Pharmaceutical and Medical Packaging News
Magazine
PMPN Article Index
Originally Published December 1999
PHARMACEUTICAL
Emerging Ways to Acquire Packaging Machinery
The Internet, leasing companies, and refurbishers offer unique ways to obtain machinery.
Erik Swain, Senior Editor
The process of acquiring packaging machinery has undergone a major upheaval in the past year. The traditional model—contacting vendors known from past projects, trade shows, advertising, or word of mouth and having them custom design a new machine based on your specifications—is still valid and thriving. However, other means have sprung up for those for whom the traditional model was not the most appropriate. Some offer a different model altogether, while others are tools to make the traditional model more efficient.
The most hyped of these alternative mechanisms is the Internet, which offers sites for buying packaging machinery directly as well as sites that make it easier for buyers to find the right vendor. Other alternatives include buying used equipment, leasing, and renting.
Web sites such as TradeOut.com list surplus machinery.
The diversity of ways to acquire machinery mirrors the increasing diversity of the healthcare packaging industry, as more small companies, from generic drug manufacturers to dietary supplement makers to contract packagers, take over increased responsibility for packaging. Many such companies are finding that when it comes to buying equipment, what works for the major pharmaceutical and medical device companies does not work as well for them.
BUYING OVER THE INTERNET
Several Internet sites have started up in the past year that aim to streamline packaging machinery acquisition in some way. Some offer auctions or other means of direct sales. Others provide buyers with a forum for matching their needs with the appropriate vendors; these sites do not offer on-line sales. Currently, the former type of site concentrates on used, surplus, or off-the-shelf equipment, while the latter tends to focus on new, customizable equipment. But as with everything else about the Internet, that could change at any time.
Three direct-sale sites are EquipNetDirect.com, iMark.com, and TradeOut.com. All seem to be inspired by the auction site eBay, but each has its own variations. All aim to match sellers who have unused equipment with buyers who need it quickly. All make the bulk of their revenue by charging a commission on the sale price.
In general, the sites offer equipment for a specific bidding period, list specifications and photographs of the machines, and alert buyers in their databases when equipment in which they are interested comes up for bid. In some cases, bidders are able to inspect the machine in person before bidding.
EquipNet Direct Inc.'s (Randolph, MA) auctions run quarterly, but it also has equipment for sale 24 hours a day, seven days a week, similar to a classified listing. The firm has forged a partnership with HealthStar (Randolph, MA), a dealer of used equipment, including pharmaceutical and medical device packaging machinery. Initially, pharmaceutical and medical equipment has been the site's focus. The industry experts who work or consult for the site are a big selling point, says Howard A. Samuels, president and chief executive officer of EquipNet Direct.
Visitors to iMark.com can find, in addition to machines, links to transporters and financiers.
"Our belief is that you have to establish key industry relationships and assist with the handling of the equipment and the sales and marketing," Samuels says. "We have very deep contacts on both the buyer and the seller sides. We also offer, through a network of third-party providers, a very comprehensive set of traditional services, such as riggers, trucking and shipping, refurbishment, line integration, and installation." The site also aims to provide the highest-quality equipment information to enable a buyer to make an informed purchase decision, he says.
Taking a slightly different approach is iMark.com Inc. (Austin, TX). It is a "more liquid" market than a traditional auction, as sellers can set the sale for any duration and buyers can set their bids for any duration, says Sandeep Nanda, director of marketing. That allows both buyers and sellers more leeway in strategizing how to bid or to conduct the sale, he says. The company has relationships with a variety of consulting and engineering firms that can assist staff in answering buyers' and sellers' questions. The site provides links to other companies' sites that can help with transportation, escrow services, and other facets of buying.
While EquipNet Direct and iMark are both focused narrowly on packaging and manufacturing equipment, TradeOut.com's (Ardsley, NY) range is broader, offering not only packaging equipment but also about 100 other categories of items, from computers to office furniture. "Our business model is horizontal," says Brin McCagg, TradeOut's chairman, chief executive officer, and founder. "We are like an exchange or central marketplace for any surplus that comes off the back end of a business, which has been a very inefficient market in terms of finding the right buyer." But, he notes, each category has experts to assist buyers and sellers. The site offers auctions in four different formats and is putting together buyer-transaction histories so sellers "can target market products to an increasingly relevant group of buyers."
