Nothing gets under consumers' skin faster than a threat to their children or their pets. Dangers to both have cropped up in recent months in the form of lead paint-coated toys and tainted pet food ingredients-both made in China on behalf of U.S. brands.
The subsequent hit for Mattel's Fisher-Price brand and for numerous pet food brands, including such leaders as Alpo and Iams, has put global supply chains in the spotlight for all concerned: consumers, brand owners, retailers and, of course, suppliers.
But experts caution that supply chains for products and ingredients aren't the only source of risk.
"Attention to quality should be acute across the board, regardless of industry," says packaging consultant Sterling Anthony.
Indeed, the global packaging supply chain holds incredible risk-at a level that can hobble or even break a brand.
The threats are myriad. But the biggest one-which occurs when a product is discovered to be contaminated, unsafe or counterfeited-is consumers' loss of trust in the brand.
"As soon as you start to erode that, the whole brand proposition is compromised," says Kevin Williams, a brand strategist at Pure Branding. Loss of trust can be fast and sure, for example, if a food, beverage or pharmaceutical product becomes contaminated from a package coating or additive.
Loss of brand position is another potential problem. If packaging sourced globally is inconsistent in its look and feel, the variability will tend to undercut consumers' perceptions of the brand.
This level of risk is "insidious", says Williams. "When there's variation in how you present the brand, particularly if you have more of a premium product, you can start to denigrate that premium proposition." If the packaging is "faded one day, bright the next, you're no longer presenting yourself in best-in-class fashion."
Another issue that can undermine your brand, when you're buying from geographically dispersed suppliers, is sluggish response to changing consumer and retailer demands. The brand that can't flex with those changes is sure to suffer, particularly in rapidly shifting categories such as personal care.
Finally, the risk of losing brand credibility is a growing concern, specifically in the context of corporate citizenship issues such as environmentalism and "fair labor" practices. More and more, ethical issues like these are informing consumers' purchasing choices.
That's why marketers that tout ethical stances need to make sure all of their suppliers hold to those same values. If ethics-conscious consumers discover that your brand values are not aligned across your packaging supply chain, they will not only stop buying but, also, will likely challenge fellow believers to do the same.
Tackling the risks
Though challenging, each of these threats can be addressed.Assuring health and safety-a particular concern for pharmaceutical, food and beverage brand owners-should be as fundamental to the packaging supply chain as it is in every aspect of the business.
"To monitor the supply chain, there are basically three levels," says Pat Conroy, vice chairman and U.S. consumer products group leader at Deloitte & Touche USA.
First is the regulatory level. Then, there are companies' internal mechanisms and quality assurance processes. And, lastly, according to Conroy, are independent third-party auditors many companies are now using.
For instance, at the regulatory level, food and pharmaceuticals sold in the United States must adhere to the U.S. Food and Drug Administration's Good Manufacturing Practices, which cover packaging as well as manufacturing processes.
In addition, supplier audits are used to evaluate suppliers' production processes and overall quality as well as issues such as labor practices, environmental commitment and plant safety. Materials inspections complement the audits.
"Incoming packaging materials, regardless of the source, are subject to rigorous inspection before they're put into production," says Peggy Staver, director of product integrity at Pfizer. "In addition, the product is inspected throughout the production process and prior to final release for sale."
Pfizer also performs quality audits of its packaging suppliers' facilities in the United States and abroad. The initial audit reviews the packaging supplier's organizational and personnel systems, the facilities and equipment used to manufacture the packaging components, the suppliers' manufacturing and quality systems and their documentation systems.
This first audit helps determine whether the supplier meets Pfizer's quality standards. If it does, the supplier may be selected and then subjected to periodic surveillance audits to make sure it continues to meet Pfizer's standards. More comprehensive environmental, health and safety audits are conducted if the compounds being packaged warrant it.
Brand owners in the food arena take a similar approach to evaluating packaging suppliers. "Anything that comes into contact with food has to be taken very seriously, so we have a product safety audit process that is quite rigorous," explains Susan Grelling, vice president of strategic sourcing and material solutions at The Schwan Food Co. "Anybody that cannot pass that audit cannot be considered a supplier."
Schwan deploys its in-house quality team and also contracts with third-party auditors to conduct initial audits on geographically distant suppliers. Regardless of location, suppliers who pass the initial audit must re-qualify annually to remain on Schwan's supplier list, with certification granted to the manufacturing site, not to the supplier company as a whole.
Visiting the non-U.S. supplier's facility in person can also be quite telling. "When you're not from the culture, you don't even think of some of the issues until you're on-site," Grelling says.
For example, a supplier may claim to eschew child labor. But on a visit to the factory, the auditor sees barracks for the company's non-married workers. If the typical marriage age in that country is 18 years, then most of the supplier's non-married workers would be minors.
Chain of ethics
As these audits indicate, an examination of the supplier's corporate values or ethics often is part of the certification process. Making sure all suppliers are on-board with the brand owner's values is essential to guaranteeing brand credibility, particularly in today's information-on-demand environment.More and more, consumers are actively seeking facts about a company, and they are considering the brand owner's sources of supply when planning a purchase. Research from Deloitte indicates that a brand owner's sourcing is among the top five factors influencing consumer buying decisions. Eco-friendly production and packaging are among the top seven factors.
That's why companies like Cadbury Schweppes are increasingly including their global supply chains in corporate eco-initiatives such as carbon footprint measurement reporting.
