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If your company is to be the best it can possibly be, a smart approach is to tap into resources outside of your organization. A “community” allows you access to the best and brightest people — whether they work for you or for someone else. In the near future, as companies increasingly focus only on their strengths and outsource everything else, they’ll have mostly partners and very few competitors.

The fact that you are reading this article is clear evidence of your recognition of the power of a community. I am continually amazed by how much can be done with only a little once you build a community.

If you are a member of a community and contribute even occasionally, you probably know very well that more gets done there than in your office. The added advantages are that one doesn’t have to wait 12 months before the next annual meeting, nor is there any limitation on where the participants live and at what time of the day they contribute.

The power of community
Imagine what can happen if a company can exploit the power of a community. One reason why companies fail to come up with world-class approaches is that their current mindset does not allow them to tap into resources outside of their organizations. If a company could build a community of all the right people — regardless of their affiliations — to achieve a specific goal, it will not only be possible to achieve that goal faster but also do it profitably.

I make this recommendation for one simple reason: no company is as good by itself as it is by partnering with others. A community allows you to get the best and the brightest people whether they work for you or for someone else. At the same time, the knowledge that you collect is also shared with other community members and benefits everyone.

Of course, like any other community, members like to be rewarded for their contribution. If businesses build communities, rewards can come through recognition, financial benefits or any other reward that the members desire. I may even recommend developing proprietary technologies through a community approach; in this case membership would have to be restricted to strategic partners, and more formal structure would have to be implemented.

Information flow
There are a couple of other reasons why I suggest a community approach to doing business today. In the old economy, the word “customer” had a narrow meaning — someone who used your product/service and paid for it. The flow of information and goods was so slow that companies had no choice but to control as many transactions in the value chain as they needed to be able meet their market commitments. This made them categorize other industry participants as either customers, suppliers or competitors.

In the new economy, the distinction between buyers/sellers, manufacturers/consumers, and partners/competitors is disappearing. This is because information flows so fast that it is not only possible to quickly identify potential suppliers and partners but also to look at their inventory levels in real-time and manage production/supply schedules accordingly.

In the near future, I can see that enterprises will be focusing only on what they do best and outsourcing everything else. Thus, a company will have mostly partners and very few competitors.

Building a community
To build a community, a packaging company has to do three things like any other community:

• First, develop a vision for the community. For instance, the foremost goal for a commercial enterprise is to have high revenue and net income, but it could be something different — for instance, to develop a solution to a long-unsolved problem.

• The second step is to bring together the right members to the community. This is needed in order to have the necessary skill base.

• The final step is to facilitate seamless communication among the community members. Since the members may interact mostly virtually and may not know each other very well, the initial roadblocks should not discourage the members.

Packaging companies are better off than companies in many other industries in the sense that once the product is sold, the design and testing professionals on both sides continue to collaborate on a regular basis. On the down side, however, other than these individuals and an occasional courtesy call from the sales representative, there is not a lot of interaction on a corporate basis to address larger issues.

Such relationships with its customers should be exploited by a packaging company since, otherwise, the value of knowledge that is developed regularly within and outside the enterprise is not being fully exploited.

Labels: community, customer segmentation, networking, social networking

posted by eCreativa Media  # 2:23 PM 0 Comments

E-commerce is not only about reducing cost and automating transactions; it is also about using it as a channel to exchange better and larger amounts of knowledge with business partners.

If I were to say that competition in the packaging industry has been based all along primarily on knowledge, most of you will agree but only after some thought.

Some of the recent hype about “knowledge management” may give an impression that it is something new. In the packaging industry, we have been doing it all along without necessarily using a very formal name and process.

Even while selling a basic package, a successful salesperson typically talks less about the actual package and more about how it will protect the product, provide aesthetics and reduce cost. This salesperson will also probably bring along a technical professional who can help the customer’s manufacturing group implement all of the above.

This sales team has not only used knowledge to sell the product, it has actually sold knowledge and got paid for it (through stronger customer relationship).

Catalog approach
At the other end of the spectrum in the packaging industry are suppliers who sell using a catalog approach — standard products, service, price, terms of contract and limited or no knowledge to share. With the recent trend to provide e-commerce capabilities, packaging companies need to be extremely careful in not becoming catalog type suppliers. This is especially true when products are sold through an e-marketplace.

