Focus on the value chain integration
Value chain integration has been one of the cornerstones in packaging industry efficiency improvements for some time. There has been consolidation and acquisition widely in the fibre-based packaging industry, resulting in medium-sized packaging companies expanding to become more prominent. As a result, many of those merged companies in the packaging industry have created more complex supply chains with potential improved efficiencies but with more significant planning challenges. Digitalisation allows integration and will drive the packaging industry to higher levels of efficiency. To maximise profit, manufacturers need to improve their supply chain planning capabilities dramatically.
The demand volatility increases value dynamics and sets high requirements for the supply chain planning
The packaging industry is business to business, but the customers directly supply the retail market, resulting in retail trends and volatility immediately impacting the packaging manufacturer.
Constant omnichannel and e-commerce growth and development in retail increases the logistics demand throughout the supply chain to ensure on time and in full deliveries to the end customers. As a reflection, today’s value chain in the packaging industry is not static but highly dynamic. The demand volatility in this largely consumer-driven business can be extreme. The operational efficiency in the supply chain is the most important but not the only driver for profitability.
Under pressure from their customers on price and delivery performance, companies in the packaging industry are turning to digital transformation to meet these challenges in an increasingly volatile and unpredictable market. Leading packaging businesses have already implemented fundamentals such as sales and operations planning processes and the digital sales and service channels.
They have become pioneers in digitalisation in their industry and continue to expand their digital footprint, including functions like online order change management, complaints management, price indication engines etc. All this sets the new scene for customers who happily receive this new service in digital form, as it allows them a 24/7 service.
The capability of rapid response, including changes within the production process, is required to offer customers the service requested in a reliable and efficient manner. Increased levels of change management need to happen within the constraints of the manufacturing process. The inventory network between primary production and converting, and the raw material supply, requires a mathematical approach to creating possible operating scenarios.
This approach, along with robust collaboration tools, allows the business to bring together the management teams in sales, production, supply chain, and finance to make informed decisions effectively. Within these planning processes, knowing the financial outcome and lost margin from straying from the optimal plan is critical, where costs are high, and margins have traditionally been low.
Some of the best performers have found horizontal integration of supply chain starting from pulp and paper production mills to packaging plants beneficial. However, this is a big step that most are yet to take despite the indisputable benefits from moving in this direction.
Fibre-based packaging is commonly referenced as sustainable. It is made from renewable material and is technically recyclable. However, all the stages of a product’s lifecycle from raw material through base paper production and the final product should be considered when making packaging decisions as trade-offs arise from alternative packaging materials.
Sustainability for fibre-based packaging means renewable raw-material base with life cycle perspective thinking and the use of biomaterials and recycling with the circular economy as an integral part. Often this reflects trade-offs between biomaterials and plastics with product safety focuses considering local conditions. Today’s fibre-based products, cardboards, paperboards, and pulp will remain competitive as a sustainable option and see solid demand growth. Like some other necessity producers, industry operators for fibre-based packaging materials have faced demand which has been at a record high with peaks and throughs due to the Covid-19 impact.
The packaging industry business process
Fibre-based materials manufacturers have increased their supply capabilities to the maximum in this highly competitive market. Price increases have been introduced, and most operators will record high operating and business results.
The big questions are: what is the new normal? And at what price will the market stabilise? The volatility and uncertainty are here to stay, therefore, business and operational planning challenges will continue to grow. The integration between sales and operational planning, both at the tactical and execution level horizons have become crucial.
The typical supply chain of a fibre-based packaging business is international. It specialises in producing paper-based boards and packaging on sites in multiple geographic locations to offer its customers the range of packaging products, often focusing on local/regional markets. Typical packaging business operators are managing businesses reaching multiple continents, countries and markets. The plants are often integrated, for example in the corrugating business, combining paper from reels to manufacture corrugated boards on a corrugator machine.
Different types of converting machines in the conversion area also exist. These cut, fold, print and glue the board to produce the packaging specific to each customer.
Fibre-based packaging manufacturing processes are complex
The production of corrugated board is different from that of carton board and folding cartons with different products and markets. Though the folding boxboard and carton board packaging is similar, they do not involve a corrugator as a primary operation. The production usually starts from different types of pre-press and printing operations. Cartonboard commonly also needs creasing, cutting, pre-folding and gluing before it turns into a final package or a product to deliver in-shop product hanger/stand with targeted marketing message. Also, this category of packaging products is delivered in all shapes and formats. Similar to the corrugating businesses, the transportation costs and service requirements limit the supply range of folding cartons. Both are thus commonly defined as regional products. Other similar processes are in liquid packaging and all kinds of paper bags, sacks and such used both by industrial customers and household consumers.
Customers range from major international and household brand owners to smaller local companies in all these different packaging businesses. The packaging industry generally delivers customer orders; both produced just in time or from finished product stock or a combination. Also, a semifinished inventory between primary production and converting (often in a different location) exists, similarly to a significant raw material inventory in the form of the raw board/paper reels and sheets. All these employs working capital.
Packaging industry business planning and challenges
The packaging market is mainly regional by nature but supplied by global companies (global/local presence), typically from multiple manufacturing operations. The upstream processes deliver critical raw materials to packaging producers and operate continuously 24/7. Packaging operations manufacture products from existing, often specific raw materials in predefined dimensions specific to customer order or semifinished stock for later conversion.
