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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

What’s true in life is even truer in business: Isolation does not allow free exchange of information among industry peers and, thus, limits opportunities for developing new ideas or building on existing solutions. Sharing of information builds trust and allows companies to exploit information for the overall good of the industry.

We are all familiar with the expression, “No man is an island,” which, of course, implies the need to be involved in other peoples’ lives and to have them involved in ours. The same could be said about businesses — “No company is an island.”

Yet, a vast majority of packaging companies have a tendency to embrace an “island mentality” primarily because they are able to partner with a select group of large customers, and thus, don’t need to pursue additional clientele. This is further compounded by a tendency among their customers to discourage the packaging suppliers from working with competitors.

Thus, large packaging companies align themselves with their key customers, forming some kind of a loose keiretsu, while small- and medium-sized companies have to constantly work hard to access new customers. This situation also limits the ability of small- and medium-sized companies’ exposure to the latest developments in technology.

Relationships – handle with care
There is another reason why I am emphasizing the importance of moving out of the cocoons that packaging companies have lived in for decades: the increasingly fragile nature of relationships in today’s ever-changing environment.

Several packaging industry executives have indicated to me that their customers who had done business with them for years, and even decades, have suddenly decided to try a reverse-auction process. The message is clear — the relationship lasts as long as it has a positive impact on the customer’s profits. The moment customers figure out ways and means to improve their profitability using an alternate source, there is no incentive for them to continue their relationship with you even if you have memorized the names of all the kids of the purchasing manager.

Isolation may retard innovation
What is true in life is even truer in business: Isolation does not allow free exchange of information among industry peers and, thus, limits opportunities for developing new ideas or building on existing solutions. I am aware of several packaging companies that are so paranoid about their proprietary information that they do not allow their employees to speak to their peers in the industry.

I am not trying to argue that proprietary information be compromised, but sharing of information beyond that should be unrestricted. I continue to believe that despite availability of every single page of document ever published on the Internet, there is no substitute for personally interacting with your peers and sharing information informally. We all know that, for the most part, we do not write down every single idea and thought that we have in our mind, but we might definitely share it during a conversation.

Bridging the islands
The reason I talk about bridging the islands, as opposed to building a continent, is that while companies need to guard their proprietary information, they have to cooperate in developing a better packaging community. As we are already seeing in the automotive industry, large packaging companies need to take similar initiatives and start thinking about sharing information more freely. The technology available today also makes it possible to manage what specific kind of information is shared with which specific outside entities — customers, suppliers, distributors, banks and even competitors — so it is possible to control the flow of information.

Apart from encouraging innovation, free-flowing information allows other, more tangible benefits. For instance, as we all know, more information enables faster and, in most cases, better decisions. When companies build extranets with their key partners, they can also facilitate smoother transactions, reduce manual intervention, minimize paperwork and, as a result, improve the bottom line.

The dangers ahead
Your customers are under as much pressure to improve their profits as you are — and they’ll do virtually anything to achieve it. Accordingly, you have to make sure that you’re able to provide your customers with what they want before they find someone else to do it, probably cheaper and better than you.

Sharing of information builds trust, encourages even more sharing, and allows companies to exploit information for the overall good of the industry. There is no reason for you to hold on to information that may be more productively used by your partners. Companies that fail to take advantages of technology that can help build bridges, may find themselves isolated from their peers, and that can be disastrous.

Labels: alliances, competitive advantage, extranet, intranets, partnership, strategy

posted by eCreativa Media  # 2:17 PM 0 Comments

If you’re a packaging company frustrated with trying to “get your arms around” e-business solutions, you’re not alone. There are, however, some simple strategies that both packaging companies and e-business solutions providers can implement to successfully engage in business online.

As e-business solutions continue to emerge, the pace at which packaging companies are embracing them has been slow. These companies have been frustrated with not being able to identify the right solution for their needs.

My discussions with executives of both e-business solutions providers and packaging companies lead me to believe that some dedicated work needs to be done by both parties before they can better appreciate and complement each other.

A large proportion of packaging companies is seriously committed to exploiting online opportunities. By now, the benefits and strategic considerations are apparent to almost all decision-makers. However, actually making this transition is not easy, especially when these companies do not have the liberty of suspending their operations and dedicating themselves exclusively to making the transformation to online business.

The dilemma
Packaging executives still must meet their regular business goals and, eventually, the expectations of their investors. (It is not hard to imagine the scenario in boardrooms as evidenced by Arthur M. Stupay’s article). The situation is further complicated by the fact that by the time you get your arms around one solution, half a dozen competitors are already talking about a new, better solution.

