The announcement and demonstration of a concept digital printer capable of running at production volumes and targeting the corrugated packaging market at the drupa exhibit in 2004 generated considerable interest within the traditional converting industry for packaging, and also from other industries interested in gaining a better understanding of the technology, the digital value proposition and the development path around digital technologies.

Following is a brief overview of lessons learned and an outlook regarding the technology and positioning in a high-volume industry focused on low-cost production.

Why the corrugated industry?

At first blush, the corrugated industry appears to be an odd fit to introduce a technology capable of printing high-quality, personalised images. A deeper review actually shows many unmet needs throughout the supply chain stemming from changes.

At the brand owner level:

• Product packaging strategies capable of accommodating a broad cross-section of retail channels, from big box to e-commerce;
• The growth of private label and co-branded initiatives;
• An increase in both the frequency and breadth of regulatory and labelling requirements to serve local and global markets;
• Pressure on brand owners to ‘personalise’ their brand message to smaller markets.  

At the converter level:

• A continuing reduction in average order size and rapid acceleration of SKUs;
• Graphic requirements that are becoming more complex, with more colour and improved quality;
• Lead time reductions for production orders and a significant reduction in the total development time for new designs;
• Inquiries and interest in collaborative design, colour management tools and asset management capabilities;
• The constant pressure to provide greater value at a lower overall cost.
  

Due to its large size, the corrugated industry has gained the reputation as a low-cost, mature commodity. And for much of the industry volume, this might be accurate. But there are clear signs that many of the issues raised above are pushing some segments of the industry in a different direction where opportunities for differentiation and value selling clearly exist. The unanswered questions are how large a segment can be developed, how fast and what will it take?

The role of digital technologies in developing this segment

The first generation of digital printers introduced and adopted by the corrugated industry were flatbed scanners. This technology typically produced high-quality four-colour process prints. The limiting factor to the technology is total throughput; flatbed scanners typically have a total throughput capability of 80–150m2 per hour. Converters who purchased this technology have typically used the technology for samples and prototypes. The business model focused on using digital technologies to assist the customer in crafting the right graphics package in a fast, flexible and cost-effective manner in the hope that it would secure the production order for traditional print processes. The use of these technologies for sampling and prototyping work has led many to begin the search for a digital press capable of managing production volumes.

Many converters and brand owners were engaged in discussions regarding the potential opportunity for digital print, and the technical requirements necessary to seize the opportunity, which they typically viewed as mid- to high-end flexo requirements, based on sample prints. While considerable opportunity was identified in offset, it was felt the print quality needed improvement, specifically in managing large to small print areas. Converters typically felt 15–20 per cent of their existing business in this print segment might be a better fit for a digital press versus traditional technologies. The most frequent reasons for moving the business to digital were:

• The order size was a better fit for a digital press-operational flexibility;
• In reviewing runs that would be produced just once, the overall cost of digital was considerably less than with traditional technology.
• Digital print allowed a much faster time to market, enabling a discreet service opportunity.
• Digital print offered operational flexibility in acting as a ‘bridge’ while managing the move of existing print requirements from one print technology to another, or in the early stages of ram-up.
• Digital technology could dramatically reduce the cost of acquisition of new business. The converter did not have to make an investment into plates prior to running production orders.
  

Brand owners and converters also openly speculated on how large this segment could become. They explained that the true potential is unknown, because converters do not actively pursue business that is not a good fit for them operationally, and brand owners do not typically design outside the converters’ ‘operational window’ due to cost and timing issues.

The business model

Brand owners are very familiar and anxious to embrace digital technologies. They actively pursue digital solutions for label requirements in production, and utilise digital technologies for sampling and prototyping. In their minds, digital technology for production requirements in packaging is not a matter of if, but when.

So, what is the role of the converter? Digital technologies have the capability of being disruptive. Why? Digital technology carries a dual benefit of delivering discreet product (personalisation) as well as service (speed to market) benefits. In markets where there has been a strong value proposition for the technology and current suppliers have not responded, alternative (specialty) channels have emerged utilising digital technology to service the demand.

Pay-for-print providers such as Kinko’s have made significant in-roads into the traditional commercial printer’s business. The ability of digital technologies to print on a wide variety of substrates has allowed pay-for-print providers to expand into screen printing, textiles, vinyls and even corrugated.

Undoubtedly, the converter is best suited to manage the needs of the supply chain as it relates to corrugated requirements. From design through converting, the process is complex and would be difficult, but not impossible, for another channel to pick up. So, how does a converter evaluate if digital technology makes sense for them?

First, understand that digital technologies are not a replacement for traditional flexo or offset. Digital technology should be positioned as an enabler to do things that traditional technologies are unable to do, or that operationally, the converter does not desire to have them do. This means that an entry into digital printing has to be evaluated as an entirely separate business process. Consider the order pattern changes to higher-frequency, lower-volume per order. Graphics management might change from a PMS environment to CMYK. Selling price will change based on customer requirements for service attributes such as the urgency for delivery, size and frequency of order etc. Selling price will also be influenced by the frequency of design change and/or personalisation. The total cost of production versus traditional flexo will be influenced more by the customer’s view on the benefits derived by the digital option versus the cost of a flexo run. If cost is to be the ultimate driver and the customer is willing to conform to the existing requirements to obtain the price point of a flexo run, who needs digital?

Converters need to adopt a different mindset when evaluating digital technologies. The traditional focus in evaluating investment, and later in driving operations, is machine utilisation. The capital cost of traditional print technologies combined with market pricing levels typically mandates high equipment utilisation. Digital technologies will be managed differently. Because the value proposition for digital print is unique to each customer, the price point for purchasing is also unique. Converters will need to become proficient in maximising market value for the product/service versus proficient in managing utilisation.

Economics vs market opportunities

Cost models developed for the new printer in conjunction with converters show a breakeven point for the technology well below established norms for traditional print technologies. Converters who have been through the cost model have quickly come to accept the tremendous upside potential in moving from the breakeven point to higher press utilisation points, and the downside of using price to drive utilisation. For example, the calculated ‘crossover’ point for the new printer versus traditional flexo technology printing identical four-colour jobs for a single time event is approximately 4,000m2. Converters and brand owners identify this target as being well within their target threshold for the type of order they would slot for digital printing. Converters then recognise that existing economies for the new printer provide little advantage in driving scale, but huge advantage in driving scope. This is contrary to most of their existing business models. The challenge to the converter is how to identify, solicit and grow a customer base dependent upon the specific capabilities of a digital

business. The challenges in doing this are considerable, but so are the rewards. The clearest example regarding the opportunity presented by digital printing is an analysis conducted by IT Strategies, a widely respected consulting organisation for the digital industry who published research information on digital penetration in the commercial print industry. IT Strategies estimates that after ten years of digital participation, digital printing is just 21 per cent of the size of offset page volume, but is 105 per cent of the comparable offset revenue.

If digital is positioned to have similar results in the corrugated market, what can a digital business do for your organisation?