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FLEXO Magazine : February 2014
to ensure that the workforce collectively works toward the same objectives,” notes Ernst & Young. PRODUCT, CUSTOMER PROFITABILITY Machinery is expensive. Labor is generally a fixed cost. SKUs continue to grow in number, potentially leading to a large amount of low margin products. As a result, packaging companies “are under pressure to keep their utilization levels high,” Ernst & Young says. But taking on short term jobs to contribute to fixed costs are not long term solutions. It is important for a company ’s management to have fore- sight to identify which end markets, products and customer relationships have growth potential and to respond accord- ingly, whether that means increasing prices, renegotiating payment terms or even sever a relationship with a customer. QUESTIONS TO ASK: • Do my systems support the right level of detail for product and customer profitability? • Are there too many SKUs in my product portfolio, impact- ing manufacturing efficiency? • Which are my most profitable customer relationships and what drives this? This should not be attempted without accurate, up to date information concerning customer profitability, product line profitability and an SKU database; this data needs to be properly sorted in order to allocate costs properly (See Charts 5 & 6). Consider a product that shares product lines, labor or overheads: Data needs to be vetted to be as precise as possible. INNOVATION According to Ernst & Young, consumer goods demand in the developed world has been steady. Demographic changes such as an increase in the average age and a decline in the nuclear family, coupled with fast moving consumer goods (FMCG) manufacturers becoming more competitive have all led to recent packaging innovations like: • Convenience features, including stand up pouches, easy opening pouches and resealable packs • Smaller packs designed for on the go usage and single serving sizes • Promotional packs and brand extensions that maintain customer loyalty • Attention paid to colorful, eye catching designs that aim to enhance brand awareness and stand out on the shelf • Developing of mass luxury cosmetics and other consum- er goods What does all this mean for packaging producers? They need to “deliver new shapes, use new materials, print more colors in greater definition and deliver short run lengths eco- nomically,” Ernst & Young says. Doing this, the firm continues, means investing in new equipment and training. Once again, failing to invest early enough or in the proper places could become a disadvantage. QUESTIONS TO ASK: • Am I talking to my customers about future trends to en- sure we proactively meet future needs? • Do I have visibility of the long term plans for my custom- ers’ product programs and what part I will play? • What are the end consumer trends driving innovation in the end market I supply and what does this mean for my present business? But the real driver of innovation is the end customer and packaging producers need to keep close relationships with their customers, who are one step closer to those end custom- ers. “ T hus it is the relationship with the product development teams of end market facing firms and how this is fed into the manufacturer ’s own R&D programs that are a key indicator Charts 5 & 6: Product and customer profitability analysis is useful for correlating costs, sales and other data points. 62 FLEXO FEBRUARY 2014 www.flexography.org