Providers of e-business solutions, meanwhile, have to recognize that the packaging industry has traditionally been very customer-centric. Most customers rely on their packaging supplier for quality products and entrust them with proprietary information. Packaging companies reciprocate by serving these customers extremely well. Such intimate customer relationships and a relatively stable scenario make it even unnecessary in many cases to actively seek new customers.

Additionally, the pressure to reduce costs is also relatively less due to high costs of switching packaging suppliers. Understandably, these are hard issues to grasp for dot-com companies, who typically start with a clean sheet of paper, have employees that are generally more receptive to change and are under tremendous pressure to increase their revenue in a short span of time.

What should packaging companies do?
The four major issues that I see packaging companies facing are:

• Which functions or set of customers should we shift online?
• Which will deliver the most value to our customers and investors?
• How do we prioritize so that we do not exhaust our resources?
• How fast should we move to keep up with technology but not spend exorbitant amounts of money?

These issues are not easy to address because they have to be balanced with corporate financial goals and limited availability of resources. Here are some guidelines to consider:

1) No business succeeds without best-in-class operations. Building the coolest e-business infrastructure is not going to be effective unless it is backed up by solid operations.

2) E-business has to be seamlessly integrated into the overall scheme. Without a proper integration of these processes into the hardware of a corporation, it will only result in more e-chaos, as some of the early adapters saw.

3) If you do not understand e-business fully, do not try to do it yourself. It is new, complex, and changes faster than anything that we are used to in the packaging industry. In the existing setup of most companies, it is hard to develop the necessary skills and speed. Therefore, I always emphasize that companies should seriously consider outsourcing this function and focusing their attention instead on managing change from a strategy standpoint.

What should e-business solutions providers do?
After looking at the solution providers to the packaging industry, it is clear that only a few of them have had an initial packaging-industry focus. A vast majority of them have served other industries and have not invested sufficient time into better understanding the unique needs of our industry.

While these companies may very well believe they have a solution for every problem of the packaging industry based on the success they may have had in other industries, individual packaging companies may not experience any of those problems for reasons cited above. I would accordingly encourage these providers to respect the dynamics of the packaging industry, better understand its priorities and offer a solution that addresses its problems.

The packaging industry has certain unique issues, and ours is not as homogeneous an industry as the term “packaging industry” may lead some to believe.

Labels: ebusiness, ecommerce, packaging industry, planning, strategy

posted by eCreativa Media  # 2:15 PM 0 Comments

When business slows down, as it has in recent months, it is not unusual to lose track of what is really important and instead focus on what is more immediate. For instance, as customers of packaging companies pack and ship fewer products, the immediate response in the packaging industry is to cut back on a wide variety of investments and reduce costs. While we have not yet heard any major layoffs in the packaging industry on a scale that some of the larger companies have announced, I suspect that some companies are already doing this on a smaller scale. Similarly, I am also aware that several companies are scaling back on R&D and new product development.

While most of us recognize the potential long-term hazards of cutting down on research and development, I think the way we are structured, these are inevitable. However, there are certain things that a slowdown should allow us to do. I might even say that a brief slowdown is healthy for an economy as well as an enterprise. During a rapidly growing economy, we are all forced to keep up with demand for our products and services, have to make investments for productivity enhancements, and need to compromise on quality of resources that we employ to meet short-term commitments. I am sure a lot of you would agree that we are essentially forced to cut corners, which is not the way winners generally work.

Why a slowdown may be good
It provides us an excellent opportunity to fix what we think is not best-in-class. Resources that are now freed up to some extent can be utilized to improve our processes. There is no better time to test the efficacy of your systems than in a fast-changing business environment. I have been told by several industry executives that they have learned a lot about the limitations of their processes in recent years. This is, then, a perfect opportunity to use that new knowledge to eliminate the bugs from the system.

Similarly, I am aware of hundreds of companies that had to hire employees who were not the most suitable for the jobs that they were hired for. Many of these new employees struggled in their new jobs and, while some were able to pick up speed, others are still having a hard time. This may be a good time to train these employees. So before you decide to get rid of these employees, think hard about the staff you might need in case the economy picks up steam again.

The final area that we can all work on is new product development. When the economy was going through the roof, what customers wanted was packaging that would get their products from point A to B. It really didn’t matter how the design looked and how much protection it provided – speed to supply current products was more important. On the other hand, as economy improves, it will do so only gradually. The implication of a U- or V-shaped comeback is that customers will be more selective. Thus, product differentiation and quality will be absolutely critical. The current slowdown might well provide a perfect opportunity to approve all those dollars that your R&D group has been asking for years. It will payoff real soon.