The confectionery and beverage company recently announced a collaboration with the not-for-profit Carbon Disclosure Project that will engage suppliers to report their carbon footprints and climate change-relevant information, such as greenhouse gas emissions, emissions-reduction targets and climate change strategies.
"We have committed to forge alliances and positively influence others within our value chain to put climate change onto the agenda," said Steve Driver, the company's president of global supply chain, in a statement announcing the partnership. "By joining forces with peers and partners throughout the supply chain, we hope to reduce the carbon footprint of the food manufacturing sector."
Lean and secure
Operationally, brand owners can take steps to make sure their global packaging supply chain is supporting their brands. Building a lean supply chain capable of responding quickly to shifting consumer needs, for example, ensures brand agility."There are still people who think in the old paradigm-that they can only have just-in-time deliveries if the supplier is right next door," says Nancy McHenry, vice president of supply chain at Topflight Corp. "We've found that lean supply chain designs for mega-brand plants must take best advantage of non-U.S. suppliers. Just-in-time delivery and overseas suppliers...aren't necessarily exclusive."
For example, a cosmetics brand owner might source standardized bottles from a low-cost overseas supplier and then differentiate the containers in the United States using labels synchronized to consumer demand.
McHenry says the concept will create great brand leaders with "sustainable" brand value. "They're going to be the leaders today, tomorrow and 10 years down the road," she says. "Lean supply chain provides the philosophy and infrastructure so they can be the brand leaders over time, because they've developed the ability to change. It becomes a core competency for them, a competitive differentiator."
However, it's also necessary to secure the supply chain, by tracking supplies as they travel through multiple hand-offs to the point of production, to keep finished-goods distribution on schedule and to prevent authentic packaging materials from falling into the hands of counterfeiters.
"Securing the supply chain on the packaging is just as important as securing the supply chain on the components and materials that go into the product itself," says consultant Sterling Anthony.
Packaging materials and technologies can also be used to improve supply chain security after the package and product have been combined. Brand owners with products prone to counterfeiting are on the forefront in this area, using technologies that make counterfeiting tougher to accomplish and fakes easier to detect.
Pfizer, whose brand portfolio includes Viagra and Celebrex, incorporates anti-counterfeiting technologies such as color-shifting ink in the labels of its products in the United States, Europe and Asia.
Pfizer also uses RFID tags to track the movement of pallets, cases and pharmacy-size containers of Viagra within the United States. The tag is placed beneath the label on individual containers and a statement appears on the label indicating the bottle carries a radio device. By the end of this year, pallets and cases of Celebrex also will carry RFID tags.
To make consumers aware of counterfeit drugs, Pfizer includes educational information about counterfeiting on its Web site, including a mention of its anti-counterfeiting packaging and printing techniques and information on drug importation.
Brand owners in other categories also make a point of communicating with consumers about global sourcing issues, including where their products and packaging are manufactured.
After news of the lead-paint recalls first surfaced (where Chinese suppliers were faulted), toy maker K'Nex Brands began putting a prominent "Made in the USA" statement on packaging for about one third of its toys-specifically, those assembled from 100 percent U.S.-made components and packed in domestically produced packaging.
Even before the packaging change, the company noticed a 25 to 30 percent increase in sales this year over last, and it credits the uptick to an overall increased desire for American-made toys.
K'Nex obtains its packaging from both Chinese and American suppliers. In fact, two-thirds of its packaging is created in China-but the company says it is confident in those suppliers.
K'Nex president Michael Araten says supply chain problems are not confined to certain geographies. "You could make something in Hoboken and have a problem," he explains. "We've had long-standing relationships with manufacturers and packaging people in China, and we've had great success there. I think you can source things well in any country."
Where to go for more information...
• Brand identity and package design. At Pure Branding, contact Kevin Williams at 413.548.9900 or kevin@purebranding.com• Market research. At Deloitte & Touche, contact Laura Wilker at 212.492.2871 orlwilker@deloitte.com
• Packaging consulting. Contact Sterling Anthony at 313.531.1875, sterlinganthony1@sbcglobal.net or visit www.pkgconsultant.com
• Custom lean supply chain solutions. At Topflight Corp., contact Tom Koslowsky at 717.870.9550 or tkoslowsky@topflight.com
MADE IN CHINA
When selecting Chinese packaging suppliers on behalf of its U.S. brand-owner customers, TricorBraun uses a methodical pre-qualification technique. Its Guangzhou-based team-about 75 miles northwest of Hong Kong-performs a preliminary plant audit, reviewing production capabilities, quality procedures, site appearance and labor practices.If the factory passes the audit, the supplier is invited to bid. If pricing is acceptable, a senior TricorBraun manager accompanies the team to visit the supplier again, bringing the perspective of the U.S. brand owner and marketplace to the second audit.
For the first few production orders, TricorBraun has its own technicians at the factory observe production, take measurements, compare the packaging component to the specification, and assure that the factory's quality checks are what the supplier said they would be.
When the supplier has proven it can consistently, reliably meet the brand owner's standards and specifications, production monitoring is reduced to periodic inspections and review. Samples from every order are reviewed by TricorBraun's team before shipments are released.
During the ongoing supplier relationship, a senior manager from TricorBraun in the United States visits the supplier's factory at least every six weeks. The brand owner is invited to visit the factory, as well, to see the supplier's quality first-hand.
