Contract packing used to have something of an image problem. But with outsourcing rapidly turning into one of the most cost-effective routes to market, it's becoming a vital link in the supply chain reports Des King
How the wheel turns. Once considered to be something of a shadowy occupation, contract packing and manufacturing is now estimated to have blossomed into a £10bn business in the UK. Not bad going for a sector of the industry that used to be considered a necessary evil rather than a key component within the marketing handbook – and so respected in fact, that it now even boasts its own trade association.
According to Rodney Steel, ceo of the British Contract Manufacturers & Packers Association, there could be as many as 1000 co-packers currently operating within the UK. Around 10% of them may well be members by next year.
Even more indicative of a newly discovered appetite for positively promoting their services is that the BCMPA will oversee a 20+ strong pavilion at next year’s Total exhibition – a long way removed from the sector’s “beneath the arches” genesis of 30 or so years ago.
What’s changed? Well, ironically it’s most probably the fact that, while FMCGs have latched onto just-in-time marketing only comparatively recently, the ability to match up to that demand is something that contract packers have always considered to be their fundamental stock in trade.
They have traditionally picked up those jobs that brand owners either did not want, or did not have, the capacity to fulfil. The changing equation between production and marketing, however, is calling that definition into question.
“If supply and demand is consistent, then yes you are probably better off handling your packing in house,” says Rodney Steel, “but in reality, how many businesses actually operate in that way today? What happens if you get a sudden rush, for example. You are going to start letting customers down because you don’t have that infrastructure in place to be able to handle that unanticipated extra workload.
“Sub-contracting – and paying for it as and when it’s needed – represents commercial commonsense. The term outsourcing is being applied to a whole host of different industries, not just contract packing, and of course it’s highly applicable to present-day supply chain issues.”
Sometimes the contract packer will be used to design, for example, a vacuum-form pack and take on the responsibility for getting it made up, printed, filled and delivered. Alternatively, the brand owner may simply provide the product and the appropriate packaging materials and merely be looking for a fast turnaround assembly.
Increasingly, however, actual manufacture is an added requirement with the co-packer effectively acting as an annex to the brand owner’s production line – invariably to handle turn on a sixpence two-for-one and seasonal promotions.
It’s an extended responsibility that has enabled The Packaging Factory, for example, to grow its turnover from £1M to £4M in the past five years.
Recently included as part of Boots’ strategic plan for developing packaging and products, The Packaging Factory maintains its own laboratory facility in full accordance with industry cleanroom compliance.
“We can blend say a shampoo or a hair-lotion from our own formulations; design a pack for it; label it; fill and cap it; pack it into an outer carton we’ve also designed; palletise and deliver,” claims managing director Ian Anderson. “I want to position us as a one-stop shop. When a customer comes through they know they won’t need to go anywhere else.”
It is an aspiration he is well on the way to achieving. A £300 000 acquisition of two US Sunpack stretch-wrapping machines – which provide an alternative to blister packs and are the first to be installed in the UK – enabled The Packaging Factory to produce over 7M heat-sealed biodegradable film and card packs on behalf of a marketing agency working for Warner Bros to carry Harry Potter collectable coins. The original brief asked for vacuum-formed packs. Anderson’s initiative achieved a 25% saving on budget.
The same process has subsequently been used for the Johnsons Wax On & On household product, which recently achieved a best pack award (non-food) from Pro-Carton.
It is indicative of an entrepreneurial streak that the evolving breed of contract manufacturers might justifiably claim as second nature.
“Certainly, you have got to be able to think on your feet and be prepared to change plant around,” agrees Chris Jones, managing director of A E Adams. “It’s a very different way of making a living.”
Adams was one of the first UK co-packers to offer a “total supply service” and the company works equally comfortably with both brand owners and intermediary marketing consultancies, such as Winplus Europe, for whom it recently developed the Out of the Blue range of car enhancement products for worldwide distribution.
In addition to formulating the products themselves – including a car wash, car wax, an innovative non spray glass cleaner and an internal and external trim cleaner – Adams also assisted closely on the PET bottle and PP snap closure design.
“It’s an ideal partnership in every way,” says Winplus md John Kegg. “The Adams team has all the skills we were seeking. We can depend on them totally to handle all aspects of production, enabling us to concentrate on marketing and distributing the products internationally. Most importantly, we’ve seen that Adams can switch very rapidly into a higher gear as demand grows.”
This is undeniably lifting contract packing into a different league.
“We have well in excess of £1M of capital plant available,” says Chris Jones. “Adams is very much a technical business – it sells solutions that enable the customer to develop a product and a process. It will also use its experience to bring together the correct and available packaging technology to safely and cost-effectively contain that product. That is a commercially viable relationship based on a mutual interdependency that can work very well for both parties.
“Businesses like Adams and others who have been doing it long enough strive to improve and to be professional. It is what you have to be in getting work from the blue-chip company base that we are dealing with. We have ISO 9000 plus many other accreditations that hopefully make our customers feel more comfortable when they first start talking to us.
“This industry has become a lot more specialised in the past 10-15 years. It’s certainly become more focused.”
There’s an inescapable logical conclusion to all of this. Why stop at farming out some of the packing or, indeed, some of the production? Why not go the whole hog – what Martin Usher, managing director of Grotech Production, calls broad scope manufacturing outsource.
“What I’m aiming at is to serve those customers who’ve realised they don’t need a factory. What they need is to focus upon is what they’re good at. We’re targeting businesses that have a small manufacturing base and whom I can persuade to close down their factory, give me the work and let them get on with the selling.”
This is not as outlandish as it might sound. Grotech – whose specialist area is in agro and industrial chemicals – already has one customer signed up on this basis and is close to finalising negotiations with another.
“Any degree of outsourcing depends upon a great deal of trust and that the contracted third party is not going to go out of business, is going to deliver on time and so forth. The logical extension to that is becoming part of the team itself.
“What I’m trying to encourage people to think about is why do they need a factory of their own when they could have a manufacturing outsource to do it for them and share all the fixed costs with other companies. Ultimately, it will always cost you more to do it yourself unless you have very high utilisation of your facilities.”
The advantage to the customer, of course, is that they would then have no capital investment tied up in plant and site. Usher cites a high profile home and garden market products brand owner who has for some time been using a number of outsource manufacturers to do exactly as he’s proposing.
“We’re a small microcosm here of what is possible,” he says. “We have a £1M turnover and that’s something I have to grow if I am going to stay in business in the long-term. Broad scope outsource manufacturing opportunities will bring the growth and stability that will make the business effort pay off. We see ourselves as bringing the same professionalism to bear as the principal would expect to see in his own factory.”
That vision of the future aside, there is still plenty of work at the more mundane end of the contract packer chain. Wrapid Contract Services, which extended into the contract business as a way of selling greeting cards wrapping machinery, now earns a steady £2.5M says divisional managing director Tony Mottram – around 10% of group turnover.
“All the big brand-leaders want to do is churn out regular volume work on fully automated equipment. When there are promotional activities -twin packing or multi-packing or whatever – their equipment can’t handle it so they farm out the promotional work to other people.”
More prosaic still is the view of Dean Varns, owner of £1.5M annual turnover Chertsey based Lenpack. “Our classic type of work is in hand-assembly. That could be repacking, labelling or putting together a pack from components. Lead times can vary from a couple of hours to five months but, on average, it’s three to four days.
“This business is no different to any other business. It’s not what you know, it’s who you know and it’s about having the ability to know what you can do and to keep within those limits. There will always be a need for the service we provide because there will always be some things that you just cannot do on a machine.”