What are the short-term risks?
It would be appropriate to disclose the short-term risks inherent in this strategy. Almost all public companies are struggling right now to meet their revenue and earnings expectations. The way our economy is currently set up, no matter what happens next year, you still have to meet your expectations for this quarter. This means that a lot of companies are not at liberty to undertake the steps that I am recommending. However, if you can in any way allocate funds for these projects today, do it. It will be a productive and judicious use of your resources.

Labels: market research, planning, recession, risk management, strategy

posted by eCreativa Media  # 2:11 PM 0 Comments

I am often asked to advise sales and marketing executives about their challenges in managing key accounts. While it is critical for a business to have several key accounts to provide stability to the business, it is also important that the key accounts be monitored carefully to ensure that these accounts continue to be profitable at the same time. It is quite common to see in our industry that key accounts end up demanding more than a fair share of their supplier’s resources.

Most executives have to constantly struggle with finding an effective key account management strategy since losing even one of these accounts can have a devastating impact on the company. On the other hand, having account-specific teams is costly, and in most cases, it is hard to cut down on resources committed to key customers.

'Key account value analysis’
This is one tool that I recommend that companies use at least once every quarter. In businesses with small size orders, the tool can be used monthly. For each key account, the following metrics should be captured accurately:

• Total sales
  
• Percentage profits (over sales)
  
• Growth rate of sales in existing product line
  
• Value of new products/services
  
• Order size distribution and average
  
• Price comparison with other customers in the same category

In the subsequent paragraphs, I will discuss how this data can be helpful in resource allocation and sales/marketing strategy formulation.

What does it mean?
There are numerous advantages of working with key accounts. Most large companies have excellent R&D resources and are generally more active in new product introductions. As packaging materials suppliers, some of these pressures from customers mean a lot of opportunities for innovation in developing the right package. However, the thing to remember is that the key driver at these customers is not the profitability of the packaging supplier but their own efforts to come up with the cheapest package that can result in a successful launch of their product.

In an analysis that I conducted, the findings are very interesting. A typical key account does provide stable cash flow to a packaging company and this is exactly why suppliers stick to their key accounts. What I concluded, however, is that key customers are more likely to overuse resources of current supplier for awarding additional/new business because of the relationships.

That is why it is important to at least track key account performance by assessing the value of each account to the enterprise. I am not suggesting that a large account be dropped for generating less value. Instead, this analysis should help an executive answer some of the following questions:

• Which of these key accounts are profitable?
  
• Is growth rate at key accounts higher/lower than other accounts?
  
• What kinds of business opportunities have emerged from key accounts – several small orders, few large orders, a mix of both?
  
• Is the price offered to key accounts justified in terms of revenue/profits/new business generated?
  
• How much resources need to be dedicated to which account to maximize value to the enterprise?

Using the analysis for strategy formulation
I typically recommend that companies follow a dual strategy for managing their customers – one for key accounts and another one for all others. A value analysis of key accounts will clearly indicate to a company the role these customers play – Are these profitable customers that need to be pampered or are these just large customers that provide good cash flow but the growth will still have to come from other accounts?

Such data will enable executives in serving better those customers that have the highest growth potential and thus create value for their company. There is a fine line here. It is an undisputed fact that finding new customers is always more expensive than retaining the existing ones. In most cases, existing customers switch not because of price but due to problems in receiving the right kind of attention. However, a company that is looking for growth has to make sufficient resources available to pursue customers with highest growth potential.

Related articles

How to identify key accounts

Tactics for key account management

Key account management strategies

How to develop a key account management strategy

Key account management for small and medium sized companies

Key account management for MNC

Customer segmentation

Refine key account management program

Key account management framework

Customer relationship management

Labels: crm, key account management, strategy

posted by eCreativa Media  # 2:04 PM 0 Comments

I have received several emails recently pointing my attention to some extremely important things to consider before you digitize your business. The number one item that almost everyone has pointed out as absolutely critical in any business process, and even more so in e-business, is differentiation. The reason I’m dedicating this column to differentiation is the fact that the speed at which companies have had to or are implementing e-business programs has sometimes resulted in a difficult situation. Specifically, in some cases, putting an ‘e’ in business has become more important than paying attention to what we have always considered as the core element of doing business, i.e. differentiating yourself from your competitors.

In our industry, we have not prided ourselves on exploiting IT. We are still an industry obsessed with materials and engineering and have come up with some great solutions for our customers. Of course, some IT tools like design software or communication channels have helped us in doing our jobs faster and better, but these tools have not been the drivers of innovations. What that means is that as an industry, our IT resources are rather weak. We have changed only when we had to.

