2

Nando Galazzo is a member andChairman of the Conference Board,Global Council on Supply Chain and

Logistics. He has been thePurchasing and Logistics Directorfor Sonoco Europe and Asia For

nearly 10 years, prior to which hewas European Procurement and

Delivery Manager with Dow CorningEurope. Mr Galazzo commenced hisinternational experience in the early

1980s by leveraging themultidivisional purchasing contractsfor United Technologies Europe. He

has been involved in purchasingconsultancy and training

programmes, and has also lecturedon supply chain and logistics post-

graduate courses at the InstitutCooremans School of Brussels.

Brad Weller is European BusinessDevelopment Director for Sonoco

Packaging Solutions™ and a BoardDirector for Cascades Sonoco in

France. He also has responsibilityfor Sonoco’s European industrial

sales activities. Mr Weller has heldvarious manufacturing, sales,

marketing and business developmentpositions, concentrating on the

paper, film, and textile packagingindustries.

a report by

Nando G a l a z z o and B r a d We l l e r

Chairman, Conference Board, Global Supply Chain and Logistics Council,

and Co-Director, Sonoco Packaging Solutions™

The packaging world has evolved tremendouslyover the last decade. From the basic function ofprotecting and carrying goods, packaging is nowbecoming an increasingly important component ofevery supply chain. Professional views are mixedwhen defining and drawing conclusions aboutchanges affecting packaging and its place in thesupply chain.

Sales and marketing professionals often argue thatthe value proposition delivered by their packagingproducts is not adequately reflected in selling prices,and product-related differentiation is taking a backseat to services that are increasingly bundled withthe product.

Environmentalists have emphasised that recycling,reclamation and reuse are issues that lead to more-stringent governmental regulations, ‘greener’manufacturing practices and encourage changes inconsumer behaviour and expectations.

On the buying side, purchasers have sought aneconomic compromise between cost and quality andhave heralded working capital reduction opportunitiesunder the just-in-time banner and applied new twiststo traditional supplier leveraging practices.

Logisticians have struggled with optimised packagedgoods, load rates supported by kanban-type models1

and changing less-than-truckload strategies in themiddle of an increasingly complex transportationnetwork. Many are still trying to build the optimumwarehouse configuration that is flexible enough tocope with business seasonality, lower picking costand packing cost, and efficient mass handling ofdecreasing product life-cycles.

Rarely have these important players in the supply chainmanagement process embraced a total cost ofownership model. Even more rare, is a fully integrated,collaborative end-to-end supply chain initiative thatbrings together – if only philosophically – packagingproducers (suppliers) and users (customers).

The lack of collaborative models to draw from hasmade room for too many sub-optimised scenariosthat clearly display its weaknesses when viewed froman end-to-end supply chain perspective.

For example, many companies’ materialsmanagement emphasis has rested on improving rawmaterials and packaging procurement processes,which is admirable and necessary work. However,many non-collaborative leveraging initiativesinefficiently mix the strategic with the tactical, theskilled with the unskilled and result in a patchworkof individual improvements within a sub-optimisedsupply chain.

For example, 3PL (third party logistics) companiesevolved from separate transport and warehousingcompanies to form an enterprise that is optimisingthe interactions of both. This area of supply chainfocus does not often synchronise 3PL activities withscheduling and planning or even packaging designand materials handling. The narrow scope of mostsupply chain solutions means that end-to-endoptimisation remains out of reach.

Not all news is bad, however. Savings are calculated,productivity is lifted and senior management can pointto specific project-level progress, though the real costs,transactional redundancies and process inefficienciesremain hidden from view. A collaborative approach ispotentially so much more effective when trying toimprove supply chain performance.

E x amp l e

To illustrate the importance of developing acollaborative approach to supply chain re-engineeringand management is an example of a chemicalengineering company with an extremely talentedstaff. In fact, 90% of the company’s key managershave qualifications in chemical engineering –backgrounds tailor-made for negotiating contracts forspecialty chemicals and later optimising their use inthe manufacturing process.

Packag ing i s Add ing Va lue to Supp ly Cha ins

EDIE-ISSUESE-ISSUES

1. A popular method for implementing just-in-time is through the use of kanbans, which means ‘cards’ or ‘visible records’ inJapanese.

Packag ing i s Add ing Va lue to Supp ly Cha ins

It also made sense to outsource outbound logistics toa 3PL provider who could optimise load rates, trafficdemands and manage information flows.

On the other hand, when the company turnedinternal resources towards primary packagingprocurement, design and optimisation, they sub-optimised this component of the supply chain. Thereason for this is that the company is staffed forintelligence in chemicals and engineering – thestrategic aspect of the business. Sub-optimisation inthis core area would be quickly exposed andremedied, while the levels of optimisation in primarypackaging supply chain flows are only guesswork andnot integrated into an end-to-end solution.

The company found that silo improvements made inraw materials procurement and logistics were actuallysub-optimised because they were not integrated andsynchronised with primary packaging design,handling and reverse logistics. Many companiesmistakenly segregate supply chain components andflows, then sequentially attack each of them, or theysimply do not have the in-house expertise tooptimise non-core activities. It is hoped that thereare collaborative models available, which can, inpractice, offer a solution.