While the sites offer a faster way to buy equipment, they don't purport to be a substitute for appropriate due diligence and inspection. All advise buyers and sellers to use the same caution they would when making a purchase the traditional way—buyers should verify that they are getting what is advertised, and sellers should be prepared to verify buyers' credit histories.
"We try to shorten the search and the negotiation processes," says Nanda. "Everything else happens as it always does."
McCagg agrees. "We don't eliminate all the off-line due diligence done in the real world. We give people tools and information to make it easier." But, he says, "a lot of the sales on our site occur without inspections because the sellers are reputable and the products are brand-name and often new."
Nonetheless, says consultant Richard Sabourin, president of Manufacturing Strategies (Morrisville, PA), buyers should nearly always inspect a machine in person before bidding on it. "The only time when it is advisable not to do so is if it is a low-end piece and the buyer is dealing with someone he can trust," Sabourin says. "On a higher-end piece, I wouldn't buy it from my brother if I couldn't put my hands on it first. High-end equipment generates too many technical questions that are best answered while inspecting the machine. The Internet is a good place to investigate and make contacts, but it is not the place to finalize the sale."
USED EQUIPMENT
Used equipment, consultants say, is more appropriate than new equipment to purchase on-line. However, they don't notice a great demand for it, whether bought on-line or in person, among major healthcare companies. "Smaller companies are more likely to buy used equipment," says Sabourin. "The top pharmaceutical companies don't do it to any great extent. Contract packagers and generic drug manufacturers are the more likely candidates."
Andy Woehl, plant engineer, Synergy Production Laboratories (Moab, UT), a small dietary supplement contract manufacturer and packager, fits the profile—not only of someone who benefits from buying used equipment, but also from buying it on-line. (His firm is located far from major metropolitan areas.)
Woehl used EquipNet Direct to buy a tablet counter, and he says that he would do it again. "I was able to work with an agent to track down information about it," he says. "Before, I had bought used equipment and not gotten what I wanted. Here, they acted as a broker and protected my interests as a buyer. They also made follow-up calls to make sure the machine worked. I will use them again or any other Internet site that I can get information from."
The exhibition floor goes virtual at packexpo.com.
There are some issues to be aware of with used equipment. John Dusky, packaging engineer with consulting firm O'Neal Inc. (Greenville, SC), notes that when buying used pharmaceutical equipment, the buyer should find out what products were run on it previously. "Any equipment with product contact might cause cross-contamination from other products that were used on it," he says. "Also, a lot of times you'll have to modify the size, and change the guides and rails to make the machinery fit your product."
Some equipment manufacturers are even refurbishing their used machines and reselling them. One is Schaefer Technologies Inc. (Indianapolis). "We found that it is good for start-up companies and companies that need additional equipment but lack the capital to purchase new equipment," says president Kevin Schaefer. "Our prices may be slightly higher than a used machinery dealer, but the machinery is completely refurbished and it does include a 12-month warranty, which is unusual in the used-machinery market."
Genesis Machinery Products Inc. (Exton, PA) also provides rebuilding services on all of its Westcappers built within the last 25 years. "A rebuilt capper will provide the customer with an additional 15–20 years of life expectancy, with proper maintenance," explains Betty Kauffman, marketing manager. "Companies that have low capital funding or small start-up companies with low-volume production requirements often look for such equipment." However, resales are not a major part of Genesis's business. "With the significant technological advances within our higher-speed equipment, we see the majority of customers looking for the PLC controls not found in equipment manufactured in the past. Tighter validation requirements also hinder the ability to supply older, rebuilt equipment," Kauffman says.
RESEARCHING ON THE NET
Also emerging are sites that don't offer direct sales—at least not yet—but enable end-users to find vendors for their machinery needs. Two of these are PackagingInsider.com and Packexpo.com. They allow packaging machinery manufacturers to list their products and capabilities in hopes of being matched up when a customer inputs his or her needs and specifications.
Packexpo.com is a joint venture between the Packaging Machinery Manufacturers Institute (PMMI; Arlington, VA) and vertical portal developer Cendex Corp. (Falls Church, VA). "End-users want access to information, but there's so much of it," says Erich Spencer, president of Packexpo.com and Cendex. "They want the advantage of a central starting point with a standardized view of information. And that's where we are positioned. The traditional model of the sales process includes awareness, research, analysis, and purchase. With complex capital equipment such as packaging machinery, it is difficult to bundle awareness, research, and analysis into one tidy package. We saw a void not being filled in the research phase of buying."