This impacts us in two ways. By not having strong, internal IT resources, we have been slow to embrace technological changes. Secondly, we are forced to rely on outside agencies to help us with some of these programs. While I am a strong advocate of outsourcing, effectively managing your IT provider is still your responsibility. A provider can only know so much about your business and, while this company may have only good intentions for your business, it may still end up providing you with a solution that is no different than what they sold to half a dozen of your competitors.

The solutions providers have another interest in selling you a standard product. If you do not know enough and also do not want to select a customized product, the only way that you can be served is by using an off-the-shelf product that requires minimum tweaking. The outcome is that, while your packaging products may be significantly superior to your competitors, your website is unable to convey that message.

Why is differentiation crucial even in e-business?
So far the pressure on us has been to develop an online platform to conduct business. However, very soon everyone will be there, and the issue will no longer be if you have an online channel, but how effective it is in highlighting the differences and advantages that you have over everyone else. If that is not clearly apparent, the dot com mantra that ‘your competitor is only few clicks away’ is actually true.

As I have indicated in my previous columns, with the elimination of business inefficiencies through better information management, commercial friction will largely disappear, further squeezing our margins. As a result, retaining customers will be predicated on how much value we can create for our customers and what differentiates us from our competitors. Thus, the basic rules related to differentiation from competitors still apply.

Suggested road map
While e-business may be a new channel, the principle of competitive advantage remains essentially the same. You still have to differentiate yourself from your competitors, no matter what. If not, your customers will simply select the supplier with the lowest price every time they have to make a selection.

While developing an online strategy, make sure that you have your strategy managers on the team. If you do not have good internal IT people who understand your business inside and out, get some help from industry experts who understand the packaging business as well as IT. Putting together a team with such diverse backgrounds will enable you to work more effectively with your e-business provider so that you will be able to develop an online presence that duplicates your offline strengths.

Labels: competitive advantage, ebusiness, information technology, strategy

posted by eCreativa Media  # 2:02 PM 0 Comments

While talking to industry executives during recent weeks, I have been shocked by the radical change in attitude insofar as the digitization of their business is concerned. Only a couple of months ago, I would hear complaints about how they were experiencing threats to their core business from online competitors and executives wanted to formulate strategies to protect their business. Now what I hear is “I told you so” attitude. While some of the remarks that industry executives make these days are arrogant, there are others who have just settled down in their comfort zone by rationalizing their fears – The Internet is only a fad, it is already starting to show signs of failure, and the threats to my business are over.

Nothing could be farther from the truth. As Michael Dell puts it, if bad business models are implemented online, they do not become good businesses; they just become bad online businesses. Like all other bad businesses, these too will go out of business, eventually.

For the packaging industry, the fundamental issues are not if some dot-com companies are going out of business these days or if some online companies are struggling to conduct sufficient number of transactions to remain profitable. The foremost considerations are still related to the basics of doing business – whether a new business process is going to enable a company get more business, serve customers better, and reduce the cost of doing business. While there are several classic examples of how companies are successfully exploiting the web, my favorite company is General Electric. It has taken an ambitious, but simple, approach – do everything over the Internet if it can be done more cost effectively. Now is that too complex for anyone to understand?

Advantages of the Web
In a survey by Cyber Dialogue regarding the advantages of being present on the World Wide Web, more than 40% of the companies responded that they were able to improve customer service, expand business territory, and keep up with the competition. More than 30% of the companies increased sales leads and lowered marketing costs at the same time. More than 20% of the companies reported that they increased both online and offline sales. In another survey conducted by Verizon/Super-Pages.com and Gallup has found that 55% of the websites have either broken even or paid for itself in increased business.

That is why I keep emphasizing to my friends in the industry that we have consistently seen pricing pressures only increase over the years and life is not going to get any better than this. In fact my discussions with industry participants lead me to believe that we will only see these pressures become more intense as the global economy slows down and international trade becomes easier.

What can you do now?
So while you can watch some of the excitement in the dot-com world as it unfolds, here are few things to do to in the meantime. By the way, this is also a good time to execute some of these projects as the providers are experiencing slower growth and you can hire some of the best firms at much lower prices:

• Reevaluate your business strategy to figure out what part of the business can be moved to the web.
  
• Taking your business on the web is not necessarily about e-commerce. In fact, a vast majority of packaging companies will possibly never need to engage in
  e-commerce. However, they will definitely need to provide support services and disseminate information. So take small steps now and be prepared to take big steps as the situation warrants.
  
• Hire an outside firm to give you a jumpstart. It may be possible to do the site maintenance work in-house but you should use professional help in the beginning.
  
• Stay on top of things. We are living in a world that business environment can change within weeks. So tell your management that they need to be flexible about pursuing a net strategy

Labels: business model, ebusiness, ecommerce, internet, strategy, web design

posted by eCreativa Media  # 1:50 PM 0 Comments