Participation in an e-marketplace is almost a must for most companies, but it may also result in erosion of product value and eventually commoditization, which is a serious problem if your products are not inherently commodities. Thus, suppliers of value-added packaging materials have to make sure that the bond with their customers that has been built on sharing of knowledge does not weaken as more business is conducted electronically.

Sharing the knowledge
Suppliers of value-added packaging materials typically dedicate considerable resources to working together with their customers designing customized packages. In fact, most companies end up offering these services for free as a means to strengthen customer relationships and boost sales. Apart from helping customers design better packages and, of course, allowing them to use their materials, this relationship also works as a means of sharing knowledge since suppliers pick up intelligence from the marketplace, get exposed to competitive technologies and better understand unmet and emerging needs.

E-commerce presents opportunities for reducing cost of selling and reaching a wider pool of customers. The downside is that companies are so focused on selling that their sites are turning into electronic catalogs. The e-marketplaces are even worse since their value proposition is based on product standardization and thus encouraging price-based competition.

E-commerce is not only about reducing cost and automating transactions; it is also about using it as a channel to exchange better and larger amounts of knowledge with business partners. As companies employ the latest tools for knowledge management within the enterprise, the program has to be designed to include business partners in the loop as well so that this knowledge can be shared with them and used to strengthen virtual bonds.

Recommendations for an e-commerce strategy
An e-marketplace would work fine for those products that are manufactured by more than one supplier and have attained some degree of standardization in the industry. Fortunately, in the packaging industry, there are not too many of them. Customers continue to demand high degree of customization even if it is in printing of the package. Thus, companies have to segment their customers into essentially two groups.

The first group comprises those customers that seek standardized products with minimal technical support. Suppliers should steer these customers to an e-marketplace if they participate in one, or the supplier should have its own e-commerce site for them.

The second group of customers demands customized designs, technical support and even a dedicated team to assist them. Suppliers have to take special care of these customers because these will not only be the supplier’s most profitable customers, but they are more likely to reward the supplier with additional business as they simplify their supply chain and start treating the supplier as a provider of turnkey packaging solutions. The supplier will need to build a private network for them that will provide a virtual space for collaboration on product and service development and gather intelligence on markets, products and technologies not only about the supplier itself but also the whole industry.

The basis of competition in the future will be predominantly knowledge, and as packaging suppliers’ customers increasingly use it as a competitive weapon, suppliers need to do the same.

Labels: customer segmentation, ebusiness, ecommerce, knowledge management, strategy, supply chain

posted by eCreativa Media  # 2:19 PM 0 Comments

Recently I have been talking to a lot of packaging companies that either have no independent web presence at all or are in the process of improving it to better connect with their customers. To my surprise, I have also been speaking to several e-business solutions providers, who are now starting to think about the packaging industry in less generic terms. Some of the questions that they all ask me are:

• How much information should be communicated through the Internet?
• How can we duplicate the personal relationships over the Internet now that we have customers that are no longer within our standard geographic territory?
• What is the most effective strategy to manage the conflict in communicating with customers through personal interaction and the Internet?

Amount of information to be shared
As part of an unscientific survey that I conducted with a few executives, I presented the following two scenarios to them:

Scenario 1: Company A has a website that provides comprehensive information related to the company, its products, customer testimonials and all the other standard information that you typically see.

Scenario 2: Company B has the standard information but has also gone several steps ahead by including details on problems with products encountered in certain cases, limitations on product use and, most interestingly, a detailed comparative evaluation of their products with their competitors.

Among the individuals that I talked to, the overwhelming majority wanted to conduct business with Company B. Some of the reasons cited were:

• A website that appears to be direct and straightforward develops a sense of trust.
• Warning about potential problems and highlighting limitations right away is helpful in making better decisions and preventing problems from happening.
• Comparative assessment with competitive products is time-saving and makes them trust Company B for future purchases.
• Company B is not only selling products but is also imparting knowledge. As one executive put it, “I will do business with Company B indefinitely because I can trust them to always act in my best interest.”