The site, which already lists more than 6000 packaging companies, leaves it to the vendors to decide how to define themselves, allowing them to list not only product categories but detailed product and service specifications. There is no cost to suppliers to enter data. Buyers can search by category, location, industry, specifications, and applications, and they can initiate a request for quotation. Access to the information is free—the site's revenue presently comes from other sources such as advertising and running news items and product announcements. At the end of a search, Spencer says, an end-user gets not only the companies that manufacture a particular kind of machine for a specific application, but also news articles and technical documents associated with those needs.
PackagingInsider.com, run by TechTrader Inc. (Washington, DC), offers an "advisor" feature that, according to TechTrader's president and chief executive officer Jacob Pechenik, suggests courses of action based on one's needs. After the user inputs details about the packaging job, the advisor suggests what machinery should be bought or may even suggest renting or leasing the equipment or enlisting a contract packager instead. It also points out what regulatory issues need to be addressed. The service is free to buyers, and vendors pay to be listed.
"We are working with a group of experts and packaging line integrators from the industry who are helping us get data from vendors, examine them, and fit them into standards that help in each product category," Pechenik says.
FINANCING
Another area where alternatives are being explored is in financing. Most buyers either pay for their equipment up front or get a bank loan. Recently, however, some companies have been offering special financing arrangements. Some of the deals are from finance companies that specialize in industrial fields such as packaging, but others have been created by equipment manufacturers themselves. Advantages over bank loans include lower down payments, no effect on existing credit lines, and payments that aren't subject to interest-rate fluctuations. Twelve to fifteen years ago, notes Greg Winchester, vice president of sales for Newcourt Financial's Industrial Finance Div. (Kennesaw, GA), virtually no machine-tool equipment was financed. Now "you don't find a piece of revenue-generating equipment in that area that goes without a lease quote." The same trend could occur in packaging, he says. "We can tailor products to cash-flow needs."
"Leasing companies like ours can provide a wider range of payment structures," says Stephanie Cruz, marketing coordinator at Balboa Capital Corp. (Irvine, CA). "For example, we can offer no payments for the first 90 days, which may be needed if you're using that time to train employees on the equipment or if you won't see any revenue until the equipment is bought. We see a lot of that in packaging."
Equipment manufacturer R. A. Jones & Company, Inc. (Cincinnati), an IWKA company, has a new financing program, offered through International Financial Services Corp. (Dallas). It is geared to buyers of Jones's lower-cost machinery, but can be used by any buyer. Options include lower payments at the front of the lease and bundling freight, rigging, spare parts, and other such costs into one finance program.
"We wanted to provide an option to companies looking at alternative financial solutions," says Mike Barker, technical sales manager. "Leasing tends to interest companies without large budgets that are looking for ways to acquire a machine without the capital up front, really as an operational expense. This also makes good sense for contract packagers that may only need it for a two- or three-year project."
RENTING
For those that have so short-term a schedule that even financing may not be appropriate, renting has become an option. "Increasingly, companies don't know how long they'll need a piece of equipment, and they don't want to buy it if they aren't going to need it for long, so they borrow it and send it back," says Harold Booth, vice president of marketing, The Frain Group (Addison, IL). "In healthcare, we mostly see this in over-the-counter drugs and dietary supplements where it seems to be the result of a cost consciousness."
Rental machines can be used for trying new processes, testing new machines, or addressing other situations that allow for an evaluation of the project before spending large sums.
The nature of these one-time projects calls for quick action, so Frain can set up, install, and train for a rental project within two weeks, sometimes less, Booth says. As with leasing, he says, rentals can offer the company an option to buy the equipment.
A successful rental program, he says, needs to offer assurances to the renter. Frain, for example, has a money-back guarantee and a staff of 18 service technicians who can come on-site to help with any technical problems.
CHANGING WORLD
The packaging-machinery acquisition landscape is radically different from what it was just a year ago. Given the pace of change in the worlds of the Internet, finance, healthcare, and packaging, chances are that in a year from now more alternatives will have emerged, and some current ones will have transformed. Regardless of what happens, the end-user who is aware of all the options and understands how to use them will benefit.
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