As economies and markets over the world are getting integrated, a number of new opportunities are being explored by companies around the world in order to increase their operational efficiency, reduce costs of production and at the same time provide highest level of services to their customers. A noticeable step undertaken in this direction by the Multinational Companies (MNCs) was to outsource their non-core operational areas to service providers.
Outsourcing is a process whereby a parent company delegates a part of its in-house (non-core) operations to a third party. Outsourcing takes place in both services and manufacturing sectors. The most prominent examples of outsourcing under services sector are back office operations (BPOs), call centres, software development & maintenance and other information technology related services (ITeS). Under the manufacturing sector, companies outsource various non-core operational activities like processing, assembling, packaging, etc.
Given the rising costs of raw materials and labour along with the highly competitive markets, outsourcing of the non-core business activities that require significant manpower and capital investments has become inevitable for companies. In addition to reducing in-house regulatory burdens, outsourcing also enables companies to focus on their core operational activities and thus improve manufacturing efficiency and productivity. Pharmaceuticals, semiconductors and consumer products are some of the industries which are increasingly looking to outsource their packaging functions given the definite benefits that can be realised. For instance, outsourcing of the packaging function can prove to be extremely useful for a pharmaceutical company during peak production periods as the company can concentrate on its core production activities. Besides, outsourcing of the non-core activities also enables the company to cater to the sudden surges in demand.
Outsourcing in Packaging Sector
The two major categories of outsourcing that have been identified in the packaging sector include Contract packaging and Product packaging. A contract packager is a company which provides packaging services, facilities and equipments. The packaging service offered can be simple or a complex one ranging from labelling a box to quality testing of the products packaged.
Product packaging, on the other hand, involves physical packaging process through the use of co-packers, equipment manufacturers and/or various product based companies.
While a company stands to gain immensely by outsourcing its packaging functions, utmost care should be taken while selecting a packaging outsource service provider. Packaging is not only vital for the product's safety, but is also an important marketing strategy for the company as it plays significant role in influencing consumer's decision to buy a product. Hence, while selecting an outsourcing partner companies should ensure that it meets certain criteria which among others include the Four C's viz; confidentiality, control, cost and capacity. Confidentiality requires maintaining a certain mutual level of secrecy in an outsourcing relationship. Controls require having an eye on detailed paperwork with proper procedures in place. It also requires analytical skills to develop a full and accurate picture of problems, solutions, and the various repercussions of those solutions. Considering costs, both low and high quotes should be thoroughly studied, analyzed, and considered in relation to service required. Besides, the supplier should have adequate capacity to handle the project size. In addition to this, other factors which need to be considered include location advantage, experience and reputation of the supplier etc.
Some of the Criteria to choose a Contract Packager are: (as mentioned by Contract Packaging Association, US)
Location: Convenient location relative to the company's manufacturing and distribution facilities so as to save delivery time and lower freight charges.
Experience: Contract packaging companies should have serviced other clients with similar product lines and packaging needs and are equipped to deliver the service specific needs.
Strong Ethics: The company should have high standards with clean and orderly facility with required production and quality controls in place.
Good Communication: Contract packager should have the communication skills to understand client needs and give brilliant ideas and innovative solutions.
Financial Strength: Contract packager should have the financial strength in order to undertake the project.
Personality: A good match of personalities between the client and the contract packager's key staff helps ensure a successful relationship.
High Standards: Constant efforts on the part of the contract packager are required to improve services.
Quality: Contract packager should have quality program in place and production controls with signs of innovation, unique approaches, and a different perspective.
Strong references: Reputation of the contract packager in the market and list of clients will shed light on their services.
Given the increasing trend towards outsourcing of the packaging function, many contract packaging firms have evolved especially in the US and Europe. US-based Alliance Packaging Group can be a case in point. The company undertakes contract packaging for personal care products. It provides contract filling services to manufacturers and distributors of over-the-counter personal care items and other hot fill products. The company specialises in product packaging of lip balms, lotions, sunscreens, bath products, creams, balms and pet care products. Besides, Alliance packaging has an in-house research and development laboratory to work with customers to develop new formulations.
