E-Commerce Mass Customization, Contract Packaging and Inventory ManagementHow contract packagers help meet e-commerce needs for mass customization
Contract packaging is in its heyday for many types of products. The contract packaging and manufacturing industries have changed and become more fast-paced and demand-driven than in the past. Today, both contract packagers and contract manufacturers need to make sure that both they, and their clients are using software and systems that facilitate real time sharing of information so that mission critical decisions can be made effectively and in a timely manner.
A Major Trend: More Companies are Outsourcing to Contract Packagers
The contract packaging industry is shifting from a tactical role such as that of a quick-fix, regional or seasonal accommodator to that of a valued strategic partner. With all the complexity involved with omnichannel, multichannel and e-commerce fulfillment, many companies are electing to outsource simply to benefit from additional help and expertise. Overall, the largest sector is consumer packaged goods (CPG), including food and non-food products that are continually consumed then repurchased. The largest geographic growth in contract packaging is in Asia, however the industry is growing at three times the rate of the underlying industries that it serves in the United States.
Across the world, companies are outsourcing to contract packagers to:
- Quickly build brands in new world markets
- Penetrate existing markets
- Reduce costs
- Gain increased control over existing brands
- Access packaging expertise
- Gain access to local knowledge and networks
- Speed up cycle time
Outsourcing to Contract Packagers Helps Fulfill the Need for Mass Customization
We live in a world dominated by consumer expectations. Today, consumers expect to be able to customize goods to meet their specific needs and tastes without paying a huge premium to do so. Personalized packaging, assembly of goods into gift packages or “kits” such as subscription boxes and other customizations are often handled by contract packagers or even 3PLs with contract packaging capabilities.
Changing consumer preferences has necessitated a shift from a model of mass production to one of mass customization. This involves satisfying the individual needs and wants of each consumer but at a pricing model that is comparable to those of standard mass-produced goods. Mass customization involves producing goods after receiving orders rather than in advance of manufacturing the goods. The mass customization model diminishes the risk of over-producing goods, especially those that may not be needed or wanted.
The mass customization model is popular in e-commerce and relies on a close relationship with suppliers, distributors, 3PLs and consumers. Gaining access to actionable intelligence that can be used for close collaboration with supply chain partners can be readily facilitated using technologies including warehouse management software, automated data collection, EDI, RFID and customer web portals. Having real time access to data, orders, shipments and other information is critical to the success of e-commerce fulfillment and the customization of consumer goods.
Consumers have demonstrated a willingness to pay a premium for goods that gives them greater satisfaction and meets their specific requirements and expectations. According to The Deloitte Consumer Review Made-to-order: The rise of mass personalization, 1 in 5 consumers who expressed an interest in personalized products or services are willing to pay a 20% premium.
To leverage the success of e-commerce and meet the need for customization, online retailers would benefit from having more cooperation and information sharing with all the stakeholders in the entire value chain. Today packaging of e-commerce goods is driven by consumer needs for fast delivery, efficient handling and low prices.
Benefits of Outsourcing to a Contract Packager
- Speed to market
- Cost control/reduction
- Elimination of capital expenses
- Packaging expertise
- Access to packaging resources
Packaging is not typically designed to enrich the consumer experience or to promote the brand. Packaging can be improved in ways that improve sustainability as well as its physical performance, provide data that can be used to streamline handling and distribution and adapted to enhance delivery options such as use of click and collect lockers and robotic delivery.
Yes, packaging not only can play a vital role in e-commerce sales but also add value to the customer experience and reinforce brand values and awareness. When you think about it, packaging is essential to the success of most goods. Packaging can make or break a product by making it easier or more complicated to handle and store. Of course, consumers have the final say. Proper packaging does much more than showcase a product. It should provide a safe, secure way of ensuring the quality and freshness of the goods, and preferably be sustainable and cost effective in nature. A great packaging design can do so much more…
The Challenges of Mass Customization in an E-Commerce Omnichannel World
To be able to execute mass customization on a large scale, companies need to overcome cultural issues and share data across the supply chain rather than hoard information and use it solely to serve their own interests. Supply chain partners need to utilize technology to manage the complexity of order execution. High variability and short turnaround times for processing and fulfilling orders impact the product customization process, making it complex and challenging.
The need for affordable customization in an e-commerce crazy world means that production now needs to be more fluid, subject to needs for increased flexibility due to changing trends and consumer demands. Because of consumers’ expectations for immediate order fulfillment, products often need to be manufactured and distributed in close proximity to the point of consumption.