Managing long-distance relationships
As we all know, whichever type, long-distance relationships are difficult. The only comforting factor is that current technology can make these less painful. If we analyze the basis of business relationships, it is not because someone is better than others at memorizing your children’s names; it is because of the sense of trust that develops by someone always doing what is good for your business.

While it would be hard to duplicate the relationships that are developed in person, it is still possible to duplicate a lot of other things. For instance, it doesn’t take long for you to acknowledge and help a customer who walks into your office in person. Why then does it take companies days or weeks to respond to e-mails?

As long as companies can duplicate the fundamental principle of a business relationship — “acting in the best interest of the other party” — it really does not matter if you cannot shake each other’s hands.

Managing channel conflict
It is not surprising that some of your privileged customers will be upset that information that they received, either on an exclusive basis or at least ahead of others in the past, is now available to everyone at the same time. Several companies are quite upset that it is now so easy for even their small competitors to find out about new technologies so easily.

There are two simple ways to handle this. Since some of these developments are still new and people are trying to adjust to the new realities of business, it will take some time before we all get used to the ease of accessing information. If you want to be a risk-taker, just go ahead and do it and some time very soon everyone will have gotten used to it. However, if you do not want to upset your traditional customers, it is not hard to control what information is available to whom by using the various security tools that are now available.

Labels: customer segmentation, internet, packaging industry, web design

posted by eCreativa Media  # 1:55 PM 0 Comments

The majority of packaging converters do not appear to be prepared to make the transition to e-commerce. This jump will require a reengineering of business processes.

I tend to look at the packaging industry as a combination of three value blocks. We start with the raw material manufacturers, then we have the packaging companies or converters (who convert raw materials into cans, bottles, bags, etc.), and finally there are the end-users. There are others in the value chain such as distributors, designers, equipment manufacturers and packagers, but their role is not strategic to the value chain and can be safely grouped elsewhere for the purpose of this discussion.

In looking at some of the recent developments, I have concluded that the strategic control of the value chain has shifted to the converters. They seem to be capturing the highest value in the chain. The raw material manufacturers typically serve more than one industry, and packaging happens to be one of them. Accordingly, their business model is driven by volume rather than capturing higher value. The end-users treat packaging as a “necessary evil” and tend to focus on minimizing its cost (except for such cases as cosmetics packaging). That leaves the converters to capture the highest value.

This dynamics of the packaging industry value chain is also reflected in the manner each of the value blocks has embraced e-business models. The raw materials suppliers have been very active in integrating e-business models since the efficiencies on both buy and sell side are simply enormous. This is also reflected in the emergence of exchanges and consortia. The end-users, on the other hand, have been focusing primarily on the buy side in their e-business initiatives.

Penetration of e-business in packaging industry
An interesting finding from my recent research work is that, partly as a cost-cutting initiative and partly due to the pressure from their suppliers, converters are embracing e-commerce in purchasing raw materials since the savings are clearly visible. However, the converters have been relatively slow to integrate e-business in their core business process.

During the past two years, while the raw material suppliers and the end-users have invested millions of dollars in e-business tools, about 50% of the converters are yet to have even professional websites (ones that provide sufficient information that enables visitors to make a business decision). Moreover, I am not aware of many converters that have fully e-commerce-enabled websites, though I understand that approximately 10% of them do provide varying degrees of ordering capabilities from their websites. This leads me to believe that due to their complacency — which arises probably out of wanting to capture the highest value in the chain — the converters are relatively slow in exploiting the newly available tools.

On the other hand, my discussions with executives at end-users lead me to believe that they are starting to require their suppliers to enable their information technology (IT) infrastructure to be compatible with their systems to ensure machine-to-machine connectivity and to make almost all functions of their relationship accessible by electronic means. The end-users are driving this as part of their buy-side logistics initiatives. This means that very soon the converters will have to upgrade their IT systems to conduct business with their major customers.

It is clear that a vast majority of converters are unprepared at this time to make that transition. While the technology part can be easily outsourced to an IT firm, the bigger challenge is going to come from reengineering of business processes. Take, for instance, customer needs assessment. When selling is done in person, there is a whole lot going on other than selling. You come to know about your customer’s concerns, future plans and unmet needs. E-business systems, including customer relationship management (CRM) programs, provide excellent data on customer behavior, but you still have to use other means to uncover hidden needs and better understand future plans.

