The right partner can provide a company with value-added capabilities that optimize the supply chain, save time and money, and help the business and brand to grow.
Importers and domestic manufacturers who sell goods to retailers face an increasingly complex landscape of consumer demands and brand positioning, as the balance between e-commerce and brick-and-mortar sales continues to shift. In the battle to make their product more attractive to consumers, packaging is a crucial element. Many turn to third-party packaging and co-packing service providers to gain the edge. Here’s why.
The Amazon Effect
Perhaps the most notable change in the last decade or so has been what’s commonly described in the retail industry as the “Amazon Effect.” Amazon, as you no doubt know, is the leading e-retailer in the U.S., with close to $232 billion in 2018 net sales, up from $19.17 billion in 2008. It now accounts for 49.1% of the U.S. e-commerce market. But what many don’t know is that brick-and-mortar retailers are by no means on the way out. Digital marketing consulting firm eMarketer estimates that retail e-commerce accounted for only 10.9% of total U.S. retail spending across all merchants in 2019 — about one-eighth the size of brick-and-mortar retail.
To be sure, online sales are set to increase 14.8% year over year, compared with brick-and-mortar growth of 1.9%, but not all store-based retailers are suffering the same fate. For example, sales at Costco were up 9% during the recent holiday season. And while much is being made of the death of the American shopping mall, e-commerce is not the only cause. Malls used to be the chosen hang-out spot for teens and youngsters; now, younger generations are deeply engaged at home in their phones and video games.
Many retailers are focused on wooing customers back by creating an enhanced real-life experience in their stores. This could be as simple as the thrill of a treasure hunt for bargains at TJ Maxx, or offering incoming customers a glass of champagne, such as cosmetics retailer Birchbox does in its SoHo store. It extends to going wildly creative with Instagrammable in-store stunts, including Walmart’s Little Rock Arkansas store bringing in professional bullfighters to sign autographs in-store, or clothing store New York & Co. using real people instead of mannequins in its window displays.
In the end, however, both online and in physical stores, packaging counts for a lot in the battle for consumer eyeballs and dollars. And all this heated-up, innovative competition means the services of packaging and co-packing providers have had to change with the times.
For example, consumers now expect fast delivery or immediate availability of their chosen items. Trends and fashion fads tend to emerge more rapidly than they did in the past. That means shorter lead times for getting products on the market, which in turns necessitates faster packaging. Meanwhile, perhaps the biggest change is in the proliferation of customization and last-minute combining of products.
“What’s happened is that, because of e-commerce and people sitting at home and buying from their computers or smartphones, retailers have had to figure out how to drive traffic to their physical stores,” says Marc Lebovitz, President of Romark Logistics, a Westfield, New Jersey-based firm that offers custom packaging services to receive, package, store, and distribute products and displays to both retail and e-commerce destinations across the U.S. “So the retailers tell our customers they need unique products that are exclusively for their stores.”
Lebovitz explains that any vendor is going to say yes when a big-box retailer asks for a particular mix, flavor or design that will be unique to its stores. “Then they go to their competitor and say the same thing: ‘We need unique items, too!’ It goes on and on.”
That’s why you’ll see some products at one drug chain you won’t see at another, even though they’re from the same brand. It’s all in the packaging. “These vendors are trying to find ways to help their customers drive traffic,” Lebovitz says. That’s where the need for services comes in. Service providers like Romark are well-positioned to quickly and responsively combine and configure products as needed, because they hold amassed inventory for their customers, in facilities with specialized machinery to perform packaging to order. “It used to be these retailers were only competing with each other, but now they’re also competing with e-commerce,” he says.
Smaller-Batch and Customized
These new demands also often mean much smaller batch sizes when it comes to packaging, as different vendors require their own unique look and feel. Romark, for one, has found itself redesigning its production lines to focus more on flexibility and a smaller footprint in the warehouse, to provide leaner and more efficient packaging options for its customers while continuing to control their costs.
“A lot of customers are looking for us to execute customized packaging in small quantities with quick turnaround,” says Ryan DeHoff, Director of Packaging at Romark. “It used to be we’d produce 20,000 cases of a product and run that all week. Now, it’s maybe only 300 needed to satisfy the order.”
