Hanover When the Chinese government started sealing off numerous parts of the city of Shanghai to protect against infection a few weeks ago, it came as a shock to German industry. As a result, many economic researchers lowered their growth forecasts for the current year.
The state of emergency hits the German machine builders, who mainly live from exports. The Association of German Machine and Plant Builders (VDMA) expects that machine production in Germany will only increase by one percent in 2022, the association announced at the opening press conference for the Hanover Fair. The industry had originally expected an increase of four percent.
World trade is threatened by a multitude of crises. First, it was the pandemic and a week-long blockade of the Suez Canal that caused long delivery times. Many supply chains have been torn as a result of the war in Ukraine.
Many companies are therefore considering making their production networks more regional in order to better protect themselves against trade barriers and supply bottlenecks that suddenly appear. The goal is more resilience: This means the ability to survive difficult situations without lasting impairments.
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43 percent of industrial companies worldwide want to reorganize their production in order to become more resilient. This is the result of an unpublished survey conducted by the Boston Consulting Group (BCG) among around 1,500 production managers, which is available exclusively to the Handelsblatt.
Machines on subscription
Especially in high-wage countries like Germany, however, many companies are concerned that so-called “reshoring”, i.e. the relocation of production capacities from emerging to industrialized countries, will lead to rising costs. A total of 45 percent of those surveyed stated that the increasing cost pressure was one of the most important challenges in the current situation.
Because the construction of a new factory requires high investments, at the same time the number of pieces produced per factory drops dramatically due to a division. As a result, overcapacities and inefficiencies threaten. This makes machine and plant manufacturers think about new financing and production models that should lead to better utilization of newly planned factories.
An example of this is “Equipment as a Service” (EaaS): For some time now, the machine tool manufacturer DMG Mori has been offering its customers a subscription model in which they do not pay for the purchase of the machine itself, but only for its use. The system manufacturer Heidelberger Druckmaschinen now also offers its products in such a “pay-per-use” model (PPU) – as does the family company Kärcher, which produces car wash systems in addition to cleaning devices.
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From the point of view of Sven Siering, Managing Director of the digital subsidiary Vent.io of Deutsche Leasing, such PPU models are the next evolutionary step in leasing. Central to this is the fact that, thanks to digitization and the evaluation of machine data, it is now possible to calculate much more precisely than in the past how high the utilization and wear and tear of a machine actually is. “This allows customers to only pay for effective usage. This enables more flexible liquidity planning with increased planning security.”
Not only machine manufacturers, but also financial service providers such as Deutsche Leasing are therefore increasingly interested in such subscription models. The machine data could be read out by the start-up Enlyze, in which the digital subsidiary Vent.io recently acquired a stake.
The company has specialized in developing manufacturer-independent data models to measure the effectiveness of production facilities. From this, strategies can be developed with which efficiency can be increased – but usage data can also be read, such as is required for business models related to the topic “Equipment as a Service”.
The divided factory
The “Production as a Service” (PaaS) concept goes one step further: The idea behind it is that an external investor builds a factory in which different companies have a product manufactured. “The big advantage for customers is that they convert investment costs into operating costs and thus take less risk,” explains BCG partner Kristian Kuhlmann, who is jointly responsible for the study.
In his view, both EaaS and PaaS alike are attempts to better share the investment risk of building new factories. “The operator assumes the investment risk, but in return has the customer pay a premium and guarantee a certain purchase quantity,” says the industry expert. The right balance would have to be struck to make the model attractive to both sides.
A successful example of this is the Smart Press Shop, which went into operation in 2021 as a joint venture between the car manufacturer Porsche and the plant manufacturer Schuler. The production was specially designed for small series. In order to increase utilization, the Smart Press Shop not only produces for Porsche, but also for other car manufacturers. Only then is the investment, which Porsche and Schuler shared 50 percent each, profitable.
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PaaS is particularly suitable for products that are manufactured in small quantities, “where investing in your own system is not worth it,” says Kuhlmann. “The PaaS provider, on the other hand, can make much better use of its factory because it serves multiple customers.”
BCG assumes that the market will grow strongly in the coming years: in Germany alone, around five to seven billion US dollars could be invested in new PaaS factories every year, according to the consulting firm’s estimate. Globally, the market volume could even grow to up to 98 billion US dollars, with the USA and China (up to 26 billion US dollars each) as the two most important individual markets.
Because the willingness of manufacturing companies to share a factory with other companies is high. Globally, around 62 percent of those surveyed said they could imagine sharing their current production facility with other companies. In newly built factories it is even 85 percent.
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