HOW TO AVOID THE FIVE MOST COMMON PACKAGING PITFALLS BY ERIC WILHELM ©

HOW TO AVOID THE FIVE MOST
COMMON PACKAGING PITFALLS
BY ERIC WILHELM
© 2013 Coregistics
www.coregistics.com
2
I
n the early 90s, I founded a
company called Wilpak, which
helped shape the concept of
contract packaging. If you
are not certain, “contract
packaging” is the process by
which the manufacturer of a consumer
good leverages the packaging expertise,
capacity and/or machinery of a third party
in order to successfully get its product
to retail. There are a number of reasons
consumer goods companies, or CPGs,
outsource this critical function and I’ve
spent the last few decades developing
innovative ways for CPGs to address
these needs. From new product launches
with incredibly tight time frames to
customization requests that only affect
the product in a specific retail outlet, I’ve
seen (and successfully executed) it all.
I ultimately sold Wilpak to a large logistics
company in 2006 and retired. While I
definitely considered myself successful,
I wasn’t fulfilled. I knew that consumer
brands of all shapes and sizes would
benefit greatly from a true packagingcentric supply chain solutions provider,
but there simply wasn’t one out there. I
saw this as a void in the industry. So in
2011, I made the decision to leverage my
success at Wilpak and launch my second
contract packaging venture, Coregistics.
Why on earth would I un-retire, you ask?
The simple answer is that I wanted to
provide our CPG customers with the
packaging-specific supply chain expertise
they weren’t getting anywhere else. I’ve
learned a lot over the last thirty years
about what makes a consumer goods
company tick. I’m now putting this
experience to work as I develop a new
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breed of solutions provider, one that
understands how to build the kind of
customer relationships that allow us to
overcome every obstacle, regardless of
complexity.
In fact, rather than attempt to overcome
these obstacles on their own, consumer
goods manufacturers would be better
served by carefully choosing a packaging
and supply chain partner that will help
them avoid the five most common pitfalls
associated with packaging initiatives.
THE FIVE PACKAGING PITFALLS
1
Misunderstanding
Total Delivered Cost
2
Choosing A Partner Based On
Geography Alone
3
Over-Managing
The Contract Packager
4
Isolating The Contract Packager
As A Single Link
5
Allowing Internal Complexities
To Kill Hero-Making Initiatives
Read more of Eric’s insights
on his blog
“The Disruptive CEO” at
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Pitfall #1
Misunderstanding Total Delivered Cost
When a consumer goods manufacturer
is facing a complicated, unique project
that falls outside of the scope of its core
business, the first decision the company
has to make is whether to tackle the
project internally, or outsource it to a
strategic partner. Inevitably, “cost” plays a
major role in the decision. But as decision
makers attempt to calculate their own
internal cost of delivering the project,
before comparing it to the pricing they
have received from potential solutions
providers, they grossly underestimate the
total delivered cost.
More often than not, the manufacturer
mistakenly assumes that the direct
labor cost tied to the project is the total
delivered cost of the project. This couldn’t
be farther from the truth. Taking on a
complicated retail customization project
internally, for example, forces that project
into an existing supply chain that is simply
not designed to do what the manufacturer
is trying to make it do. Assuming the
direct cost of labor is the cost of the
project doesn’t take into account things
like overhead, labor management,
damage, shrinkage or, perhaps more
importantly, the cost associated with
the distraction the manufacturer has
suddenly placed on its staff. In this
scenario, a myriad of hidden costs will
quickly emerge; from specific charges like
tooling and retooling to broader expenses
associated with “big picture” concepts like
redundant network nodes.
While the consumer goods company
struggles with this mounting complexity
and cost, they have taken their collective
eye off the ball. Their core business suffers
and costs skyrocket across the board.
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At Coregistics, we have a proprietary
system for calculating total delivered
costs, including the cost of distraction,
which can be an extremely eye-opening
experience for certain customers. At
the end of the day, the right contract
packaging partner will show you, up front,
how the real project cost far exceeds
your perceived internal costs, and
how outsourcing a non-core event will
significantly decrease your total delivered
cost.
ARE YOU CONSIDERING THE MOST
COMMONLY OVERLOOKED COSTS?