Meeting the challenge of changing business requirements has resulted in a change not just in technical capabilities, but also in culture, DeHoff says. “There’s been a change in the ability to plan labor, focus on efficiency, and how you set up and break down the lines. These are all significant challenges to co-packaging. We’ve had to adapt to quick changeovers. It’s physical and mechanical, but also cultural. People tend to overbuild and keep going, whereas now we need to build to small batches, with processes designed only according to the customer’s requirements.”
Romark operates more than 100 different processing and packaging machines, many of which are completely mobile. This “dynamic shop floor” approach enables the company to be readily flexible and deliver unique and effective solutions to any project.
DeHoff says Romark has sent much of its leadership team on Six Sigma and Lean Manufacturing training sessions, to help them understand how to keep work in progress to a minimum, and to cope with those smaller quantities. “I know that Lean is not a new concept, but we have to change from the outside in,” he says. “We’re trying to get everyone to understand and embrace these concepts. It comes down to everyday practices.”
Automation, Like It or Not
Another huge change in the packaging industry has been the rise of automation in the form of robots. This represents significant investment and corresponding risk for businesses such as Romark. “When assessing cost benefits and ROI, you want a machine that can do multiple things,” says DeHoff. “Multi-tasking is a big deal these days. It used to be one individual working in one position all day. Now, we must be ever more flexible to rotate around a line, and move that same individual around to accomplish different things, to keep up with customers’ needs and demands.”
Multi-tasking automation might come in the form of an auto-wrapper, auto-labeling machine that reads the barcodes on a pallet of product, then automatically wraps it, affixes a license plate, and sends it to the other end of the warehouse for pickup. “That way, one person is doing the work of three,” says DeHoff. “Then you can take the other two people and reallocate them to other positions to help us achieve customer goals.”
Robots are getting better at doing things only humans could do before, DeHoff says. “We’re working with machines that will physically pick up a product, bag it, and pack it into a box. That allows us to run at smaller batches more quickly and reallocate people to other projects.”
While automation can be risky, it’s an undeniable reality in the manufacturing and packaging business. It’s also the only way to combat the growing problems of labor shortages.
“One of the elements of the Amazon effect is the labor challenge,” says DeHoff, pointing to Amazon’s tendency to Hoover up large pools of local labor to work in its warehouses. “Our responsibility is not only to help customers be competitive, but also more efficient on the line. All the business commentary you see now says that the labor market will not be improving any time in the near future. The projections are it will continue to be a struggle. So we want to be competitive in attracting labor, but we also need to figure out how we need less labor.” This means examining existing and planned packaging processes, and identifying opportunities to automate.
These are best done in close partnership with the customer. Last year, for example, one of Romark’s customer’s items required 24 people on the line, and Romark felt that could be improved. “We worked with the customer and a packaging vendor to redesign the packaging to reduce the headcount by six,” says Dehoff. “That really allowed us to deliver those smaller batches at a cost-effective price.
“Part of the narrative of responding to changing demand is that we’re often looking at a complex and difficult job, but aligning the team closely with the packaging vendor helped,” he continues. “It was a real partnership across the supply chain to facilitate this process change.”
Flexing to Fit Customers’ Needs
Either way, flexibility is king. “Many of the items we run now have variable rates assigned to them and relative designs, so that we can either ramp up the throughput for a quicker turnaround, or lower it to gain labor efficiencies,” DeHoff says.
“Our job is to react,” says Natan Bershtel, President of We Pack It All, a contract packaging, warehouse, and fulfillment services company based in Duarte, California that is part-owned by Romark. “We try to make some predictions, but mostly have an ear to what people are asking for before they even ask for it. We pride ourselves on building relationships with the customer, going to trade shows, talking to people, and becoming prepared for whatever is coming next.”
In the end, it’s all about responding to customer demands, DeHoff says. “Customers are looking for customized packaging; they don’t want what everyone else has,” he explains. “Our job in this industry is to figure out how to make that possible for them. The customer wants what the customer wants, and it’s the responsibility of every packaging provider to make sure they get what they want.”
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