Suggestions for packaging companies
If you are carefully observing the market trends, you must have noticed how customer relationships are changing. While a packaging supplier’s priorities still have to be centered around making it easier and less expensive for its customers to do business with them, the company will need to uncover its customer’s “hidden needs” so that it can fulfill those needs before its competition does.

Since selling will be executed through electronic means, a supplier has to retrain its sales force to become “customer relationship representatives,” whose sole responsibility will be to prepare their company’s business for the future needs of its customers.

Labels: crm, customer segmentation, ebusiness, packaging industry, reengineering

posted by eCreativa Media  # 1:54 PM 0 Comments

With downward price auctions becoming a reality, suppliers can’t simply sit back and hope that this trend will go away. Instead, they have to seriously start redesigning their business processes to meet these new marketplace realities.

During recent weeks, I have received several e-mails from packaging industry executives who have expressed concerns about the emergence of “downward price” auctions, in which suppliers continue to lower their prices until the auction is closed. As one B2B e-marketplace describes it, “Buyers watch as prices fall in real-time, before their very eyes.”

Most of these executives I’ve heard from work for companies that have traditionally differentiated themselves by providing value-added service(s), just-in-time (JIT) delivery, warehousing, next-day deliveries, special runs, design and testing. Naturally they are extremely disappointed as their key customers who have had long-term relationships with them suddenly tell them they expect to see them on a B2B e-marketplace for all future business deals.

New realities
Their disappointment is not surprising to me since we all have been made to believe that if you served your customers in the best possible manner, you would be rewarded with their business for a long time and there would be no incentive for customers to switch their suppliers. Looking at some recent developments, however, it seems there is little that can be done about it since the Internet has made possible a new paradigm.

While we have always heard the expression “Customer is king,” now is the first time that we can truly say it has become a reality. The reason this is so painful to us is that it is not a result of mistreating our customers. No, the customers have made this happen, and we were simply not prepared for it.

Customer segmentation
Since downward price auctions are now a reality, there is no point in hoping that this is going to go away. Instead, we have to seriously start redesigning our business processes to meet these new marketplace realities.

The first thing that companies need to do is to re-segment their customer base. The situation will, of course, be unique for each company, but customers can essentially be split into the following three groups:

• Connoisseurs - These are the ones committed to using only the best materials in their products. Of course, they would like to pay the lowest price but not at the cost of compromising product quality. The goal should be to keep the connoisseurs you already have and try to find more of them. The best channel to serve them is through direct sales.

• Realists - These are those customers that understand what they need to do in order to succeed in the marketplace. They supply products that barely meet the needs of their customers, and as such, they seek exactly what they need at the most competitive price. These customers are most likely to embrace the e-marketplace-type models. You have to recognize the needs of this group and serve them accordingly.

• Penny-pinchers - These are the least desirable group of customers for any supplier. They are driven by price only, and quality is the last thing on their mind. Try to get rid of them as soon as possible or serve them only through a low-cost-to-serve channel like an online ordering system.

The 20-60 rule
The final goal should be to have at least 20% connoisseurs and 60% realists. Whether you like it or not, you will always have some penny-pinchers. The secret to success lies in identifying what each customer cluster values and then serving it through the most cost-effective channel.

If you have no connoisseurs in your customer base, it is probably a good time to rethink your business practices and completely eliminate value-added components from your product portfolio. Another alternative is to spin-off the value-added services group as a separate unit and sell these only to those customers who want these on a “pay-as-you-use” basis.

The popularity of downward price auctions has been boosted by pricing pressures that are the norm today in almost all end-use segments of the packaging industry. Accordingly, there is a trend to treat products as undifferentiated commodities and thus ideal for purchasing through an auction. In my assessment, this is a trend that is not going away. Therefore, rather than denying it or continuing to believe that you are not a supplier of commodity products, my recommendation is to move fast and change as the market realities change.

At the end of the day, you have to provide what your customers want, and there is no way a company can survive without recognizing this simple truth.

Labels: auctions, customer segmentation, just in time, packaging industry, purchasing management

posted by eCreativa Media  # 1:44 PM 0 Comments