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  • 1. European Federation of Corrugated Board Manufacturers Partnership in the supply chain Collaboration, partnerships, “working together” are just some of the buzzwords and phrases to find increasing application within today’s business environment. However, with increasingly competitive markets, is there real scope for putting collaboration into practice and what is its relevance to the packaging supply chain? Pioneered by the manufacturing industries, particularly the automotive sector, the benefits from working together have already been demonstrated. However, whilst the fast moving consumer goods supply chains discuss initiatives such as Efficient Consumer Response (ECR) and Collaborative Planning, Forecasting and replenishment (CPFR), their full impact has yet to be achieved. The realisation that business extends beyond a company’s own four walls and that significant gains can be made by working together is seeing collaborative efforts increase within the retail supply chain. This message for the future success, “think supply chain”, is encapsulated in a quote from Professor Martin Christopher, who believes that… There is a growing recognition that individual businesses no longer compete as stand- alone entities but rather as supply chains. We are now entering the era of 'network competition', where the prizes will go to those organisations who can better structure, co-ordinate and manage the relationships with their partners in a network committed to better, closer and more agile relationships with their final customers. Professor Martin Christopher, Cranfield School of Management) Looking back to the 1970s, the suggestion that future business success would be heavily reliant on teamwork and co-operation throughout out the supply chain would have been met with scepticism and some disbelief. Today, however, although some reluctance to address these issues occurs in practice, the realisation that they are essential is undoubted. In fact one of the most important factors in modern business management has proved to be this transformation from business autonomy to integrated supply chains. The shift in emphasis over the last three decades from efforts to eliminate cost to that of improving customer service with the need for process transparency and data sharing has seen the expansion of logistics into Supply Chain Management and the birth of Category Management. Collaboration is a key aspect for each of these disciplines, with an increasing reliance on new working practices and transparency of information. Undoubtedly, adoption of new strategies will have implications for both packaging materials and processes across the whole supply chain as the need for collaboration and flexibility increases to meet consumer demand. Gaps in the supply chain have to be bridged if progress is to be maintained and success not compromised by a response mismatch across all players. FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 2. European Federation of Corrugated Board Manufacturers ECR, CPFR… What is it all about? The Efficient Consumer Response (ECR) initiative is all about ‘working together to meet consumer needs better, faster and at least cost’. The idea is that this is achieved through supply chain partnerships, each member of the supply chain collaboratively sharing production data and sales forecasts so that all are able to contribute towards the effective functioning of the whole. Although the principles of ECR still remain true, the key differentiator for the 21st century is the move from adversarial to collaborative relationships for the parties within the supply chain. ECR is no longer the acronym on everyone’s lips. Instead, the initiative has moved on and developed further into a series of initiatives, albeit still under the ECR umbrella. The official definition of CPFR is: ‘A shared process of creation between two or more parties with diverse skills and knowledge delivering a unified approach that provides the optimal framework for customer satisfaction’ (Voluntary Inter-industry Commercial Standards Association) The ultimate aim of CPFR is that supply chain partners collaborate to achieve: • common goals; • a single demand forecast which is produced jointly; • collaborative planning of promotions and new product introductions • a single, shared source of data; • joint ownership of inventory and replenishment; • simple control processes. This concept is not restricted to the consumer packaged goods industry and reflects a best practice across supply chains. A number of collaborative pilot schemes have already explored the potential benefits to be realised through implementation of CPFR principles. One such study by Sainsburys and Elida Faberge found that big wins could be achieved during promotions enabling greater visibility of supply and demand. CPFR is therefore really an extension of ECR, not a new initiative as such, developing further some of the processes and practices of supply chain management with Co Managed Inventory (CPI) replacing Vendor Managed Inventory (VMI) as the preferred way to proceed. The Internet provides a fast and easily accessible means of communicating between partners enabling dynamic exchange of data. FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 3. European Federation of Corrugated Board Manufacturers CPFR upstream CPFR is about collaboration across the total supply chain, achieving the best results by balancing supply and demand; strengthening ties and blurring