Developing customized, flexible and efficient solutions, machinery makers are meeting the challenges of an industry in transition.
By Stefanie Rossel
The pace of change in the tobacco industry has accelerated significantly in recent years. The decrease of global cigarette sales volumes continued in 2016, amounting to an estimated 3 percent; in China, sales volume reportedly even shrank by 8 percent. New regulations, such as the revised EU Tobacco Products Directive, which was implemented in May 2016, are forcing tobacco companies to focus on compliance.
This year started with British American Tobacco’s takeover of Reynolds American Inc., another mega-merger that is likely to lead to further rationalization of production sites and perhaps further concentration among the tobacco giants. As demand for combustible cigarettes declines worldwide, cigarette alternatives continue to show impressive growth rates.
In response, cigarette manufacturers have started repurposing their factories. In March, Philip Morris International (PMI) announced a €300 million investment ($319.59 million) to convert its Papastratos factory in Greece from a cigarette-making facility into an iQOS “tobacco sticks” plant.
Unsurprisingly, investments in traditional tobacco making and packing equipment have been lower in the past few years. “We are all certainly operating in a very challenging environment,” says Ian Tindall, innovation and marketing director at Molins. He remains optimistic, however. “Despite the consolidation of the industry that we all hear about, there are still many independent players who continue to invest, albeit in a more modest scale than some of the big multinationals. They see the value of working with established and reputable suppliers, and so there is some space to operate.”
And even beyond smaller tobacco companies, the machinery sector still offers considerable opportunity; it just takes the right strategy to seize them.
Molins, for example, identified the need for a full end-to-end offering for the mid-speed market where reliability, robustness and quick brand changes are key. “We have introduced the Alto and Octave making machines to compliment the Forte filter maker, and then introduced the Optima hinge-lid packing machine to give true make-pack capability from a single supplier,” says Tindall.
New business models
At the same time, Molins reorganized its business into a “one-stop shop.” “We have amalgamated Langen Group, Molins Tobacco Machinery, Molins Technologies and Cerulean into a single company: Molins,” says Tindall. “This has immediately added to our offering comprehensive testing capabilities that can be delivered to our customers through the Cerulean brand. We can now deliver a total make-pack-test line and even a whole laboratory for regulatory testing if needed. This merging of companies has also given the customer access to a greater number of field engineers and, when considering special projects, a larger number of scientists and development engineers. We believe by offering more support to our customers we can allow them to concentrate on what they do best, and this brings success for both us and them.”
TMQS of Germany has also gone through a transformation. Starting out as a supplier of spare parts in 2001, the company today describes itself as a solutions provider.
“While we are not focusing on providing new machinery as our main field of business, the important point for us is to deliver whatever is required in terms of improvements, leading to a better machinery usage, improved embedding of machinery into their new surroundings, modernized and enhanced data collection, and usage of systems and anything else providing benefit for a factory in its specific situation,” says TMQS sales manager Norbert Schulz-Nemak.
“All this needs to happen with a very high value-for-money ratio, and it must be done with an open-minded approach. Barely any project is like the other, which is due to the specifics of every machine and the required outcome.”
While acknowledging the challenging business environment, Schulz-Nemak believes it also provides opportunities. For example, equipment suppliers can participate in the consolidation process by developing solutions for new production processes or simply by helping factories save money.
“This can range from small solutions like an improved version of a ledger drive for cigarette and filter making via very tailored processes of sub-assembly repair or maintenance with optimal content for the exact requirements or an active diameter control for cigarette and filter makers up to high-tech solutions for very specific products in diverse markets,” he says.
Opportunities prevail
The equipment market is saturated due to the consolidation among the cigarette companies and the subsequent shifting of manufacturing capacities into fewer factories producing larger volumes. However, such developments may also mean good business for machinery suppliers. “These additional manufacturing capacities usually go along with the need for a bigger variety in brands for the receiving factories as long as local brands are shifted to different factories. This could also mean that new machinery is required as space is limited but capacities are to be increased. And even if no new machinery is required, specific standardizations or modernizations may need to be projected in order to bring all machinery to the factory standard,” says Schulz-Nemak.
Even as cigarette volumes continue to decline, the variety of brands is increasing as consumers demand more individualized products. For cigarette manufacturers, this means shorter production runs and more frequent brand changes. “As multinationals continue to develop new variations of existing brands and try to develop new brands, we are also seeing a resurgence in format change parts for the MK9 Classic and orders for new machines,” confirms Tindall. “This mid-speed machine is known as the ‘workhorse of the industry,’ and over the years has shown to be perfect for any cigarette variant.”
He says that these changing consumer requirements might spawn a new type of “boutique” cigarette producer targeting very specific markets. “To us, this niche is one we have targeted and fulfill well.”
Joining forces
Tobacco machinery suppliers have also embraced digitization, automation and interconnectivity. Molins’ latest equipment is capable of communicating with other parts of the production line, including makers, packers and testing equipment. It is ready to take advantage of developments such as data mining and metrics.
According to Schulz-Nemak, most of TMQS’ solutions are able to share data with the next-level management information system (MIS). “This enables our customers to embed these units into their own MIS and its data to be used for process evaluations or as one basis for higher-level systems.”
These days, tobacco machinery suppliers often cooperate with IT companies.
Working with a partner, Molins can deliver plant-wide quality-assurance data systems, such as Nexus, which has been deployed successfully. “This adds value to the manufacturing chain by ensuring that products are being made to the appropriate quality specifications and that the product is adequately verified,” explains Tindall.
TMQS works with Shenzhen Hualong Xunda Information Technology Co. “They develop complete solutions for whole factories that enable a full reporting and a management of the manufacturing processes on the click of a button,” says Schulz-Nemak. “Everything can be connected—from sensors within the machines providing status messages about the condition of functional groups via information on parts usage on each machine to develop a preventive warning system about potential upcoming breaks based on real usage data via material usage, real-time visualization of all machines in a virtual factory to a full management information system informing about all key parameters of the manufacturing process, ranging from primary to secondary operations and further,” he says.
Staying flexible
In times of industry transition, flexibility is key. “Our firm belief is that, by changing with the industry we can be better placed to meet the demands of consumers and regulators,” says Tindall. “This requires Molins to be an agile partner in changing to meet market demands, and this is reflected in the products we have been bringing to market.”
Schulz-Nemak notes that a concentration of production capacities is usually accompanied by the target of cost reduction, while the quality of the manufactured goods is expected to remain at least at the same level. “TMQS is set up to deliver exactly this, he says. The company, he says, offers direct cost savings, cost savings through standardization and cost savings through technical solutions that, among other benefits, reduce downtime.
This approach, says Schulz-Nemak, allows TMQS to look toward the future with confidence. “The requirements will keep changing,” he predicts. “We are ready for this ongoing challenge.”