S ome Hop e E x i s t s

The good news comes from rapidly evolving supplychain enablers such as information technology,global logistics service providers and productidentification technologies that are providing‘postponement techniques’, enabling productdifferentiation to occur at later points in the supplychain. In addition, important innovations inoutsourcing strategies and methods are beingembraced and provide a remarkable opportunity forcompanies to focus on the strategic issues whileoutsourcing the tactical objectives. The bestoutsource service providers keep a keen eye onfinancial and operating indicators, deliveringdecision-making quality data to their clients throughrobust reporting systems.

In fact, when adequately outsourced, production or

services have meaningful key performanceindicators and controls attached to all criticaltransactional and operating processes. The clientcompany can have a transparency within the supplychain that did not previously exist, allowing themto more effectively balance supply and demand,allocate resources and manage investment.Synergies through alliances and partnerships willcontinue to grow in importance, allowingcompanies to rethink their approach to supply chainre-engineering and management, developing amore holistic view of supply chain re-engineering.Bringing all of this together in a structured, process-oriented, flexible, actionable and scalable businessmodel is the key.

T h e S u pp l y C h a i n C o ndu c t o r s – A N ew C o l l a b o r a t i v e Mod e l

It is this coming together of expertise, resources,intelligence and systems that will create newdimensions in supply chain management andoptimisation. A new collaborative business modelis being developed to meet the need for greatersupply chain visibility, extending beyond the 3PLmodel that has traditionally concentrated onlogistics and flow-of-goods informationmanagement. This new evolution in supply chainmanagement will create a new breed of serviceprovider, allowing companies to move beyondcurrent and limiting transactional supplier andcustomer relationships. Supply chain conductorswill enable companies, their suppliers andcustomers to move beyond transactions and simpleco-ordination to a fully collaborative environment.

As recently reported in the Financial Times, thesesupply chain conductors:

“... will sit in the middle of the value chaindrawing products or components from all parts of thenetwork as available, managing product assembly orpackaging and then handling the distribution toindividual customers by the fastest and mostefficient route.”

This will allow companies to focus on strategic and 3

From the basic function of protecting and carrying goods,

packaging is now becoming an increasingly important

component of every supply chain.

core business areas while reaping significant, long-term, and scalable benefits from collaborating withmultiple partners managed by a single supply chainmonitor. Packaging solutions exist that are designedto deliver these advantages, while leveraging strengthin packaging design, manufacture and distribution.

T h e C o l l a b o r a t i v e V a l u e P r o p o s i t i o n

Packaging is one product that runs through all linesof the supply chain and is also an area in which manycompanies lack a core competence. A decade ago,the genesis of these packaging solutions began withone customer, managing on-site inventories of itsmanufactured products and providing reclamationand recycling for those products at the end of theirlife-cycle. Ten years on, it has evolved into an end-to-end supply chain re-engineering andmanagement practice with a special focus onpackaging in the supply chain. Collaborativeapproaches such as this can involve four main areasin which companies look for collaboration andoptimisation (see Figure 2).

Innovative and forward-thinking companies look tobroaden the definition of supply chain scope andlengthen the available cost savings and productivityimprovements. It is about developing a model thatconnects and affiliates external competencies frombest-in-class providers to deliver a fully optimisedend-to-end supply chain.

S u s t a i n a b l e P e r f o rman c e

Companies today expect to achieve year-on-yearimprovement in total productivity, defined as:

• direct procurement savings;• process ‘learning’;• direct and indirect labour reductions;• fixed and variable cost reductions;• return on capital and capital avoidance; and• creating quantifiable competitive advantage and

enhanced service capabilities.

Traditional supply chain improvements and re-engineering too often fall short of meeting theseobjectives because, typically, supply chaincomponents and flows are segregated, then attackedone at a time, in a valiant attempt to achieve costsavings and productivity targets. However,company-wide supply chain optimisation isforfeited in favour of inter-departmentalperformance objectives and priorities. Newcollaborative models using supply chain conductorsare bringing a unique and powerful method foroptimising and sustaining supply chainperformance. These models are expecting to bringdouble-digit returns and even more. ■

EDIE-ISSUESE-ISSUES

Figure 2: Four Main Areas in which Companies Look for Collaboration and

Optimisation

1234

Supply chain re-engineering and implementation

Pack centre management

Packaging design and materials handling

IT integration, e-business and interface support/optimisation

optimisation synchronisation end-to-end packaging solutions

production planning

process-integrated designs

The emerging packaging web market place….

inventory and WtC management

multi-function

Navision, Aribaand People Soft

co-asset and labour management

multi-use/reuse/returnable

SAP R3

Figure 3: Broadening the Definition of Supply Chain Scope

Extended enterprise asset management (future)

Packaging design, development, and engineering support

Packaging material life-cycle management:return, refurbish, reuse, recycle

Logistics sourcing and information management

Pack centres/packaging operations

Packaging materials planning and inventory management

Packaging materials sourcing, procurement, leverage

Subcontracting warehouse and distribution

Transportation management outbound/reverse logistics

High

Medium

Low

4pl

3pl

Intensity

Supp

ly Ch

ain Scope

source : SONOCO SPS

Figure 1: An Evolution Towards Greater Collaboration

Partnership trust and collaboration

Supp

ly Ch

ain P

erfor

mance

H

L H

Transactions

Co-ordination

Collaboration