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Container companies survive recession

In the planning stage that led to our coverage of the Recession Survey, I learned about a specialist management consulting company that has developed some interesting measurements of packaging company performance.

REL Consultancy Group (Purchase NY) has created a suite of measurements or metrics that combine to show how companies manage their working capital.

What is especially intriguing was that one group of 11 companies that REL studies called the Container and Packaging Industry actually improved their utilization of working capital during 2001. (REL studies only public companies with sales of more than $500 million/yr. That’s because the basic information it analyzes comes from reports filed with the U. S. Securities and Exchange Commission.)

Juan Colina the global leader for the Capital Intensive Sector at REL reported that in year 2001 the total investment in working capital averaged 43.7 days. This is lower than the average of the last three years of 47.2 days indicating a 7% improvement.

“The economic environment is such that people are paying a lot closer attention to working capital than before” Colina says. “So in our Container and Packaging listings the whole industry has reduced its investment in working capital. It benefits the entire business.”

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Colina says these figures are created by looking at a number of factors including the numbers of inventory turns. Here the composite for the 11 companies studied was 7 inventory turns last year; that’s an improvement over the 6.3 turns the average for the previous three years.

What these details really indicate is that these companies—which range from Smurfit-Stone Container at $8.3 billion in sales to Greif Bros.Corp. at $1.5 billion—appear to be managing their businesses better despite the fact that 2001 was characterized by an overall business recession. Colina cautions that some companies may not fully experience the recession until new reorder cycles.

How does—or should—this information affect packaging decisions? First it’s a strong indicator of the stability of this segment. But we also know that many purchasing executives look to these kinds of business activities to gauge the quality of the companies they may buy from.

This is especially true for large manufacturers that may be looking at establishing partnerships. Purchasing executives have told Packaging World that they study a company’s reputation business practices management and balance sheet to determine whether their company wants to commit to a large-volume contract.

So REL’s study and analysis of a supplier—especially when compared to its peer companies—can be helpful to understand how that company operates.

Another component of the working capital metric is what REL calls Days of Sales Outstanding. This measures the average number of days a company takes to collect its receivables. Although the three-year average of the 11 container companies was 41.5 days last year the average dropped to 38.7 days.

In addition REL measures a company’s ability to generate one cent of operating cash flow from each dollar of sales. For the group the three-year average was 8.7%. But in year 2001 this number improved to 9.7% or 9.7¢ of cash flow from each dollar of sales. However Colina cautions that these numbers can’t be considered in a vacuum; some companies may register a lower number because they were investing heavily in research and development.


Overall Colina is optimistic about the packaging group. “I think the packaging companies are taking advantage of technology better than many other industries that are similarly mature” he says. “These companies are at the forefront of squeezing costs out of the equation. They are moving away from a basic industrial mindset to a much more customer-friendly convenience-oriented industry.”

REL provides free online benchmarking capabilities called the TWC Index which can be accessed at its Web site Juan Colina can be reached at

See an archive of Arnie Orloski's Pipeline columns at

Arnie can be reached at

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