The old model of integrated manufacturing, generally seen as inflexible, is now facing many questions. With today’s modern communication technologies, companies can now increase system flexibility by creating a supply chain involving multiple vendors rather than trying to do everything themselves. What will this mean to the packaging supplier?
One of the barriers to innovation and adoption of new technology in the packaging industry that I constantly hear about is the reluctance to change equipment. We all understand how costly it can be to change packaging equipment every few years. For instance, in many cases advantages of flexible packaging over rigid packaging are clearly visible, but a financial analysis generally indicates delaying such a changeover until the assets have depreciated.
Thus, generally only new plants take advantage of state-of-the-art technology while old plants are stuck with inefficient equipment and processes until the plant is ready for the next round of renovation.
Questioning the old model
The end-users of packaging materials, generally for reasons beyond their control, have traditionally been expected to install their own packaging lines. Making heavy investment in plant and equipment can in many cases retard the progress of technology in the industry.
Interestingly, there are instances when a packaging supplier will bear the total cost of new equipment or heavily subsidize it when it is no longer in a position to support it. Generally, this is a privilege usually granted only to large customers. Small customers are still pretty much on their own and have to shell out significant sums of money to keep up with technology.
This old model of integrated manufacturing has recently been questioned because of the availability of possible alternatives. A major downside of integrated manufacturing is that it breeds inflexibility. A soup manufacturer that is also integrated into manufacturing of packaging materials cannot respond to changing customer tastes as fast as a competitor that procures packaging materials on an as-needed basis and can easily switch suppliers or product depending on market movements.
Supply chain focus
Integrated manufacturing has traditionally been justified on grounds of lower cost and higher profit margins. This, in fact, is the case when the number of suppliers competing for your business is limited and coordination of suppliers can be a nightmare. Currently available communication technology, however, makes it possible to manage the supply chain more efficiently and cost effectively.
Thus, the two key questions that end-users should be asking now are:
• Is owning packaging equipment hindering access to new technology?
• It is possible to increase system flexibility by creating a supply chain involving multiple vendors rather than trying to do it ourselves?
Some of the large companies are already treating their packaging needs as a component of the overall supply chain management. Transferring most of the responsibilities to the packaging supplier, these companies can then focus on what they do best, that is, their own product line.
What’s it mean to packaging suppliers?
Two major advantages that packaging companies will realize as a result of their customers implementing the latest supply chain management systems are economy of scale and higher system efficiencies. By being responsible for actually supplying a packaging solution rather than material or equipment, the overriding considerations would be higher system efficiency, speed and state-of-the-art manufacturing, rather than a customer’s willingness to upgrade to a higher level of technology.
Secondly, packaging companies can more efficiently manage their production schedules and inventory levels because these would be driven by demand from a pool of customers they serve and by how efficiently they can meet the demand based on maximizing their internal resources.
This implies that supply chain management will also become a major consideration for packaging companies. They will have to integrate their information systems with their customers and suppliers in order to meet their obligations in the most cost-effective manner. Some converters will find it difficult to implement these systems because this can mean significant upfront capital investments.
I am hoping that emergence of such systems on a wider scale will benefit both the packaging suppliers, their customers and other myriad industry players who are part of this group. By letting each company focus on its core business and getting better at managing alliances and partnerships, higher profits should result for everyone.
A focus on maximizing supply chain efficiencies will not only result in strong competitive advantages to the leaders, it can also mean higher rates of innovation in the entire packaging industry.