Investment decisions are not automatic in tough market

The current economic situation is having a definite impact on packagers’ plans to purchase automation equipment for their packaging lines or to further implement automation in their systems, according to the recently completed 2009 Automation in Packaging survey of end users performed by Packaging Digest and Control Engineering magazines.

05/01/2009


More articles in the packaging automation research series

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The current economic situation is having a definite impact on packagers’ plans to purchase automation equipment for their packaging lines or to further implement automation in their systems, according to the recently completed 2009 Automation in Packaging survey of end users performed by Packaging Digest and Control Engineering magazines. This study follows up on a similar survey of end users conducted in the first quarter of 2008.


This benchmarking survey drew 507 respondents who met the criteria of being brand owners, converters or contract packagers. The study showed that 56.6 percent of the respondents indicated that the economy has decreased the likelihood that their company will purchase automation equipment in 2009.

Results were mixed when survey participants responded to a question regarding their use of installed automation equipment. This was a follow-up to a question in the 2008 survey that found more than 50 percent of participants said they were not using all their installed automation equipment or capabilities.

The 2009 study found that while 55 percent said the economy likely wouldn’t affect their use of installed automation equipment, about 27 percent said they intend to decrease use of automation equipment already installed. However, nearly 18 percent planned to make more use of automation already included in their installed lines.

Purchasing dropped suddenly

Many packaging equipment manufacturers reported strong sales in 2008, right up until the fourth quarter of the year, when orders for packaging equipment slowed dramatically.

Even though many respondents see automation as the means to control costs, they were reluctant make major investments at the time of the survey.

Shrinking sources of financing have been one of the major causes of the current recession. However, in the packaging equipment market, many purchases of capital equipment are paid for with cash. Consequently, nearly 59 percent of respondents report no major changes in how they are financing packaging equipment purchases. Still, about 15 percent report that loans for these projects have become more difficult to obtain, and about 4 percent say that original equipment manufacturers (OEMs) are requiring larger down payments.


Hesitant on capital investments

As one major OEM said at a recent industry conference, “A lot of packagers out there are sitting on their cash, reluctant to spend it due to uncertainties about the depth and length of this recession.”

One respondent said internal hurdles for funding have been increased as companies seek a higher internal rate of return to justify purchases. At the same time, many packagers have pinned their hopes on receiving economic stimulus funding from the federal government. However, they reported that such funding hadn't yet trickled down to the packagers in the same way it has to banks, insurance companies and the auto industry.

Labor, efficiency top reasons to buy

Like the 2008 survey, however, the top reasons for purchasing and implementing automation into their operations remain the same. Almost 72 percent listed controlling their labor costs as the primary reason for automating their processes, while 64 percent attributed their interest to gaining production efficiencies.

When it comes to a comparison of the demographics of the 2009 respondents to those in last year's study, the respondents are strikingly similar. Reflecting the industry, about a third of the participants hailed from the food and beverage segment, followed by pharmaceuticals and personal care/cosmetics, each representing just over 15 percent of the participants.

When asked which types of packaging equipment the respondents' companies use on their packaging lines, the leading answers were labeling, at 72 percent, and palletizing/wrapping at 69 percent. Other types of packaging equipment, including cartoning/casing, coding/marking, fill/form/seal, were in use by about 50 percent of the packagers.

While more than 25 percent of the study participants said their companies spend in excess of $500,000 annually on automation equipment, there was an increasing number of respondents reporting lower expenditures on packaging equipment for 2009 versus 2008. It is likely that this difference can be attributed to lower spending due to economic conditions.

More results from the 2009 Automation in Packaging benchmark survey, Part 1 - Packagers, can be found online. There, you also can find results from all three parts of the 2008 survey, which talked to packagers, machine builders, and system integrators involved in creating packaging machinery for all industries, as well as news, user case histories, and trends articles.

Factors influencing purchasing decisions among survey respondents

Loans have become difficult to obtain

14.8%

Lenders require larger down payments

3.8%

OEMs are offering financing

3.0%

No major changes in financing

58.5%

Project financing is now easier to obtain

1.8%

Other factors are affecting purchase decision

25.9%


Also read
:
For more recent automation in packaging, see:
- Balancing energy use, production capabilities ; and
- Automation drives efficiency, lowers cost .

For more information, visit:
www.controleng.com/automationresearch





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