In this article, the authors examine the question of how serious the Industry 4.0 revolutions will be and which disruptive consequences will they have for existing business models. This industry specific analysis provides guidance for pricers in other industries and markets who are confronting technological and organizational changes that require shifts in pricing strategy and operations. Dr. Daniel Bornemann is a Partner at Simon-Kucher & Partners specializing in B2B strategy, sales and pricing excellence in the packaging and paper industry. Mark-Daniel Rentschler is Senior Director at Simon-Kucher. They can be reached via http://simon-kucher.com/.

The Pricing Advisor, August 2017

Industry 4.0 – More than just a trend

Industry 4.0 is a hot topic – and not just in the packaging industry. This collective term describes the digitalization and networks driven by the fourth industrial revolution. Machine and product networks make it possible to automate production processes across the board.

As in all industries, this also raises a crucial question for the packaging industry: How serious will the Industry 4.0 revolutions be, and which disruptive consequences will they have for existing business models? The packaging industry understands the need to take the topic seriously and to carefully assess the opportunities and risks. Of course, not every trend has fundamentally changed the market in terms of digitalization. There are however numerous examples of significant revolutions and structural changes to entire industries due to digitalization.

Smart Packaging 4.0 – Which uses can we already identify today?

The described development will lead to mid-term fundamental changes and interlink the packaging material and packaging machinery industries. The uses can be divided into the following topics, which are inter-dependent and mutually reinforcing:

1. Individualization

Mass product customization and individualization is a central promise of Industry 4.0. And nowhere is the topic more relevant than in the packaging industry, where products can be individualized by content or customer requirements. This drills deep in the underlying production processes and therefore also impacts the packaging machinery industry. However, it’s a different scenario if this individualization delivers real added value. Only here does it economically make sense, even in the time of Industry 4.0. However, such individualization noticeably shifts the goal posts.

A very interesting example can be drawn from a drinks packaging machinery manufacturer. Instead of the usual printing and attaching of labels, packaging is directly and individually printed in the machine and immediately hardened. It’s possible to change the design, live during production so to speak, making the step in the value chain to produce the labels obsolete.

2. Product improvements

Here the keyword is intelligent packaging. Thanks to the already addressed individualization topics, which each often already serve as product improvements of some sort, the product’s value can be considerably increased. However, with packaging labels that react to environmental stimuli, it’s also possible to register the temperature, humidity, acceleration, pressure, etc. An additional aspect can be design improvements with regards to product safety, e.g. food safety.

3. Information

Both in production and logistics, intelligent packaging interacts with your environment (the keyword here is track and trace). Particularly with logistics, major advantages can be identified. It’s possible to permanently keep track of the condition and location of your goods, and if something goes wrong, you can react immediately. Along with increased transparency, transport safety is also positively affected. It’s a very similar situation with warehouse management. Through intelligent packaging, goods can be fully automated, stored, cleared and transported, but can also provide information for the customer.

An interesting real-life example is an identification and profiling system, which permanently analyses the flow of goods and sounds an alarm if the package is damaged or there is a change in volume. However, it’s also the small things that can make life easier, such as an app from Singapore, which reads a package’s barcode and shows the way to the next suitable garbage can.

4. And what about the business model?

Even today we could already substantially add to this list of specific usage examples. In the near future, further uses will also need to be developed in the packaging materials and machine industries. Suspense remains with regard to which extent and quality the industry will pick up this topic.

This immediately raises the question of the impact on existing business models. Can we expect continuity, evolution or even revolution? The clear answer: “It depends!” In all of the above-mentioned benefit categories, we can foresee new business models, which are rather add-ons to the current models. Only in individual cases, e.g. through mass customization, can we anticipate stronger revolutions. In many cases, innovation will gradually proceed and existing models will just be extended or even remain the same. Continuous innovation is in demand, now more than ever.

Industry 4.0 is a hot topic in the packaging industry. Despite many unanswered questions about IT security, standards and not least the business model, it can be clearly recognized that radical changes are coming. New, innovative business models also require intelligent pricing, which monetizes the created value with the customer. Due to the increasing intelligence companies should rather address “Smart Packaging 4.0.” than just “Packaging 4.0.” This is what needs to be targeted now.