Why Logistics Smarts Counts

Dermot Smurfit, president of the European Federation of Corrugated Board Manufacturers (FEFCO), captured the collective wisdom of his organization’s 13th Technical Seminar in his opening remarks.

“There’s a serious disconnect between specifiers of corrugated packaging and the users, which include the major supermarket groups,” he says. “Sixty percent of corrugated goes through their system. Still, it has been estimated that in Germany alone, product lost through incorrectly specified or designed packaging results in a loss of between 300 million and 1.5 billion euros. This has to be a significant concern to all of us in the box business. Our Spanish colleagues have estimated that over the past 50 years or so plastics have removed some five million tons of corrugated from the European system. Returnable plastic crates are seen as our greatest threat, having already removed over 1 million tons from the system in just a few short years.”

This represents corrugated’s greatest threat, but also the industry’s greatest opportunity. The supply chain through which corrugated packaging travels can yield information that will make corrugated converters more competitive. To access that information, converters need to cultivate a new point of contact: the logistics manager at the retail level.

Retailers Have No Choice—Professor Bernard Hallier, managing director of the European Trade Institute (EHI) and president of EuroShop, the worldwide exhibition for retail investment goods, said there’s an oversupply of products and packaging in the supply chain and limited shelf space. Retailers are being forced to be innovative.

“People making decisions in marketing don’t know much about packaging,” he told his audience of corrugated industry specialists. “A new cycle has started.”

He was referring to the information cycle in the supply chain. If converters want to stay in business, Hallier warns, they must realize that retailers are pushing for their supply chain partners to have the necessary packaging know-how to help make them successful.

The problem is, too many corrugated box suppliers are afraid of creative people, says Erik Dyhr Thomsen, development manager for Kappa Dansk Kraftemballage. The industry needs to be as creative as Apple was when it took the portable music market away from the Sony Walkman. The problem is that converters are still faced with the customer mantra “price, price, price.”

“You need to talk to customers about the future of packaging and what it can do,” he says. “What will your packaging do for their product? To answer that you need to find out what the customer is doing in his marketplace.”

Consumers want top quality and design at discount prices. That’s why retail suppliers of paint, textiles, shoes, and leather goods are losing ground to Wal-Mart. Corrugated box converters can look to furniture makers and fashion shops as the newest growth opportunities outside the big box retailers.

“They’re the ones you’ll have to impress with your products,” Thomsen advises. “Creativity will be your most important raw material.”

The person you need to impress most with that raw material is the logistics manager.

Making the Case—“They’re the new decision makers in retail,” states Alfred Hofman, who used to be responsible for maintaining fresh produce for EDEKA, Germany’s largest food retailer. He’s now president of his own consulting and investment company: Intrepid Fresh, based in Holland. He added that these decision makers want packages that will lower handling costs and be easy on the environment. That should make it easy for converters to make the case for corrugated.

Hofman offers examples from his time working for EDEKA.

“When EDEKA went back to cartons [from plastic] in 2000, they had quality problems like poor cooling and seepage,” he explains. “We needed coatings for the wet products and controlled atmosphere packaging for individual units.”

Hofman worked with his corrugated box supplier on a solution involving the addition of a layer of film to the tops of containers of strawberries and cherries. This was a simple but effective means of providing an “individual controlled atmosphere.”

The greatest pending opportunity for corrugator plants will be next year, and it involves bananas. Today, the prescribed industry standard corrugated packaging for bananas in the EU, the U.S and Japan is telescopic and weighs 20 kilos loaded. Because that packaging is too big and heavy for many retailers and consumers, the size restriction will be lifted. Packaging vendors will be able to sell this market on an open-top box that’s more retailer and consumer friendly. Hofman notes that this new market opportunity represents 650 million packaging units a year.OBM