the boundaries between companies to realise optimum results. CPFR is transportable. This means it can be applied to any buyer/seller relationship either upstream or downstream where visibility of data is of benefit. The relevance across the supply chain is demonstrated by an upstream study between Henkel and Smurfit Stone realising a 40% reduction in transit packaging inventory. Close collaboration enabled both companies to learn the time frames involved in supply and a 63% decrease in rush orders resulted. To increase understanding of CPFR upstream in the supply chain an initiative is underway to promote the application of CPFR to each of the ‘n’ number of buyer/seller relationships from raw material manufacture to retailer in the supply chain. So called n-tier CPFR, is of particular interest to packaging companies, offering them tremendous opportunities to partake in the continued removal of waste throughout the whole value chain. n tier CPFR is based around the philosophy that: By synchronising (visibility) and integrating (velocity) and collaborating (innovation) among all tiers of a value chain, a unique, highly competitive “conglomerate” is created that should be more able to respond from end-to-end to changes in demand and/or supply. Whilst there is nothing new in this, being the original basis of Supply Chain Management, the difference today is in the possibilities opened up by the digital economy. Technology will enable greater efficiencies to be achieved through collaboration right across the supply chain. Collaboration in practice Despite these initiatives the reality is still somewhat different, with supply chain participants throughout Europe at different levels of engagement. True partnerships will only be achieved over a period of time, and are dependent on building up strong, trusting relationships. As a result many opportunities in the packaging supply chain have yet to be fully exploited. Cost reduction One such opportunity is reduction of in-store costs. Labour in-store is the single biggest retailer operating cost after the cost of buying in product for resale. Packaging solutions that help to reduce in-store costs include ready-to-merchandise formats, where the product is sold direct from the distribution packaging. These may include corrugated outers which quickly convert into shelf-ready display units or point of sale formats which are delivered ready packed. Designing distribution packaging with the store personnel and processes in mind can also save considerable time and labour. The impact at the manufacturer also has to be considered ensuring that packing speeds and processes are not unduly affected; working together enables these issues to be discussed and solutions agreed prior to implementation. However, some of these solutions may require a higher price to be paid for the packaging, if this is the case the packaging supplier, the brand owner and the retailer need to work in partnership to justify the switch. FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 4. European Federation of Corrugated Board Manufacturers Damage and loss prevention Damage is another very real, but often overlooked, cost to the retail supply chain. In fact data from three recent studies considering losses (one in the USA, one in Europe and one in Australasia) suggests that damage costs the industry billions of Euros each year. The American study by the Grocery Manufacturers (GMA) has tracked the cost of unsaleables for the past seven years and the latest results show that for the first time the cost has fallen slightly from $2.5 billion to 2.4 billion per annum. Each year the study examines the root causes of these ‘unsaleables’ attributing them to a number of factors the biggest of which are damage, out of date (a product has passed its sell-by date) and obsolete stock (for example change in pack design or label requirement). However more than half of the loss was caused by damage incurred at some point during the supply chain. Further work by Kraft Foods found that for their own product lines, crushing was the single major cause of damage. As a result they entered into a damage reduction programme based around packaging improvement, in particular upgrading some of their corrugated specifications and redesigning some of their cases. Better distribution practices (eliminating use of clamping) and improved pallet configurations were also introduced. The results show a reduction in damage of 22% on one line alone, obtained through redesigning and upgrading the corrugated case. The additional cost of the corrugated material was more than compensated for by the reduction in wasted product. The message here is that reducing the cost of distribution packaging through downgrading the specification can be a false economy when the result is increased product damage. Unfortunately while many companies measure the price that they pay for packaging, they do not measure its true cost to the organisation. According to John Williams of SCA, speaking at a Pira conference in 2001, the real supply chain cost of a corrugated case is some ten times higher than the price paid for it. This is where brand manufacturers have an opportunity to work in partnership with their packaging suppliers to really understand their total costs and to optimise their packaging decisions. In Europe and Australasia the studies covered a broader scope considering total shrinkage. The studies demonstrate the differing focus between retailers and manufacturers about process failures and the