Cutting Edge

Cutting Edge

Copyright 2003, Traffic World, Inc.

Packaging is "the last step before the customer," said Joe Capprini, director of western hemisphere pack centers at Boston-based Gillette Co., so handing it over to a third party is not easy.

Yet that is what the company has done. Now Gillette is looking to become more vertically integrated with its partner, $2.8 billion packaging manufacturing and services company Sonoco Products Co., as it moves toward a replenishment model that reacts to "information right off the customer shelf."

Gillette took the decision back in 1996 that packaging would no longer be one of its core competencies, explained Capprini. The company wanted to "partner with packaging experts who put the same energy and focus into packaging our products." That makes the process different from outsourcing, say, logistics, he noted. Packaging is such a visible element of a product that outsourcing it is an emotional decision. "One of the hardest things you have to overcome is to believe that someone else can do it better than you can," he said.

Crucial to the decision was the concept of postponement, something that has grown in importance generally in the packaging field. It is based on the notion that companies postpone packaging as late as possible in the manufacturing cycle in order to cut costs and create a more flexible supply chain.

There are a number of ways in which postponement is defined but "we define it as the point in your packaging process when you truly differentiate product - when you make it either customer-specific or geographic-specific," Capprini said. In other words, moving these operations as close to the customer order as possible. The end will be "that at some point Gillette will be in a true replenishment mode," he explained.

Hartsville, S.C.-based Sonoco sees two fundamental reasons for adopting the postponement strategy: "to reduce cost and increase speed to shelf," said Tove Rasmussen, business development manager. For example, 50 products can translate into 500 SKUs when the items are packaged differently. Postponement obviates the need to store every SKU and enables the company to slash inventory levels. The technique also means "packaging is decoupled from manufacturing," allowing both operations to be run more efficiently, she said.

Sonoco manages Gillette pack centers in Devens, Mass., which handles all blades and razor products for North America, and in Hemel Hempstead, United Kingdom, the manufacturer's European packaging center. The Devens facility is adjacent to Gillette's supply and distribution center for the Northeast. "So when we package product here, 60 seconds later it is already in our distribution cycle," said Capprini.

As the packaging partner, Sonoco schedules all required supplies and manages associated inventory. "We are linked in to Gillette's ordering process," said Steve Lyles, technical sales manager at Sonoco. The manufacturer gives Sonoco a weekly master production or planning schedule that maps out demand. "We take that and feed it into our own ERP systems and establish the demand that's required in packaging material," he said. Sonoco also is responsible for setting up vendor-managed inventory programs with suppliers. The ordering cycle for these materials has been streamlined "and that is really what drives the reduction in obsolescence," he said, particularly in connection with promotions that can generate unexpected changes in demand.

According to Capprini, the outsourcing arrangement has enabled Gillette to improve customer service metrics and reduced working capital. "We have been able to reduce our control periods," he said, the current period being one week. "At some point I am assuming it will be less than a week," he said, with the ultimate goal being to establish a manufacturing environment that links Gillette's output to information on product "right off the cash register as (consumers) are buying it."

Achieving that goal requires more flexibility and responsiveness. With continuous improvements at its pack centers and new developments such as the wider use of electronic product tagging, the outlines of that environment are taking shape. "The next step now is advancing the strategy into vertical integration opportunities and further reducing manufacturing lead times, which would improve our responsiveness," Capprini said. More specifically, measures such as bringing printing presses closer to the pack center "optimize cost further down the supply chain," he said.

Ideas like these are gaining traction as manufacturers strive to better align operations with demand. Take pet food manufacturer Hartz Mountain Corp., which has adopted a LeanAgile business model based on the concept of SOMO, or "Sell One, Make One." As part of the strategy Sonoco supplies packaging on an as-need basis rather than in batches, as was the case under the more traditional manufacturing regime. Hartz Mountain has installed ink jet printers on its lines so that boxes can be printed in lieu of applying labels.

"The idea behind lean is to take waste out of the process," said Lyles. In order to identify those areas that are inefficient, "we try to do an assessment" that takes a detailed look at the customer's manufacturing operations. What Sonoco often finds is poor planning that stretches ordering cycles unnecessarily and unwieldy practices such as issuing individual purchase orders rather than consolidating these documents. "There is a multitude of things" companies can do to become leaner, Lyles said.