubber Industry

6 thoughts on “What Will Rubber Machinery Industry Be Like In 50 Years?

  1. Dear Readers, I reproduce a mail received by me from Mr. Jacob Peled, Founder and Executive Chairman, Pelmar Engineering Ltd. Isreal on this post.

    Dear Mr. Warrier,

    I have read with interest your latest publication the Rubber Machinery World. It is well written, well presented and interesting.

    If I may I would like to slightly correct you –

    As to the rubber industry in 50 years, indeed you are right in your statements about no change, except that it is not 30 years, it is over 100 years. The tire industry which constitutes about 50% of the rubber industry changes started occurring. In the technical rubber industry, the changes will not depend on equipment, not even products required, but mainly on the raw materials required, which are being developed and changed and will enable a more efficient and different production methods.

    Best regards,

    J. Peled
    Executive Chairman

    Like

  2. Pingback: There Is Lot of Innovation In The Rubber Machinery – Prof. Dr. Andreas Limper | Rubber Machinery World

  3. Pingback: Why We Love Twin Screw Sheeter (And You Should, Too!) | Rubber Machinery World

  4. Pingback: Adopt Higher Levels of Mechanization To Improve Quality And Reduce Cost – T.K.Mukherjee | Rubber Machinery World

  5. Pingback: The Future Will See A Lot of Machinery Makers – David Shaw | Rubber Machinery World

  6. Pingback: The Art of Owning and Operating Rubber Calenders | Rubber & Tyre Machinery World

Let us know your thoughts.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s