Tell your CFO: Packaging Machinery-as-a-Service Beats the Capex Budget Blues
With Machinery-as-a-Service (MaaS), suppliers and brand owners share a financial stake in uptime and profits. It also makes packaging automation immediately scalable for fast-moving consumer goods and healthcare products.
Imagine you’re an engineer or a plant manager at a major consumer goods company and you’ve done all the research to find that a new case packer will offer significant productivity gains and cost savings. But you just can’t get the attention of your purchasing or financial departments. Or maybe you’ve gotten some buy-in, but capital expenditure (capex) budgets are in lockdown due to the uncertain pandemic/post-pandemic economy.
Now, imagine a machine builder called and offered that case packer for zero up-front dollars, and promised to…
• Build, install, test, and commission the equipment in your plant.
• Train your operators, and kick-in maintenance services.
• Provide remote monitoring, reporting and maintenance services beyond your usual preventive maintenance (PM) routines, including spare parts for the life of the machine.
• Charge a fair, negotiated price per-case packed — with no monthly minimum required.
• Require no minimum contract period for the machine.
• Remove it at any time.
• Remove it at any time.
These are terms Pearson Packaging Systems offers today for some of its automated case erectors, case sealers, cartoners, and robotic palletizers. And it’s a prime example of outcome-based pricing — also known as usage-based pricing or Machine-as-a-Service (MaaS).
“We’re trying to provide an alternative to companies who, when determining their capex budgets, don’t have funding for whatever reason — it might be future uncertainty with COVID-19 or in terms of a recession,” says Pearson CEO, Michael Senske. “We can still provide a solution.”
An alternative from the traditional asset sales model, MaaS transfers debt, risk, and operational uncertainty from capex projects to the operational or opex budget. This pure service play tucks the cost of the asset and its maintenance into a line item for the brand’s facility, or brand management spreadsheet, alongside labor, parts, utilities, and other direct and indirect costs.
In such cases, machine builders can be at risk since they carry the financial risk of paying for the machine, labor, and other overhead expenses. They mitigate that risk by offering the service to companies they deem low risk, such as Fortune 500 food/beverage, personal care, and other high-volume packagers. Additionally, contract terms vary, and can be case by case.
For instance, RōBEX, a robotic integrator and builder of end-of line robotic palletizers, mobile robotic pallet movers, and labelers, offers usage-based pricing as one option of its FLEXX program. “Terms can be different every time,” says Craig Francisco, vice president of strategy. “We work with the customer and figure out what works best. Some might want to pay a portion up front, and others don’t want to pay anything. Based on that, we establish the outcome to be measured and a price per outcome.”
Similarly, ProBrew can-filling systems offers flexible MaaS terms for a unitized can fill/seal system in the speed range popular with craft brewers (90 to 300 cans per minute). Each case is different, the company says, but there’s typically a commissioning charge and a partial capital investment up front, followed by monthly usage-based payments.
A minimum monthly payment could be another contract option, as it was for a food/beverage industry cartoning machine installation that Will Humsi, partner with consulting firm Simon-Kucher & Partners, had a hand in. “The arrangement was similar to an outsourcing agreement,” he says, noting similarities to other operational service agreements, such as vendor-managed inventory. For this unnamed vendor and unnamed food brand, the user made monthly payments for cartons filled, with a minimum monthly payment to protect the vendor’s capital outlay.