Q & A: Co-Packing As A Competitive Advantage

Paul Young of DHL Supply Chain breaks down how food manufacturers can best utilize co-packing, as well as other trends regarding packaging efficiency.

PaulYoung

Manufacturing.net sister publication Food Manufacturing spoke with Paul Young of DHL Supply Chain about how food manufacturers can best utilize co-packing, as well as other trends regarding packaging efficiency.

Paul Young, Product Development Director, DHL Supply Chain (UK I, France, Eastern Europe, Middle East & Africa)

Q: What is co-packing and how does it work?

A: Co-packing (also known as Contract Packing) involves outsourcing the manufacturer's secondary packaging requirements (such as outer boxes or packets) to make products shelf-ready. Secondary packaging has become an important competitive advantage for manufacturers, particularly in the food and beverage, health and pharmaceutical markets, as it is a rich area for operational efficiencies. In the current economic climate, co-packing has become increasingly popular as a means of fulfilling large projects without taking on extra staff and equipment.

Q: What are the benefits of co-packing for food manufacturers?

A: Greater product visibility, increased management of costs, flexibility and environmental benefits are just some of the benefits food manufacturers can derive from the process. The primary driver is managing costs, because third-party operators already have the expertise, resource and staff in place. In a recent Contract Packaging survey, highlighted in DHL Supply Chain Matters, 65 percent of respondents who had invested in co-packing said it had increased their business' flexibility, while 62 percent felt it had helped cut costs. Furthermore, co-packing can reduce carbon footprints; for example DHL conducts a "centre of gravity" study for each customer, recommending ways to cut down on transport and minimise the environmental impact of distribution.

Q: What recent trends have you noticed regarding packaging efficiency?

A: Multi-national manufacturers are increasingly looking at ways to reduce the number of co-packers across country and regional borders. This consolidation allows economies of scale to drive down overheads and administrative costs, providing even greater benefits for manufacturers. Secondly, the legislative drive to reduce waste through elimination at source has prompted greater collaboration with co-packers and packaging suppliers. Previously "over-engineered" packaging has been redesigned and, in the majority of cases, reduced.

Q: What should manufacturers consider when choosing a co-packer?

A: In today's economic climate, consideration should be given to the financial and operational stability of the co-packer. A multi-country presence with similar operating standards, procedures, capability and transparency are also important. From a cost perspective, the total supply chain costs should be accounted for. For example, it would be a false economy to appoint a co-packer that is 10 percent cheaper if it costs more to send the donor stock and collect the finished goods from the co-packing site.

When choosing a co-packer, manufacturers need to consider three options: co-pack at manufacturing source; co-pack at the stock holding facility or send out to an external co-packer.

Another aspect to consider is the ability of the co-packer to provide an "end to end" solution. The design, sourcing, procurement and management of packaging can be improved through collaboration with the co-packer, especially if it has experience of transportation requirements and has the scale to drive down costs.

The increasing emphasis on sustainability and rising transport costs should also be factored in when making the decision.

Q: How do you see co-packing evolving in the future?

A: Because of its ability to optimise the efficiency of operations, co-packing is increasingly seen as a "core" product offering, rather than a "value-added" extra. The larger co-packers have such a diverse customer base that best practice transfers quickly across sectors and product groups. The tendency for third party providers to expand their services means that co-packing will inevitably shift further back up the supply chain, possibly resulting in the outsourcing of packaging lines at manufacturing facilities.

It's also likely that we'll see the emergence of Lead Co-Pack Providers (in the same way that we've seen Lead Logistics Providers), who effectively become the main contractor and provide the end-to-end solution.

Increasing environmental awareness from consumers continues to drive many companies' agendas. DHL is working with its customers and suppliers to produce environmentally friendly, innovative packaging solutions, helping customers eliminate waste at source and reduce packaging costs at the same time.

As consumers benefit from greater choice and manufacturers strive to differentiate themselves from the competition, co-packing will become increasing important in emerging markets too. In this instance, co-packers will need to scale operations to support this requirement, and transfer the skills they have developed in more mature markets.

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For more information on co-packing and the latest on trends and best practice across logistics, click here.

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