It is impossible to align the continuous cyclical processes within raw-material suppliers without a well-defined and correctly implemented inventory strategy, able to service volatile end-customer demand, typically with small quantities of multiple products with variations day-by-day. Planning semifinished production in large batches, where storage space is limited, requires world-class forecasting tools and processes.
The lead-time for the customer orders may be as short as days, if not hours, from the converting line to the final product packing line; therefore, converting operations, along with their planning processes, need to be agile and in many cases have some safety stock in house or VMI. The converting operation is often a mix of own and externally managed contract manufacturing and requires flexibility.
Packaging operations require an agile end-to-end connected planning solution. A solution in the form of a tool capable of managing the tactical demand and supply balancing, inventory buffers in semifinished and finished goods materials and a short-term planning process for detailed up-to-the-minute optimisation-based reactive schedule creation to outperform its competitors. The essential element is increased visibility across the supply chain. The importance of the control tower has become crucial.
A successful control tower is a set of tools to provide both transparency and automated alerting capability. In addition to the software support, the best-performing control tower should have executive authority to make decisions that recently have often proved to be both complicated and challenging. McKinsey is advising businesses to set cross-functional control towers that have access to end-to-end real-time data and metrics and are empowered to make critical decisions fast. Practical and timely scenario planning capabilities are also vital.
The recent past has demonstrated to all of us worldwide, how entirely dependent we all are upon reliable supply chains to keep our lifestyles running.
Consumers have had to rely more than ever on e-commerce to deliver even necessities. High spikes in online shopping globally have exhausted today’s delivery systems’ ability to keep up with demand. In particular, the corrugated industry produces boxes that are used to transport products to stores and different warehouses and distribution centres.
Software solutions exist
Autonomous supply chain planning tools are the key to reacting quickly and correctly in the volatile market that we operate in today. Modern, cloud-based, real-time integrated planning tools exist to set a foundation for building towards autonomous planning capabilities. Planning tools enable continuous, and machine supported decision making across the value chain. In practice, planners can primarily operate real-time, focusing on exceptions. The computer-based tools deliver the expected planning result in a timely way with a mathematical optimisation-based solution creation and advanced analytics providing the supply chain experts with necessary support and a stable base for decisions. Such system support allows the supply chain planning team to focus their time on value-adding analysis and timely decision making.
I-Plan for Packaging – A complete solution
I-Plan Integrated Business Planning solution for the Packaging Industry provides complete end to end supply chain planning solutions for different processes in the packaging business. I-Plan offers process supporting functions necessary for:
A world-leading Collaborative Demand Planning tool with advanced statistical forecasting, incorporating machine learning techniques, multivariate forecasting that enables statistical forecasts to be influenced by market trends, along with powerful event models that take into consideration end customer promotional campaigns.
An enterprise-level Supply Network Optimisation tool with ‘what-if’ scenario planning allocates demand to the corrugating machines and any packaging specific converting lines to maximise profit across the enterprise. The process models all constraints of capacity, capability and customer preference and delivers production schedules for all stages of the process, inventory plans for semifinished goods and finished goods calculated to meet customer service targets, transportation schedules and time-phased raw material requirements.
A Demand Sensing process with day-to-day demand control allows adjusting the forecasts based on booked customer orders and deviation from normal customer behaviour to drive short-term production plans and inventory plans using real-time short-term forecast updates.
A Production Scheduling tool generates minute-by-minute block schedules for the primary packaging machines, corrugators and converting lines, such as cutting and folding lines or printing lines updating in real-time from shop floor execution systems and providing a ‘drag and drop’ user interface for short-term schedule adjustments.
An Inventory Optimisation tool that ensures that semifinished and finished goods inventories are maintained throughout the distribution network to meet service level targets, generating all the needed production and stock transfer orders.
Similar to finished and semifinished materials, there is a vital role in how the planning process succeeds in timely indicating raw material requirements and needs. The lead time of some raw materials is often substantially longer than the lead time of the customer order. Thus, demand-driven inventory planning, automated replenishment and safety stock management are crucial.
A Sales Order Scheduling process to evaluate Available to Promise from Inventory and Capacity to Promise from production providing reliable delivery date promises in response to customer inquiries, reserving capacity and generating the needed production and shipment orders to ensure execution on time and in full.
A powerful Analytics system to generate reports, dashboards and KPIs to create a Control Tower for driving the business KPIs to their target.
TIPS for packaging is a set of modules within the TietoEVRY TIPS family. TIPS solution suite covers the whole order-to-cash workflow for box manufacturing.
The I-Plan planning suite, available as part of TIPS, is a web application that is scalable, multi-language, multi-currency for operation in the cloud as a SaaS or on-premises deployment.
Those packaging business owners who make an effort in integrating the sales and operation planning to execution can turn their market uncertainty and volatility into an opportunity to outperform their competitors in the ever-challenging packaging market.
Get in touch with us to ensure your business continuity in the face of the ongoing digital transformation in the packaging industry. TietoEVRY I-Plan team is ready to arrange a meeting to give you more detailed insights on what is available.
For further information, please contact:
Jarmo Ropponen, Head of Sales and Marketing, Pulp, Paper and Fibre
Jarmo.email@example.com | www.tietoevry.com
Jari Kaukiainen – Director, I-Plan Business Development
firstname.lastname@example.org | www.iplanworld.com