Hot on the heels of the global financial crisis, Australian packaging supply chain companies need to lift their game and change if they are to prosper, writes the Packaging Council of Australia’s Gavin Williams.
The global financial crisis has forced all companies to re-examine their cost structure and to reshape their operations and business models.
Companies in the packaging supply chain are, however, facing challenges which are considerably more complex, serious and far-reaching than those posed solely by the financial crisis.
They include:
- The competitive challenge from low cost producers, particularly from Asia.
- The need for greater emphasis on product innovation.
- The task of controlling operational costs but, at the same time, investing in plant, equipment and innovation.
- Attracting “the best and the brightest” to the industry.
- The role of the private equity model.
- The need to address the sustainability issue.
Here are some thoughts on the challenges ahead and the changes, adaptations and transformations which will be required in the years ahead. The bottom line assessment is that many Australian
packaging supply chain companies will need to lift their game and change if they are to prosper.
PricewaterhouseCoopers (PwC) has recently released a report which contains the thoughts of 33 global executives in the forest, paper and packaging industry. Here are some of the more interesting and challenging of their viewpoints:
The industry as a whole has failed to address sufficiently a groundswell of environmental, technological and broader societal developments, which have led to questioning the benefits provided by packaging products themselves.
There is a widely held view that the industry as a whole has overinvested in bricks and mortar-type assets and underinvested in markets and stakeholders.
Industry needs to do much more in terms of outreach and educational initiatives.
The rapid expansion in Asian consumption has driven significant capacity expansion, effectively closing
the market to European exports, which may have trouble competing on price.
“If you don’t have your costs right you are dead.” Most cost savings have been passed on to customers, but companies will need to build returns so they can innovate and focus on high value products with sufficient margin to ensure profitability.
Many of the CEOs expressed concern about the ability of their organisation to attract the best and brightest new graduates.
An Australian perspective
These concerns and perspectives largely hold true for Australia:
- Innovation —While there have been some notable exceptions, Australian companies – both brand owners and packaging manufacturers — have been “innovation takers” rather than “innovation makers” – “fast followers”and “good adapters.”
There is a need to invest in product changing innovation. Companies need to recruit, and then actively support, high calibre change agents.
Who pays?” — or — “How can I reduce my risk?” is another issue. Both brand owners and converters may want innovation but they look to the other to fund it.
There is also a direct link between innovation and the emphasis on cost reduction. In order to survive, packaging manufacturers and their supply chain have aggressively reduced costs and will continue to do so. But this alone will not ensure survival. More of the benefits of cost reduction will need to be directed into product changing innovation rather than propping up short-term profits.
- “The Best and the Brightest” — The PwC comments ring loud and true for Australia. Packaging, indeed manufacturing, is not seen as a sexy industry. While their numbers are increasing, it also doesn’t attract enough women. University courses either at the undergraduate graduate level have failed to get off the ground, partly because of lack of numbers but also, to be fair, because of doubts about the adequacy of the courses proposed. In short, companies need to recruit — and then actively support — high calibre change agents It has to compete more effectively with other sectors to attract the best graduates.
- The Challenge from China — Two separate but related issues are worthy of comment. Firstly, the worldwide Chinese investment splurge will directly affect companies in the Australian packaging supply chain. Indeed, it is doing so already. Secondly, the market share of imports of “empty” packaging from low-cost Asian producers continues to increase. The quality of Chinese packaging, while not yet at Australian standards, is improving and is increasingly regarded as sufficiently good. Concerns continue, however, about general food safety and health matters, concerns which China will need to overcome.
- Private Equity — Interestingly, while the PwC report sees an upswing in mergers and acquisitions, private equity was not identified as the driver of such deals. There is a large amount of capital residing with private equity funds which, when combined with debt, provides a significant source of finance for acquisitions. On the other hand, the view exists that, in Australia and New Zealand, the day of the private equity firm buying local packaging assets has peaked and is now on the decline. Funds are harder to access and more expensive. Recent sales suggest that established packaging companies will be the front runners in the bidding for such assets.
- Sustainability — Despite the fiasco at Copenhagen and the continuing debate about climate change policy, globally it is clear that companies are moving ahead to re-examine their packaging and reduce its environmental impact.
The motivation is powerful — self-interest! Companies recognise a growing consumer interest and awareness, increased business risk as well as the ability to reduce costs.
In short, environmental change is increasingly seen as a winner. This is a significant change. Global retailers are now significant drivers. This is relatively new.
There is no one template for the changes being adopted. They include, but go well beyond, the standard option of lightweighting to include a greater focus on reusable and refillable packaging and the use of packaging materials comprising non-petroleum products.
Moreover, globally, the sustainability issue is producing unprecedented discussion and co-operation between companies right across the supply chain.
Australian companies should take note and respond positively and proactively.