Maximilian Schnippering, Business Specialist Recurring Revenue and Alexander Driss, Project leader VMI, of Heidelberg provide us with their deep level insight into how an organisation can harness the value of logistics services within a subscription model to drive value...
Heidelberger Druckmaschinen AG (Heidelberg) is a reliable and highly innovative partner to the global printing industry. For more than 160 years we have stood for quality and future viability. This means that we are a company with a long tradition, but at the same time we help define the future trends in our industry thanks to state-of-the-art technologies and innovative business ideas.
Our mission “Heidelberg goes digital” is to shape the digital future of our industry. We are aiming to develop Heidelberg into an end-to-end digital system for industrial value added, assisting print shops in their own digital transformation. The most important component on this path is the smart use of the data available to Heidelberg through the digital connection and networking of customer equipment. The company is focused on customer requirements and on generating value added in terms of efficiency, profitability and customer success.
Heidelberg Subscription Model
The Heidelberg Subscription model is following the growing pay-per-use trend in mechanical engineering and moving further away from simply selling presses. Under this Heidelberg model, customers only pay for the number of sheets printed. The price per sheet under the top configuration level of the new digital business model includes all equipment, all consumables required – such as printing plates, inks, coatings, washup solutions, and blankets – and a comprehensive range of services. Heidelberg is launching new variants of the digital business model to widen its appeal to an ever-growing number of print shops.
The rollout is going according to plan and is to be expanded. Establishing pay-per-use models in industrial offset printing is the result of the ongoing digital transformation at Heidelberg, and the company’s software and data expertise. Heidelberg offers customers a smart complete system comprising press, services, consumables, consulting, and software solutions. It is inconceivable that a holistic system of this kind could be managed dependably without big data applications – such as in predictive maintenance – and the company’s Push to Stop approach to autonomous printing.
Vendor Managed Inventory
Following on from the roll out of “Heidelberg Subscription”, Heidelberg is now providing Vendor Managed Inventory (VMI) services. Heidelberg is taking control of the entire supply chain for consumables of every subscription customer. This takes the contract model’s customer benefits to the next level. The move brings added flexibility for the customers, allowing the company to focus even more closely on its customers’ needs and leave warehouse management to Heidelberg.
The “Vendor Managed Inventory” services are being delivered via an app developed by Heidelberg. Through cloud-based cooperation with the Heidelberg Assistant, it ensures entirely transparent flow of goods. The Heidelberg Assistant digitization solution is a key technology in the digital transformation process at Heidelberg. It paves the way for creating and ensuring the smooth operation of the company’s new digital business models. Customers using the Heidelberg Assistant benefit from a transparent process workflow together with smart and efficient print shop operation.
With VMI customers have even less capital tied up in consumables, enjoy greater flexibility, and can focus even more on their own customers while Heidelberg takes care of warehouse management. The VMI approach also uses cloud-based interaction with the Heidelberg Assistant to give subscription customers complete transparency with regard to goods flows.
By building up the Heidelberg Assistant VMI feature, Heidelberg designed also the booking interface for a mobile application, giving customers a flexible and easy to use solution by creating visibility over the consumables stock level at customers side. Heidelberg designed an omnichannel approach with two interfaces (Heidelberg Assistant and Mobile APP) for the customer, that the customer can decide which channel to use - depending on actual workspace - for data transmission.
Heidelberg is working with customers on an ongoing basis to develop this function using the Design Thinking process.
In recent decades, more and more companies have recognized that cooperation along the value chain across company boundaries can be beneficial for all stakeholders. One form of this collaboration is VMI. The traditional process is called “Buyer Managed Inventory” – or BMI for short. Traditionally, the customer triggers an order from his supplier for a consumable as soon as it falls below a certain stock level¹.
The transfer of ownership from suppliers to customers takes place directly upon acceptance of goods by the customer. However, BMI has some drawbacks, for example in supplier management: Usually, a print shop obtains products from many suppliers, as not every supplier can offer all consumables.
This is complex and confusing, because each supplier has different delivery times for the respective products. All of this quickly leads to shortages of individual products2, which results in a machine shutdown. Furthermore, the immediate transfer of ownership means that the printers have a high capital commitment, high storage costs and must accept a storage risk, as products could become unusable during storage.
The customer exacerbates these disadvantages by attempting to take advantage of volume rebates. The supplier, on the other hand, usually must guarantee a high level of service with low delivery times. This is often only possible through stockpiling, which also incurs additional storage. Another negative factor influencing both sides of the supplier-customer relationship is the bullwhip effect. The Bullwhip effect states that fluctuations in demand along the value chain can increase and the quantity ordered and often go well beyond the original end-customer requirements3.
The reasons for this is distorted disclosure of information, uncoordinated demand forecasts by individual undertakings [...], the bundling of orders [to achieve economies of scale] and the ordering of larger quantities for fear of supply bottlenecks4.
The VMI concept replaces the roles in the ordering process: the customer no longer orders the necessary consumables, but the supplier takes care of an optimal supply. The customer merely transmits information such as sales data, consumption quantities and his stock, electronically via a so-called “Electronic data interchange”5 or via the Internet6.