Contract packaging firms generally specialise in one or many forms of packaging like liquid packaging, shrink packaging, blister packaging and so on. Liquipack Corporation is one such contract packaging firm that manufactures packets to fill liquid and semi-liquid products for industries ranging from pharmaceuticals, cosmetics to household products and industrial lubricants.
Contract packaging firms provide a range of services to their clients. These firms have simple to high speed automatic machinery to package and label products along with warehouses and production facilities. As a result, the outsourcing companies can also save on installation of costly machinery required for packaging. Also, some contract manufacturing firms provide complete packaging services from package design to shipment. A mention can be made of US-based Display Pack, a packaging company that offers single source solution to its customers which include package design, manufacture, contract packaging and distribution to the retail outlets. The company also provides complete contract packaging services including packing, assembling, filling, sealing, cartoning and hand assembling.
This apart, contract packaging imparts greater flexibility to companies to package promotional and low-volume products. Thus, a company resorting to contract packaging need not incur additional expenditure to install machinery, if required, for the packaging of the promotional products which it would like to offer as a part of its marketing strategy. While companies from sectors like consumer products, cosmetics, and electronic goods are gradually moving towards outsourcing of their packaging activity, the trend is more prominent among the pharmaceutical companies which have already started outsourcing various functions from manufacturing, clinical trials to packaging. The trend towards outsourcing in pharmaceutical sector has been briefly discussed below.
Outsourcing in Pharmaceutical Sector In recent years, pharmaceutical companies have been facing margin pressures due to intense competition, higher costs of product approvals, rising costs on research & development and threat from generic drugs. This led the pharmaceutical companies to undertake outsourcing of their services so as to concentrate on their core operational activities like research & development. Outsourcing also helps companies in terms of reduced time to market as even a small reduction in drug development time can give substantial benefits due to reduced costs. Besides, outsourcing provides operational and financial flexibility while at the same time ensuring manufacturing efficiency. Another advantage of outsourcing to pharmaceutical companies is that it saves the company from making huge capital investments in their own manufacturing facilities while they can avail of the latest technology through the outsourcing partner.
Alcan Packaging is one such leading provider of specialty packaging to the pharmaceutical, medical and bio-pharmaceutical industries. The company undertakes contract packaging for pharmaceutical companies which ranges from drug development, packaging to product launches. Further, a research and development division of Alcan has enabled it to offer various innovative packaging solutions to pharmaceutical companies, which in turn have contributed in the growth of its contract packaging business. A recent innovation made by the company for pharmaceutical packaging is a new StabilitySolutions product line of high barrier plastic bottles. The new product line StabilitySolutions DRY and StabilitySolutions BARRIER are an innovative solutions for pharmaceuticals that require high moisture and oxygen barrier.
Another key trend witnessed amongst the leading pharmaceutical companies is that they are increasingly outsourcing their operations to Asian countries like India and China owing to the low labour costs, technical skills and availability of huge markets in these countries. Also, Indian pharmaceutical companies are able to gain US-FDA (Food & Drug Administration) approvals which have facilitated outsourcing in a major way. Even though, outsourcing activity is gaining momentum in the pharmaceutical industry and is leading to significant benefits in terms of costs and efficiency, concerns do remain with respect to intellectual property rights, confidentiality and loss of control. However, these issues can be tackled with proper efforts undertaken by companies as well the regulatory agencies.
Another area in the packaging industry where outsourcing is catching pace is Packaging design. Many global companies are outsourcing their packaging design services to India given its expertise in the areas of information technology and web designing. Delhi-based Desmania Design is one such firm which offers designing services to sectors like packaging, industrial, automotive, retail, etc. The company had won NID-Businessworld "Design Excellence Award 2005" for FMCG packaging. The company offers packaging solutions ranging from consumer research, branding, creative structural design to mould development and artwork creation.
Conclusion
As manufacturing companies move towards outsourcing their packaging function, contract packaging is emerging as a strategic business. With good growth expected in the contract packaging business as more and more companies take to outsourcing, strong technical knowledge, focus on quality and services and establishing long-term relationships with the clients are some of the prerequisites required by the contract packaging firms. This apart, many global packaging companies are also outsourcing their manufacturing operations to Asian countries particularly India and China. Due to low labour costs, Asian countries are being increasingly looked at for sourcing of packaging materials like cartons, cans, laminates, plastics and glass bottles, etc.
-Onboard, ITC Limited