A survey of 140 packaging and processing professionals working for CPGs, contract packagers and OEMs was conducted last Fall to help determine how to partner to meet disruptions in the market. Three issues were of primary concern to respondents:
The need to locate automated solutions to mass customization, primarily for e-commerce.
The need to automate changeovers is critical. Currently the most significant equipment challenge involves the fact that smaller runs require faster changeovers, especially problematic with legacy equipment and the shortage of skilled workers.
In terms of automation, the scarcity of skilled workers is the most notable challenge.
Outsourcing to a Contract Packager: The Role Technology Plays
No longer can products be manufactured en masse and left to sit on shelves in a warehouse or distribution center, hoping that they will sell. Today, companies of all kinds are outsourcing work to a variety of supply chain partners. From food processing to pharmaceuticals, outsourcing is a popular business strategy, enabling brands to shift from mass production to mass customization with little or no capital investment in assets or a dedicated, skilled and reliable workforce.
Working together across the supply chain, partners now employ predictive analytics, Big Data, machine learning and artificial intelligence (AI) as tools to measure, monitor, predict and plan how to continually adapt. Flexibility is key; adaptability on the fly, a necessity.
By leveraging technology, brand owners, suppliers and 3rd party service providers can maximize the value of each partnership to take full advantage of emerging market opportunities, penetrate existing markets and better grow consumer-facing brands.
Firsthand Experience with Inventory Management Challenges and Contract Packagers
Having worked for a large manufacturer years ago (let’s call it Company A) that used contract packagers, I learned firsthand about how a lack of inventory visibility can wreak havoc on a business. At that time, most contract packagers used by Company A did not use warehouse management systems or any kind of software to track and manage inventory. The copackers did not feel it was necessary and it was not mandated by their clients.
One day, when preparing reports on aged inventory, we uncovered substantial inventory at the end of its lifecycle on site in multiple facilities owned by third party vendors. Company A suffered a loss that financial quarter of over $250,000 simply because it lacked visibility into the inventory that the copackers were holding on site and not reporting accurately. The loss was unacceptable and had to be explained to the Board of Directors. It was an embarrassment to the supply chain department, a real black eye that showcased the impact that the lack of information visibility at the copacker level had on the company.
In another memorable instance, a contract manufacturer was unable to execute a production run due to an insufficiency in the quantity of product labels and containers. Apparently, an incident had occurred in a third party facility that resulted in significant damage of components needed to produce finished goods. Information about the damaged labels and containers was not provided to Company A in a timely manner. Because Company A was not informed about the incident, the supply chain team was not aware of the need to order and procure the necessary components and an order was delayed unnecessarily for an important retailer.
Ten years or so ago, contract manufacturers and contract packagers often did not invest in technology and were not encouraged or forced to do so by their clients. Copackers often used Excel spreadsheets, manual notes on clipboards, etc. to keep track of aging inventory and did not produce reports for clients. Manufacturing and warehousing have changed. Today, companies want enterprise-wide visibility across their supply chains. Manufacturing execution systems (MES), material requirement planning (MRP) and warehouse management systems (WMS) are in common use in the industry, facilitating accurate planning, improving order fulfillment rates and improving inventory management capabilities.
Contract packagers and contract manufacturers now invest in warehouse management software specifically for third party vendors (including 3PLs) that do not own the inventory to ensure that they can capture and bill for all the value-added services they provide. They use web portals so that their clients can have 24/7 access to inventory, orders, shipments, reports and other vital information needed to effectively manage their goods and operations.
Why outsource to a contract packager? One reason is access to experts in packaging design, packaging equipment and packaging materials. For brands that deal with blister packaging and clamshell packaging, having experts with years of packaging design expertise and the requisite procurement knowledge can potentially produce significant savings. Copackers can help brands meet even complex needs when dealing with such products as personal care items, subscription boxes, gift sets as well as consumer packaged goods and can also handle secondary packaging needs.
Do You Have the Right Technology?
If your company has outsourced to a contract packager or contract manufacturer, ask yourself these questions:
Do you have real time visibility into:
Your on-hand inventory at every stage of the production process?
All components and supplies needed to manufacture your products?
Track and trace of all your goods, even on the production line?
Can you measure the performance of your suppliers as well as each contract manufacturer and contract packager?
Does your third party service provider use a billing system that provides you with detailed invoices?
Does your third party service provider use a WMS that enables them to customize labels, processes, services, reports, documents and more for your business?
Do you have 24/7 real time visibility into the operation, inventory, orders, shipments and other details of your business and inventory?
Is you third party vendor using leading edge technology or outdated systems or manual recordkeeping?
Can information be shared across your enterprise and supply chain easily?