lack of information sharing between supply chain stakeholders. In Europe process failures, which include damage, are reported to account for 78% of manufacturers loss whilst retailers report only 27%. But together these amount to a whopping €7.1 billion euros with over 80% occurring in downstream of the manufacturer. These figures suggest that damage could be a major contributory factor in these costs and that in today’s climate of cost reduction and efficiency the scope for improving profits by reducing damage is very real. FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 5. European Federation of Corrugated Board Manufacturers However, whilst these figures are interesting the real costs and causes of damage are unknown; direct costs of product damage can be determined through careful audit of the supply chain, but many indirect costs also result from damage. Many companies report that although claims for damage are made, very little recording of data and information sharing relating to the causes is common. This lack of communication makes resolution of the issues impossible, incurring unnecessary waste and undue cost. The over riding conclusion from the studies is the need for co-operation and collaboration across the supply chain in the determination and implementation of solutions. However, whilst this would seem obvious given the fact that issues occur within the supply chain efforts to date have been limited. Reducing time to market Probably the biggest challenge in many sectors is thinking “supply chain” with companies concerning themselves with their micro supply chains and not the overall macro network. For packaging companies this is particularly important, as packaging is often the forgotten element of a product, particularly in the development of new products and in the promotion of existing ones. In line with recent trends packaging will play an increasingly important role, integrated within the product offering and the need to work together from packaging manufacturer to retailer will increase. Shortening time to market, customisation for individual markets and customers and product enhancement are just three of the drivers behind this need for increased collaboration. FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 6. European Federation of Corrugated Board Manufacturers Procter & Gamble - Response to customer demand P&G aims to turn its logistics function from being a business drag into a competitive advantage. The current business is plant focussed, runs a five day week, imposes rigid order requirements on customers due to the need to optimise truck utilisation, and works on four day lead times. Replenishment is based on actual warehouse withdrawals, with a disconnect between planning and forecasting. As a result, retailer stock-outs average 10%, increasing to as much as 18% on key items at peak times. Consumer research has shown that stock-outs have a negative impact on both store and brand loyalty. This is a no-win situation for P&G - if they stay in their chosen store, consumers will switch brand; if they go to another store because their brand loyalty is high, P&G lose that particular retailer an important customer. P&G have plan to set up initiatives to re-engineer their supply chain to improve customer service and enable them to differentiate between standard offering, low cost offering and 'added value' offering: Supply chain added value Source: Pira International FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 7. European Federation of Corrugated Board Manufacturers The new supply chain model developed, as shown in figure 1, will require greater flow of information between retailer and manufacturing plant and rely on close collaboration across the supply chain if a win-win situation is to be achieved.. Customisation of packaging will play a large part and will necessitate upstream collaboration, perhaps in hole in the wall type operations, to ensure customer demands are met. The current move towards outsourcing also presents an interesting opportunity for supply chain partnerships. In the search for competitive edge and survival companies are re- evaluating traditional procurement functions realising that significant benefits can be achieved through the adoption of a strategic approach. Factors such as just-in-time, outsourcing, globalisation and quality management have created significant impact on the way business is carried out, necessitating new working methods and relationships between suppliers and customers. In addition the opportunities afforded by new electronic trading possibilities in providing fast, direct links with supply chain partners is enormous. Purchasing has moved on from cheapest price to developing supply channels of lowest overall cost. Blanket purchasing tactics are no longer applied across entire product ranges or services, but selectively those of most importance to a business are developed in terms of quality, speed and/or cost effectiveness. Direction of effort towards those items of significant strategic or financial value together with appropriate procurement systems will result in lower overall procurement cost and a more effective and competitive business position. Historically many local operations of multinationals have been allowed to purchase items, such as packaging, on a local basis but this is rapidly changing. Suppliers may now need to be able to supply globally with consistent standards of quality, service and support, which is a trend that is driving consolidation. Some