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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

In recent weeks I have received emails and phone calls from packaging industry executives who are concerned about the future. While the industry has been branded as “laggard,” “slow to change” and other not-so-flattering descriptions by analysts in recent months, several industry executives have started to embrace new business models.

However, as these executives start to implement these new business models, they are already seeing these models failing at some of the early adopter companies. The recent demise of several business models that only a year or so ago were hailed as revolutionary is enough reason to cause serious doubts. To many senior-level executives in the packaging industry, this only means even more confusion regarding future steps.

I will try to address some of these concerns in a two-part article. In this article, I will try to put the recent events of the so-called “new economy” in perspective, and then next week I will analyze what it means to the packaging industry and what are some of the things that industry executives could do to meet these challenges.

Turbulence is permanent
During the past several months, mankind has witnessed changes that had not been seen so far. Certainly, the inventions of fire or the wheel and eventually electricity/automobile/telephone caused similar changes in the way humanity lived or how commerce was conducted, but a major difference is the timeframe. It took thousands of years before we could fully exploit the power of fire or the wheel. It took us decades to perfect the automobile or the telephone. But in the current environment we are starting to see revolutionary changes within weeks or, at the most, months. And it is not just the Internet — it also includes the changes in communication technology, relationships between companies, number of new products and their short lives — the list is long. If something does not change at similar speed, it appears that it is not worth talking about.

No wonder this is causing so much turbulence in our lives. Starting from the business world and the stock market, to how we are expected to perform our jobs, we are being exposed to changes at a rate that our generation is not accustomed to. Additionally, businesses today are structured in a manner in which they find it hard to respond to constantly changing market forces. Companies and executives that were organized and conditioned to develop multi-year plans and goals now realize that within months they have to revise their plans and rewrite their goals because new companies have emerged out of seemingly nowhere and have rewritten the rules of the game in their competitive space.

The reaction of the stock markets has been exactly similar. The degree of change has been so rapid that old rules no longer apply and new rules are not accepted yet by everybody. The result has been lots of confusion, nervousness and lack of direction.

Not too long ago, we saw some new rules emerge that made it more important, for instance, to attract eyeballs or create brand awareness or increase the number of transactions, but those rules are no longer valid. It appears that the wider base of investors did not feel comfortable with the new rules of the game and the stock market is now trying to figure out rules that would be fairer in evaluating new economy companies but still satisfy the basic principles of economics.

Impact on the packaging industry
Change of this magnitude has adversely impacted the packaging industry, too. While the stock market has severely battered several packaging companies, the demands on the industry to meet the needs of customers in the new economy has posed new challenges:

• The designs are different, and they change more frequently.
• Time pressures are intense.
• Supply chains are more complex.
• Competition is increasingly global.
• Most importantly, the future is so uncertain.

When packaging industry executives see companies with world-class, best practices struggling to meet market expectations, they do not see many successful models that they can follow for their own businesses. I will be addressing these issues next week based on my study of companies that are taking mature approaches to managing change.

Labels: business model, market research, packaging industry, supply chain

posted by eCreativa Media  # 1:57 PM 0 Comments

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.

Labels: cost cutting, efficiency, packaging industry, production management, supply chain, value chain

posted by eCreativa Media  # 1:42 PM 0 Comments