Planning for capacity on the 'fuzzy front end'
consumers are placing more demand than ever on the need for variable
production capacity, but CPG companies are struggling with contingency planning.
By Jim George, Editor
Dollar stores want their own package sizes to create a different type of value—at a different price point—than discount stores. Walmart, in turn, formulates a new strategy to compete with dollar stores; it plans to change some of its merchandise assortment, and change package sizes, near shoppers' paycheck cycle, then revert back to normal package sizes for the remainder of the pay period.
Microsoft requires extensively customized package components for its new Xbox and computer accessories, while Boehringer-Ingelheim Roxane needs new graphic card inserts in its drug cartons to reflect current marketing efforts. Both of these efforts require hand packing.
These are just four scenarios that could dictate a retailer's or a consumer packaged goods (CPG) company's need for the right amount of manufacturing volume and speed at precisely the time when they need it. One term often used to describe this need is "capacity," and consumer packaged goods companies bringing products to market often turn to contract packagers to provide the amount of capacity they need, when they need it. They do so primarily for either of two reasons: They lack adequate capacity in their own production plant or they don't have the equipment expertise to do it themselves.
"It's incumbent upon us to provide our customers that flexibility, to build that into our system," says Scott Hanmer, vice president of sales at Praxis Packaging, Grand Rapids, MI. "If CPG companies could figure out how to do that themselves, they would."
To do quick-turnaround product launches and meet seasonal or variable spikes in demand would require product manufacturers to rent or build production facilities to fill short-run needs. That's a risky proposition, considering that upwards of 90% of new products fail.
So they turn to contract packagers, but even then, success isn't always easy. Brian Wagner thinks he knows why CPG companies struggle with what he refers to as the "fuzzy front end:" They typically plan for the most likely scenario for their volume and time needs instead of preparing for a range of scenarios.
On top of that, Wagner, vice president at Packaging & Technology Integrated Solutions (PTIS), says key mistakes are made in planning for capacity needs when decisions are made in a linear fashion—prompting a series of handoffs that could require months to complete. "By looking instead at total systems costs and planning events concurrently, things can be done in a matter of weeks or less," depending on the scope of the project, Wagner explains.
Careful planning of events is important when interfacing with multiple contract packagers and other vendors, particularly when the product scope is as large as Microsoft's. Many of Microsoft's package components are custom-made, in part to improve the package-opening experience for consumers, as with the company's recent launch of its new Xbox Kinect sensor. How the packages are displayed also is an important consideration.
"Most of what we pack is done by hand, so there is interface on the assembly and feedback from our manufacturers," including contract packagers, says Jeff Loth, Microsoft structural design manager. "We incorporate their feedback to optimize assembly and packout."
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Pharma contract manufacturing to grow 11% annually through 2013
Global demand for pharmaceutical contract manufacturing services is expected to grow at an annual rate of 11% between 2011 and 2013, according to a new report from MarketResearch.com.
Demand for pharma contract manufacturing services has been soaring for two reasons. The first one is the rising cost pressure on pharmaceutical companies, and the second reason is the recent global economic slowdown was a major factor in adopting the contract manufacturing model at many pharma companies.
Leading pharma companies also are looking at this model as a means to expand into the biosimilars and generics segments.
MarketResearch.com found that countries such as India, China, Singapore, Russia, and Brazil are considered developing markets for contract manufacturers. The economic conditions of these countries are providing immense opportunities to pharma product manufacturers to expand their businesses.
Countries such as Vietnam, South Korea, and Bangladesh are rapidly emerging among other contract manufacturing destinations. The majority of drugs exported from these countries are destined to American and European markets.
Nor-Cal planning major expansion
Nor-Cal Beverage Co., West Sacramento, CA, is laying the groundwork for a major expansion in its Southern California operations through the recent purchase of 5.1 acres of developed light-industrial land adjacent to its contract packaging plant in Anaheim.
The purchase is motivated by the need for expanding and increasing space for production, logistics, and shipping operations. The adjacent parcel comes with 50,000 sq ft of warehouse space, office space, and a shop facility.
"Despite the economy, our business is growing, and we see more growth on the horizon," says Shannon Deary-Bell, Nor Cal president and CEO. "This purchase was an ideal opportunity in terms of size and location."
Nor Cal's customers include Coca-Cola North America, Hansen's, Arizona Tea, Nestle Products, Florida's Natural, and Welch's. The company also makes its own Go Girl beverage brand, which is expanding into national distribution.