suppliers see bundling of products and/or services as a means of providing enhanced value to their customers. This is happening in a number of cases where suppliers are looking to provide a complete service to clients by acquiring complementary businesses so they can deliver all the products (labels, cartons, leaflets, even blister packaging materials). This can also be accomplished by partnering with non-competing companies to supply the range of products required, thus giving the customer the benefit of dealing with only one strategic supplier. An example of a strategic supply situation is that of Bunzl and ASDA. ASDA purchase their in-store packaging from a number of suppliers, but co-ordinate this through Bunzl who act as 'lead' supplier and manage the process. Even though ASDA are currently using e-commerce models to identify new, low cost suppliers, any new suppliers taken on board will still be required to work through Bunzl. Supplier development Source: Pira International FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 8. European Federation of Corrugated Board Manufacturers Outsourcing as a strategy may move well beyond contract packing to true service partnerships. There are opportunities for packaging manufacturers to move to partnership status through offering increased service levels. Many examples already exist and this is seen as a key trends in terms of achieving sustainable competitive advantage. Smurfit Stone Container Corporation has adopted a strategy of offering added service through its Packaging Solutions Centres (PSC). Most notable is the one situated at Bentonville in Arkansas, adjacent to the Wal-Mart headquarters. Companies approaching Wal-Mart with new products considered not to be suitably packed may be directed to the PSC nearby for a redesign. Smurfit does not charge for this service in anticipation of securing new business as a result. The plan is to roll this strategy out throughout the globe and a number of Centres are already in existence. Finally, strategic partnerships are not restricted to vertical supply chain relationships, but may also take place at a horizontal level. We have seen several alliances develop between packaging converters who wish to service their major customers through offering international coverage, but are not in a position to do so alone. Recent examples include the formation of an alliance between DS Smith and Georgia Pacific to extend coverage into America. On a smaller scale, Plastique of Tonbridge has formed a commercial alliance with Placon Corporation of Madison, Wisconsin, both suppliers of thermoformed packaging. The two companies plan to pool their expertise under the banner of the Plastic Packaging Alliance, and will offer the same service to customers on both sides of the Atlantic. Modern communication systems now make it easy for them to exchange design and technology information. Gillette Gillette made the decision some time ago to outsource the packaging of their razor blades and to operate a packaging postponement strategy. While Gillette makes only a dozen or so different razor blade products, there are over a hundred different pack variants to accommodate different European market needs. As a result, blades are shipped from the U.K. manufacturing plant in bulk to a dedicated packaging centre in Hemel Hempstead (originally run by Bonar, now Sonoco). This centre places the product into retail packaging for the European, African and Middle Eastern markets. A similar operation in the U.S., operated by Sonoco, deals with North American markets. The logistics costs of shipping product in two stages are far outweighed by the benefits. Stock is kept in bulk and only packaged against a specific customer need, thus increasing efficiency and improving service to customers. FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :
  • 9. European Federation of Corrugated Board Manufacturers The introduction of new technologies is most effectively managed through partnerships. Many of the most interesting new packaging technologies, such as tagging systems for tracking and tracing, or digital printing technology, carry price premiums which can only be justified through measuring total supply chain costs. Use of tagging systems provides total asset visibility throughout the supply chain, therefore enabling lower stock levels and reduced obsolescence. However unless these benefits are measured and quantified it becomes difficult to justify the increase in price, and measurement depends on total co- operation between supply chain partners. There may also be a need to share the risk and development costs associated with new technology introduction. In summary, many opportunities exist which cannot be fully exploited without true partnership throughout the packaging supply chain. The barriers to this exploitation include lack of communication; packaging suppliers do not always understand what the retailer and brand owner want, in their turn brand owners and retailers do not always understand what the packaging supplier has to offer. As long as price is seen as the key purchasing criteria many opportunities will be wasted. What counts is total cost, not price, and there is a real need for organisations to work in partnership to understand the true supply chain cost of packaging. The reward is a win-win situation where cost is taken out of the chain, not merely moved from one place to another! FEFCO I.A. Phone : + 32 2 646 40 70 Avenue Louise 250 Fax : + 32 2 646 64 60 B – 1050 Brussels e-mail :