Contract packaging was once a cottage industry. Now it has become a strategic component for global brands, and the players who understand and embrace this change can experience explosive growth.
Once again, our old friend technology is revamping industries.
The contract packaging industry used to be a rather simple, cut-and-dry part of the supply chain for brands. Today, advancements in technology has made it a critical part of a brand’s customization efforts.
To learn more about how the contract packaging industry is evolving, we reached out to Jason Tham, CEO of Nulogy, a leader in supply chain software. Tham spoke to us as a representative of the Contract Packaging Association.
Contract Packaging: An Industry Expected to Double in Roughly Seven Years
The Contract Packaging Association is an association for contract packagers and manufacturers. Their goal is to build a better supply chain by facilitating communication, education and innovation through their membership of over 1,300 contract packagers.
Contract packaging has experienced significant growth, booming from $12 billion in 2008 to $25 billion in 2016. That’s an 11% yearly increase, which means its volume will double in roughly 7 years.
Jason Tham and his company, Nulogy, has been a partner to many of the companies driving this growth. Their online supply chain solutions are focused on connecting contract packagers with their brand customers.
Jason Tham, CEO of Nulogy
The smart companies who have made this connection have experienced growth that has outpaced the industry.
Brands Turning to Contract Packagers to Keep Pace
Tham explains that what was once essentially a cottage industry has become a sophisticated mechanism for brands to reach customers in ways never before thought possible.
“You can’t overstate the importance of what Amazon has done on the part of consumers,” Tham said.
It’s all about customization. Customers want their products customized, and they want them delivered yesterday. Now brands are turning to contract packagers and manufacturers to help them meet the consumers’ new lofty expectations.
It’s a daunting challenge, but it’s also a tremendous opportunity for those that embrace the new supply chain paradigm. “We are seeing many of our partners experience high double-digit growth,” Tham explained. “There is significant opportunity.”
Expanding Your Scope Upstream and Downstream
Contract packaging has become infinitely more sophisticated in its operation and expansive in its scope. It extends upstream and downstream, affecting operational aspects including design, procurement and structural components.
“For example, the brand may want you to not only participate in making the product, but also to source the right materials,” Tham said.
That’s just one example of the complexity now found within the supply chain. Workflows can vary. It might be direct-to-store, direct-to-consumer, or traditional distribution. It might be all of the above.
Whatever the method, brands want traceability and visibility throughout the process. Paperless quality assurance must be systemic. “The brands want it seamless and fast,” Tham said.
Key Attributes for a Successful Contract Packager and Contract Manufacturer
When it comes to the attributes for a successful contract packaging provider, Tham explains that brands have set the bar pretty high.
“You have to be better than your customer,” he said. “That’s the reason they’re outsourcing. They want you to be more efficient.”
He believes there are two main attributes for a contract packaging provider and manufacturer:
Be flexible - Changes are being sparked by technology, and it will continue to redefine old parameters. You have to be good at adapting to the technology that’s driving these supply chain changes, and integrate it into your operation.
Deliver speed and quality - Speed is essential but it has to be delivered with a high degree of quality. You can’t be fast and not produce a quality product, and you can’t just focus on quality without meeting tight deadlines. It must be both.
Technology Provides Brands With a Front-row Seat
Technology has driven the reinvention of the contract packager, creating a new level of inter-connectedness between brands and their partners. From a platform like Nulogy’s PackManager, brands have a front row seat to the functioning supply chain.
They can see how orders are flowing; the visibility of inventory; and the types of materials being procured for multiple packaging sites.
“They get guarantees of processes,” Tham said. “It helps build trust.”
This has ushered in a whole new level of “co-creation,” in which brands and contract providers are working hand-in-hand to produce and deliver packaging solutions. It’s also heightened awareness of the symbiotic relationship.
The fact that Nulogy was named to “Cool Vendors in Supply Chain Services” by Gartner underscores how the business world recognizes the importance of this development. “It’s such a key component of the supply chain,” Tham said. “It’s getting more recognition overall.”
The New Paradigm is Bigger Than All of Us
Perhaps the biggest takeaway is that what is occurring in the supply chain is bigger than all of us. It’s a movement that can’t be contained or handled by one company alone -- no matter how big or robust it may be.
Partnerships are now the key. Brands strategically look for the best partners to help them leverage manufacturing capabilities and bring products to market. And those partners must all be connected through technology.
“That’s the key to all of this,” Tham said. “It’s not just what you do, but the partners you work with to leverage your relationships.”
To see some real-world example of how contract providers are adapting to the new paradigm, click here.