Food Packaging – Part 1: Hidden Project Risks in Carton & Case Count Reductions
As marketing teams in the food industry battle for the consumer’s attention on the shelf, they must also meet the needs of retailers with packaging that takes less shelf space and increases product turns. These retailer requirements often lead to packaging redesigns to reduce carton counts, case counts, and even pallet sizes, as retailers seek shelf-ready packaging (SRP) formats and more flexibility for distribution.
However, even a “minor format change” can have hidden risks with large impacts on both the capital project cost and the final cost of goods that go far beyond the additional corrugate.
Adopting a preliminary engineering methodology provides food manufacturers the critical opportunity to investigate alternative packaging specifications and project scopes before large amounts of time and money are wasted on a plan that will never achieve an acceptable internal rate of return (IRR).
This article, part one of a three-part series, explains how small packaging changes can lead to major capital expenditures and how a Preliminary Engineering Assessment by Matrix Technologies helped a large food manufacturer reduce its capital project budget by 50%.
Two Approaches to Execution
Many capital projects follow a linear flow that begins with a new package specification, establishing a budget and then a race to get long-lead time equipment on order. This linear approach prioritizes responding to customer demand by delivering a product to market as quickly as possible, which may be useful for projects with low complexity or high risk tolerance.
A second approach to project execution recognizes that responding to customer demand is not just about speed, but also about promptly executing the right project for the business as a whole. The wrong scope with unexpected technical and financial challenges can stress already limited margins and engineering staff.
A preliminary engineering assessment of a capital project enables food manufacturers to identify the right project with the right scope that can be executed efficiently.
When considering what approach is best for an application, it’s important to carefully consider the hidden costs that can reduce IRR and challenge an otherwise straightforward project.
Case and carton count reductions are a perfect example. Decreasing the amount of product per unit while maintaining the same overall volume can bottleneck previously efficient equipment; critical pieces of legacy equipment may no longer be adaptable due to the loss of Original Equipment Manufacturer (OEM) support; additional materials may require unavailable storage and floor space; and additional manpower may be required to replenish machines. The list quickly grows long.
Matrix Technologies, a leading food and beverage engineering company, has extensive experience in preliminary engineering assessments. Matrix recently used a preliminary engineering assessment to help a large food manufacturer navigate the packaging changes the client required to remain competitive, achieve the client’s marketing goals, and reduce the initial capital budget estimates by almost 50%.
The Client’s Challenge
A large manufacturer in the snack food market needed to update its successful but outdated Point of Sale (POS) packaging. Marketing required the current double face cartons reduced to a single face with pack counts and pallet heights reduced by half.
Implementing the Method
The food and beverage engineering team at Matrix developed utilization models to understand the impact of this packaging change across the manufacturing network. The models included three sites with over 100 SKUs and were validated against historical production, seasonal peak demand, and projected future growth data. Using these models, strategies were developed to shift production volumes between sites, update existing equipment, purchase new equipment, and expand plant facilities.
After careful analysis of the original packaging specifications, it was determined that no strategy met Marketing’s initial requirements while providing a positive IRR. Had this manufacturer opted for a linear approach without a Preliminary Engineering Assessment, long lead equipment would have been ordered without an understanding of the true magnitude of investment required throughout the entire downstream process and the project would have never achieved a favorable IRR.
Instead, Packaging Design and Marketing used the initial preliminary engineering results to collaborate on a revised carton design, incorporating recommendations for slightly larger carton and case counts that could better utilize the existing equipment infrastructure.
Matrix engineers reevaluated the new packaging specifications and determined that, in conjunction with slight adjustments to the timing of inventory builds to meet peak demands, this new carton allowed existing equipment to be retrofitted with only modest investment in new equipment, and avoiding major investment in downstream systems. Both groups won: Consumers and retailers received the product they demanded and the business received a favorable IRR.
Packaging changes are often viewed as low risk, particularly when the package size is reduced but stays within the size capability of the equipment, and when production volumes remain constant.
However, the details of production rates and the complete process design associated with making “just a minor format change…” can create serious challenges for the project team. A Preliminary Engineering Assessment removes these obstacles and provides the project a path to success.
Matrix Technologies is one of the largest independent process design, industrial automation engineering, and manufacturing operations management companies in North America. To discuss a project, or learn more about our Packaging Services, contact Dave Travis, Project Engineer in the Engineering Services Division, (317) 347-7700 x143.
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Consulting Services – Pre-Engineering