Jan 29, 2018

Choosing a Contract Packaging Partner - Six Crucial Questions

You have a decision to make that will have a huge impact on your supply chain. The right contract packaging partner will streamline distribution and incorporate seamlessly into your operations. But, the wrong contract packager could cause more headaches than it’s worth.

Contract packagers execute the customization of packaged consumer goods. That involves any form of value-added packaging occurring between the end of the manufacturing line and the retail shelf. It can be a complicated process. If you’ve already decided to outsource these difficult events, you’ve taken the first steps towards leveraging customization as a growth strategy.

The second step, deciding how to outsource product customization, may not be quite as hard, but the wrong decision could cause a supply chain catastrophe. The contract packager you pick will influence relationships with retailers and consumers, impacting both your top and bottom lines.

As you continue to research this decision, make sure to ask these six questions to make sure you pick a contract packaging partner you can trust with your business, brand, and reputation within your industry.

1. Is Contract Packaging Their Core Strength?

Nearly every company involved in the consumer goods supply chain will tell you they are a contract packager. But what’s the truth?

Is the staffing company that provides temporary labor to your distribution center a contract packager? Does the distribution company handling overflow warehousing really understand contract packaging? How about your 3PL, your bottle supplier, your design agency, contract manufacturers, or packaging material suppliers?

All of these business contacts may insist they are contract packaging experts when you dangle the chance for additional revenue in front of them. However, very few companies in the supply chain are true contract packagers. Here’s what you should investigate to find out if contract packaging is a core strength.

• What percent of their revenue comes from contract packaging?
(If it’s less than 25 percent, be wary!)

• How many years have they been running contract packaging operations?
(The answer should be in decades, not years)

• Who are some of their customers?
(Are noteworthy brands or any of your competitors trusting this company?)

• How many co-pack facilities do they have and where are they?
(A few tables and a tape machine in the corner of the warehouse don’t make a co-packer.)

2. How Extensive is Their North American Footprint?

Committing to a contract packager with a limited footprint reduces flexibility, bloats transportation costs, and increases the risk of business disruptions. You may not need to ship merchandise coast to coast for this particular project, but what happens when you do?

A strong contract packaging partner can offer a mix of In-DC and Ex-DC facilities across the country. That means they can bring their operations (people, processes, and equipment) into your distribution center, yet they also have their own facilities in convenient locations that can be used to optimize transportation, provide overflow and backup to primary facilities, and react to any unforeseen disruptions.

You’re outsourcing product customization to a contract packager because you want flexibility. A partner with limited geography is not flexible. It’s extra important to find a contract packager with a presence in key North American locations, such as California and Canada. Providing customized products for those regions can quickly become expensive if your partner lacks the right footprint.

3. How Strong are Their Financials?

You have plenty of dedicated contract packaging companies to choose from. There are more than 1,200 in the United States alone. However, more than 90 percent of them report less than $50 million in annual revenue. They’ll tell you their smaller size lets them be “more agile.”

A company with cash flow issues can put your entire business at risk, not just theirs. The danger of working with a partner that has unstable financials can be summed up in one word … liability.

Your contract packaging supplier has its own suppliers, including staffing companies, equipment companies, material providers, landlords, and others. While you may have absolutely no contractual obligation to any of those suppliers, they will call on you when they don’t get paid. That’s not worth any promise of “agility.”

Bigger isn’t always better … but it definitely has some advantages.

A contract packager with strong financials will improve your cash flow by deferring material payments until the materials are actually consumed versus months in advance when they are ordered. Strong financials also allow your contract packaging partner to invest in additional equipment and facilities to support your growth, improve efficiencies, and ultimately lower costs.

4. Are They Proficient in Packaging Design?

Treating fulfillment and packaging design as separate concepts is a mistake. Don’t let a potential contract packager tell you these are independent events.

The structural and graphic designs of retail displays, trays, cartons, and cases are directly connected to fulfillment, including the placement of the product into the customized packaging. When you split the tasks of packaging design and fulfillment between two companies, someone will need to mediate the parties performing those activities.

That someone will most likely be you. Depending on the size and scope of the project, managing those processes could be a full-time job.

There are bound to be questions, ideas, and issues to resolve between package designers and fulfillment teams. When your contract packager participates in the initial design of materials, those questions, ideas, and issues can be addressed in-house. You should rarely ever get involved.
Leveraging design resources that are native to your contract packager frees up your time to focus on what you should be working on – executing more projects. Otherwise, you’ll waste time answering mundane questions, such as whether Tab A should be a locking tab or glue tab.

The biggest benefit of integrating design and fulfillment is cost savings. Those savings will come from the exchange of ideas between the two areas as fulfillment operators communicate with packaging designers about how to make improvements that streamline tasks.

Fulfillment operators are handling every piece of material and product that goes into a customized packaging project. They are constantly seeing ways to improve the design to drive down total delivered costs. It may be a simple as gluing a tab instead of tucking it. Or it may be as significant as changing a tray from hand-formed to machine-formed.

Unfortunately, when design and fulfillment happen in separate silos, those ideas never leave the packaging floor.

5. Are They Committed to Continuous Improvement and Automation?

A good contract packaging partner should help you improve processes and become more efficient, not complicate distribution further. Look for signs that a potential contract packager understands lean manufacturing.

Without a formal CI program, your contract packager isn’t committed to driving costs out of the system. Instead, they’re looking to pass those costs on to you. Avoid price creep by finding a supplier committed to continuous improvements that benefit both of you.

A commitment to automation is another indicator of a good contract packaging partner. Labor is almost always the highest cost in co-packing. Reducing labor through automation is essential to avoiding price increases.

However, packaging line automation doesn’t just happen. It requires access to capital (see No. 3 above), so there can be investments in equipment and software. It also calls for expertise, so automation strategies can be implemented correctly. That means you need a contract packager with a dedicated engineering staff.

6. Do They Offer Reliable Systems and Integration?

The days of emailing spreadsheets back and forth between your planning department and your co-packer are dead and gone – good riddance.

You need data, you need it to be accurate, and you need it now. Waiting for an account manager to keypunch an inventory report into a spreadsheet, email that spreadsheet to your planner, and then waiting for that planner to keypunch the data into your Enterprises Resource Planning (ERP) system is neither fast nor accurate.

Ideally, an effective contract packaging partner can provide you with data that looks and feels like the data you receive from one of your own plants. Inbound receipts, inventories, production schedules, quality reports, finished good receipts, and shipments should all be live and visible in your ERP system.

Accomplishing this level of data distribution is no easy task. Make sure your co-packer has the technology to make it happen. They must have a solid ERP along with a modern Warehouse Management System (WMS). And, no, a WMS alone is not an ERP system. Finally, they should have an IT department that can help integrate their systems with your ERP and WMS so that data flows back and forth without concern.

Wrapping It Up

Now that you know the right questions to ask in your search for a contract packager, you’re armed with the knowledge you need to make an informed decision. Consumer goods customization is complex. To protect your business and your brand, you need a partner that demonstrates contract packaging as a core strength.

You likely know Menasha as a leader in corrugated packaging, retail displays, and merchandising solutions. Did you know we are also one of the most trusted and efficient contract packagers in North America?

Menasha has the experience and expertise you need combined with facilities strategically located across the U.S. We can help simplify your supply chain, improving speed to market. Plus, we have unique retail insights that can help brands gain an edge using design knowledge you won’t find with typical co-packers.

Find out more about Menasha’s contract packaging capabilities and contact us soon to start taking advantage of all we can offer.