• Project Management • Space Requirements
• Labor Management
• Internal Storage
• Management Team
Distractions
• Off-site/
Third-party Storage
• On-site Personnel
-- Plant Manager
-- Logistics Manager
-- HR Professional
-- Maintenance/
Engineering
-- Material Handling
• Transportation to
Off-site Storage
• Damage
• Shrinkage
• Relocating/
Re-warehousing
Inventory
• Equipment Rentals
• Tooling Costs
• Data & Information
Stops
• Packaging Design
-- Materials
-- Labor
• Speed-to-Market
-- Redundant Inventory
-- Available Inventory
CONSIDER THIS:
HOW MUCH DOES ONE MISSED
EVENT AT A MAJOR RETAIL
OUTLET COST YOUR BRAND?
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Pitfall #2
Choosing A Partner
Based On Geography Alone
Conservative estimates peg contract
packaging as a $60 billion a year industry,
growing at a 20 percent clip year after
year. It’s no wonder that hundreds
of companies exist, coast-to-coast,
offering “contract packaging” services.
At Coregistics, we have developed a
unique approach that combines expertise,
resources and geographical footprint
to address what we believe are the real
needs of the world’s major consumer
brands, regardless of industry. Others
focus all of their efforts on providing
a single service to an extremely niche
market. This growing diversity in contract
packager size, capacity, capability,
equipment and specialization means
that consumer goods manufacturers
have a number of options, several “local,”
to consider when choosing a strategic
partner.
Coast-based Manufacturer A. Backed
into a corner by the customization
demands of a major club store retail chain,
Manufacturer A realized outsourcing the
project was a necessity and had narrowed
down its options to two similar contract
packagers. Even though Packager 2
had more capacity and project-specific
expertise, Packager 1 had become the
internal favorite, based solely on its
proximity to Manufacturer A’s facility (see
figure one).
As Manufacturer A prepared to deliver its
decision, Packager 2 succeeded in winning
a final audience with Manufacturer
A, during which it delivered a view of
Manufacturer A’s complete supply chain
that the manufacturer wasn’t fully taking
into account. As demonstrated in figure
But be warned! The customization
supply chain has many nodes. Selecting
a packaging partner based solely on
its proximity to the first node, like a
manufacturing facility, can prove to be an
expensive oversight.
Let’s take the “real-life” case of East
figure two
two, Packager 2 helped Manufacturer A
avoid a costly supply chain mistake and
was better suited for the project. It should
comes as no surprise that Packager 2 was
Coregistics.
To avoid this common pitfall, look beyond
your immediate proximity and consider
where your components are
being produced, where materials are
coming from and the location
figure one of your customers’ distribution
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Names and locations have been
changed to protect the innocent.
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centers. The right contract packager
will require you to consider your entire
supply chain from the beginning of the
relationship.
Pitfall #3
Over-Managing The Contract Packager
There is no doubt that manufacturing
consumer goods is a complicated
business. The need to successfully
orchestrate a multitude of vendors and
suppliers has conditioned manufacturers
to dictate to their third-party vendors
what to run, when to run it and in what
order. Too often, consumer goods
manufacturers take the same stance with
a new contract packager relationship.
Attempts at directing labor allocations,
line set ups, equipment utilization,
production details or inbound/outbound
strategies are going to fail.
Picture this: Manufacturer X, a mid-sized
pharmaceutical company, receives a big
order from one of the largest retailers
on the planet. The product itself has
already been made and is awaiting late
stage differentiation. Sometimes referred
to as select customization, late stage
differentiation is the process of packing
the actual product and then building the
various retail displays associated with a
specific order. As its name implies, late
stage differentiation occurs towards
the end of the supply chain, allowing
manufacturers to tailor packaging and
display configurations to meet the
demands of individual retail outlets.
While Manufacturer X was excited
by the opportunity, the retailer gave
Manufacturer X complicated packaging
and display requirements and less than
three weeks to deliver the entire order.
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Manufacturer X scrambles. In a project
kick-off meeting with its contract
packaging partner, Manufacturer X
begins to dictate the number of lines
the packager will run, which equipment
the packager will utilize and how many
people it will take to get the job done. As
Manufacturer X begins to debate the pros
and cons of a 24/7 time frame, I stop him
dead in his tracks.
A strong, experienced contract packaging
partner like Coregistics, will ask its
manufacturing customers only three
questions:
• What do you need?
• When do you need it?
• Where do you need it?
The right contract packaging partner will
demand to manage the entire process,
from material delivery, component and
production schedules to PO releases and
shipment confirmations. Done correctly,
this leads directly to an increase in
efficiency while simultaneously decreasing
cost. The smart consumer goods
manufacturer will readily turn over control.