The partners also set minimum and maximum stocks to allow a balance between production capacity and efficient use of available storage space7. Based on the data received, the supplier makes a forecast and determines the delivery time and quantity. Consumption and inventory data can be transmitted at different levels: either electronically at certain intervals, for example once a week, or continuously and in real time. Customer at regular intervals and carry out a physical stock count.
The close cooperation at VMI presupposes a relationship of trust between the customer and the supplier8. The customer has control over his procurement but must continue to deal with the risk of shortfalls. On the other hand, the supplier benefits from more freedom of choice, better planning with precise data transmitted by the customer and ultimately deliver better service quality, which in turn is beneficial for the customer9.
The customer is usually supplied more frequently and more quickly, which, however, results in higher transport costs and sometimes underutilized transport capacities for the supplier10. One advantage for both sides is the reduction of stocks, made possible by the better coordination of processes. In the case of VMI at Heidelberg, the group’s experience with global logistics is added. In addition, the customer receives all consumables from a single source.
With the Heidelberg Assistant, you can access these important performance indicators, service contracts, and services at any time, and keep a close eye on the availability and efficiency of your machines. Access is extremely simple – via your PC, tablet or smartphone.
At the same time, the Heidelberg Assistant is your access to different Heidelberg products and services: you communicate conveniently online and can transfer information for technical clarification quickly and easily. The basic version of Heidelberg Assistant is available free of charge to all Heidelberg customers, additional premium services can be purchased.
Lensing Druck in Dortmund for example is a pilot user of the vendor-managed inventory solution and was also one of the very first subscription customers. Consumables stocktaking at Lensing is carried out using a mobile device that runs the app developed by Heidelberg. Stock levels are revised by scanning a data matrix code sticked to the shelf where the consumables are stocked. They are automatically sent to the Heidelberg Assistant.
The Material Requirements Program (MRP) ensures sufficient stocks are available to cover the customer’s needs. “Since the launch in mid-May, our nventory management has been getting better and better. Optimized goods delivery means Heidelberg can plan supplies of the materials required virtually in real time while also conserving resources,” says Lensing Druck’s Managing Director Robert Dembinski.
At the same time, purchasing and logistics processes are also becoming less complex for the customer. During the rollout phase of “Heidelberg Subscription” companies are able to use consulting services from Heidelberg to significantly improve processes in the pressroom. Presses will be positioned to suit the flow of materials perfectly, the distances between the individual workstations will be optimized, markings show exactly where paper and other materials are to be set down, and the entire production area is always kept neat and tidy.
What we do – which is unique on the market – is to create a smart end-to- end system from a data-supported configuration of all operating resources, consisting of machinery, software, service and consumables. The model is based on Heidelberg’s established ability to digitally network with its customers and printing press users and deliver a self-contained, productive system. We, too, share in the benefits this entails.
With the new digital business models, our interests are aligned with those of the customer. It is in our own interest to ensure that the customer succeeds. With a market share of more than 40 percent for sheetfed offset presses, we were able to consolidate our position as the printing industry’s market and technology leader in the current financial year as well. Consolidated sales amounted to almost € 2.5 billion in the financial year 2018/2019.
Together with our sales partners, around 11,500 employees in total at 250 production sites in 170 countries around the globe ensure the implementation of our customers’ requirements and our continuous development on the market.
1. See Ståhl Elvander, M.; Sarpola, S.; Mattson, S.-A. (2007): Framework for characterizing the design of VMI systems, in: International Journal of Physical Distribution & Logistics Management, Vol.37 (2007), No.10, pp.782-798.
2. See Buscher, U. (2009): Wenn Zulieferer und Abnehmer eng zusammenarbeiten. Logistische Kooperationen im Rahmen des Vendor-Managed-Inventory-Konzeptes, in: Wissenschaftliche Zeitschrift der Technischen Universität Dresden, 58. Jg. (2009), Nr.1-2, S.53-57.
3. See Simchi-Levi, D.; Kaminsky, P.; Simchi-Levi, E. (2008): Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies, Vol. 3, New York 2008, pp. 154, 255-259.
4. Kummer, S. (Hrsg.); Grün, O.; Jammernegg, W. (2013): Grundzüge der Beschaffung, Produktion und Logistik, 3., aktualisierte Auflage, München 2013.
5. EDI, "Electronic Data Exchange", Simchi-Levi et al. 2008, p.255.
6. See Simchi-Levi et al. 2008, p.255.
7. See Buscher 2009, p.55; Elvander et al. 2007, p.792.
8. See Simchi-Levi et al. 2008, p.256.
9. See Buscher, U. (2009): Wenn Zulieferer und Abnehmer eng zusammenarbeiten. Logistische Kooperationen im Rahmen des Vendor-Managed-Inventory-Konzeptes, in: Wissenschaftliche Zeitschrift der Technischen Universität Dresden, 58. Jg. (2009), Nr.1-2, S.53-57.
10. See Buscher 2009, p.56.