Pitfall #4
Isolating The Contract Packager
As A Single Link
I believe that contract packagers are
uniquely positioned to look up and down
the customization supply chain. The best
contract packagers leverage this position
to improve efficiency and drive out waste
in every step of the supply chain. At
Coregistics, we consider design, sourcing,
customization, reconfiguration
and distribution when
figure four
developing every Coregistics solution. We
then work with our customers to develop
a tailored combination of services that
ultimately reduce their total supply chain
costs.
This approach is often a paradigm shift for
consumer goods manufacturers. I see it
as an extension of the root cause of Pitfall
#3, over-managing the contract packager.
In the same way that manufacturers
sometimes (incorrectly) assume that
they need to direct the activities of the
contract packager, they also often isolate
the contract packager as a single link in
the supply chain.
Consider the true story of Jane Doe,
an over-worked manufacturing planner
at CPG 1 who oversees five separate
projects. For every link in a project’s
chain, Jane has a specific vendor or
supplier. Jane manages at least five thirdparty providers, per project, which run
simultaneously (figure three). Best case
scenario, Jane is juggling 25 different
vendors at any given time, each with their
own distinct set of problems and issues
that must be addressed. These problems
quickly become an overwhelming
distraction, preventing Jane from
performing well as a true manufacturing
planner.
When CPG 1 chose to replace the
packaging provider on a specific project
with Coregistics, we quickly assumed
control of the entire process to help CPG
1 rapidly reduce cost. This immediately
alleviated a tremendous amount of
distraction for Jane, giving her a single
point of contact for the entire project
(figure 4). Imagine what Jane could do
with five single points of contact for five
projects. Now imagine what she could do
with one single point of contact for all five
projects.
When comparing contract
packagers, the right
figure three
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Again, names and locations have been
changed to protect the innocent.
packaging partner will have the
competency to manage the entire project
supply chain on your behalf.
Pitfall #5
Allowing Internal Complexities To Kill
Hero-Making Initiatives
If you ask any member of the Coregistics
team what we do, you’ll always get the
same answer - “we make heroes out
of our customers.” How? We allow
individuals like Jane Doe to simply throw
their problems over their shoulders,
confident in the fact that the issues will
be caught and handled. We identify
supply chain bottlenecks and educate our
customers not only on how to clear them,
but how eliminating the bottleneck will
positively impact top-line growth. Simply
put, we empower our customer contacts
to improve their organizations.
You would be amazed, however, by
the number of times I have seen a
manufacturer’s internal politics and
complexities stop an innovative, revenuegenerating idea.
By nature, manufacturers are often
siloed and disconnected. I believe the
same conditioning that has led to an
environment in which manufacturers
over-direct packaging partners has
also led to an extreme disconnect
between manufacturing function areas.
When game-changing supply chain
improvements emerge, they invariably
cross silos.
Busy, inwardly-focused supply chain
managers often let these opportunities
for improvement slip through the cracks
and die between silos. I’m not referring
to minor cost reductions here. I’m
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talking speed-to-market improvements,
product enhancements, sustainability
opportunities, customer satisfaction
initiatives and top-line growth.
The right contract packager is going
to offer a number of truly disruptive
recommendations and these “big ideas”
may be bigger than your specific function
area. I challenge all manufacturing-side
professionals to stand up for what’s best
for the company, your customer, and your
customer’s customer, the consumer. I
promise that hero-status will follow.
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W
hen considering any contract packaging or supply chain solutions
partner, keep these five pitfalls in mind. The easiest way to avoid
them is to choose your strategic partner wisely. The right contract
packaging partner will come to the table with a track record of
innovation, examples of bottleneck decoupling and successful
applications of late stage differentiation. They will discuss capacity,
flexibility, networks and relationships with you up-front. The right partner will understand
total delivered cost and will explain how their approach to technology is going to provide
you with the insight you need to better run your business.
I am committed to the idea of building a new kind of supply chain solutions provider;
one that understands the challenges consumer goods manufacturers face and delivers
truly innovative ways to address them. To deliver on this commitment, I’ve assembled
a passionate, results-driven team with hundreds of years of combined packaging and
supply chain experience. Our goal is to develop tangible relationships with our customers
that exceed the industry norm, allowing us to drive real packaging-centric supply chain
efficiencies. I look forward to discussing how we can put this approach to work for you.
WE HELP
CONSUMER BRANDS
SUCCESSFULLY
DELIVER THEIR PRODUCTS
TO RETAIL
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