critical issues in packaged food business

Critical issues in packaged foodbusiness

Aziz Ahmed, Naser Ahmed and Ahmed SalmanKnowledge Planet Ltd, Sylhet, Bangladesh

Abstract

Purpose – This paper aims to examine salient issues in the packaged food business with specialfocus on packaging and its crucial role covering food marketing, best practices in the food and drinksindustry, product innovation, food safety and quality, food supply chain management and emergingtrends.

Design/methodology/approach – Phenomenological research has raised awareness and increasedinsight into critical issues in the packaged food business. The approach is based on observation of thebusiness environment, online research, a close watch on British food industry, analysis of papers injournals, and brainstorming with co-researchers for four years.

Findings – The research has found that the key trends fostering growth in developed packaged foodmarkets are convenience, functionality and indulgence. The real value of packaging is that the packageis an integral part of the product today. Besides, food products frequently require the general marketingapproaches and techniques applied to the marketing of other kinds of products and services. In addition,for the food industry to improve further, it needs to adopt the best practices shown in this research paper.Moreover, while going for product innovation, some critical success factors must be taken into account.Furthermore, the objective of all quality assurance systems exercised by food manufacturers andprocessors, is to produce safe products that comply with manufacturers’ specifications, including therequirements established by governments. On top of that, the companies that are the most progressive inthe management of the supply chain are expected to be the most successful and profitable. Last, but notleast, companies should look forward to emerging trends for business success. All these critical issuesmust be observed in a packaged food business for superior performance.

Research limitations/implications – Company surveys have not been performed due to thelimited access of the research to well-developed Western food markets. Hence, company surveys maybe the next step to further identify critical issues in the packaged food business from the perspective ofexisting corporations.

Originality/value – This paper offers a holistic view that would guide a reader to identify criticalissues in packaged food in existing or new businesses.

Keywords Food packaging, Supply chain management, Quality management, Packaging processes

Paper type General review

IntroductionWhat are the salient critical issues in packaged food business? Packaging isindispensable component of modern lifestyle. Different types of packaging play a vitalrole in the production, preservation, distribution and marketing of manufacturedconsumer goods and other products (Issues Paper, 1997). Global packaged food salestouched over US$1,254 billion in 2003, up by 4.1 per cent in current terms from 2002.North American and Western European sales were driven by increased demand forboth healthy and easy-to-prepare packaged food, and premium and indulgent brandsin staple sectors such as dairy and bakery products. The key trends fostering growthin developed packaged food markets are convenience, functionality and indulgence.The most successful new product developments suggest increasing consumer demand

The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at

www.emeraldinsight.com/researchregister www.emeraldinsight.com/0007-070X.htm

BFJ107,10

760

British Food JournalVol. 107 No. 10, 2005pp. 760-780q Emerald Group Publishing Limited0007-070XDOI 10.1108/00070700510623531

for convenient, portable, easy-to-prepare meal solutions that lessen the hassles oftime-starved modern urban life and the inevitable limitations on food preparation andshopping time that distress consumers (Euromonitor, 2004). That is why certaincritical issues must be observed in packaged food business.

The objective of this research paper is to offer a holistic view that would guide oneto identify critical issues in packaged food business that must be considered.

BackgroundIn most food industry research papers, much light is being thrown on a single aspect ofpackaged food business. While writing a business plan for a new packaged foodventure, sources have been identified and analysed covering salient critical issues inpackaged food business. No comprehensive review of the business aspects of foodpackaging exists and this paper attempts to offer a holistic view to fill up the gap.

Role of packaging and its crucial componentsPackaging:

. must contain the product;

. must preserve and protect its contents; and

. is a communication device providing details about the product, including price,contents, ingredients and nutritional value as well as cooking instructions andrecommended use by dates (Issues Paper, 1997).

The real value of packaging is that the package is an integral part of the product today.While corporate functions divide the component parts, the consumer does notdifferentiate between the product, the package and the equity. They are one. Thepackage is the product delivery system, and the package comes of great use in sellingthe product (Richmond, 2004).

Here are some straightforward steps that a consumer packaged goods (CPG)company can adopt to be sure its packaging not only meets minimum expectations butalso responds to emerging needs.

First, conduct store audits. It is excellent way to get preliminary ideas. It could besurprising to learn how much packaging is already adding product’s value.

It would be good idea to take small team that consists of marketing, sales andproduct development. Investigate the whole store including getting ideas fromproduct/package systems outside of intended product category.

Rank the ideas against pre-determined metrics and allocate value opportunity to thetop ones. Examine successes and failures over time.

Second, grasp and assess what consumers are looking for now and in the future.Focus on what is important to consumers, i.e. taste, convenience, nutrition, fresh-likeappearance, stability, longer shelf life, value, variety, fun, time-savings, environment,safety etc. Moreover, in terms of convenience, customers want easy shopability,openability, reclosability, portability and disposability.

Reading trade journals, participating in futures studies, talking to retailers,attending trade shows, and talking to internal resources in departments such as marketresearch will help one to understand what is important to consumers. Best of all,

Issues inpackaged food

business

761

consumers can tell one and show one (ethnography) what will make their experiencebetter.

Third, recognize new product/package opportunities that outclass the competitionby looking more holistically (product þ package þequity) at the packaging.

Here is a wonderful tip to follow: Don’t let packaging cost get in your way initially.Solutions that are too expensive can be discarded afterward, but if they are discountedup front, the range of options and some creative ideas vanish from the process(Richmond, 2004b).

Meanwhile, begin with examples of new packages that have driven market growthand monitor sales and develop your own case studies.

Fourth, changing mindset would be necessary. Try to meet consumer/retailerbenefits through packaging. Here is the retailers’ short “wish list”:

. new news;

. productivity enhancements and labour savings;

. home-meal-replacement solutions;

. traffic builders;

. loyalty builders; and

. more sales and profitability!

Fifth, develop integrated solutions. Take the consumer’s perspective. Consumers donot divide the product, package and equity. All work together synergistically in themind of consumer.

Sixth, remember to consider multiple channel offerings early. Will the product besold at mainstream retail, but only in one size?

Additionally, today consumer channels include retail grocery stores, super centres,warehouse clubs, drug stores, convenience and gas centres, value stores, home centres,vending outlets, restaurants and the internet. Some 25 years ago, grocery storesrepresented the primary place to shop (Richmond, 2004a). That is why nowadays it ismore likely that product will be sold in single-serve formats at gas stations, drug storesand will probably require different secondary and promotional packaging (powerwings and floor stands). One needs to follow all six steps carefully for packagingsuccess (Richmond, 2004b).

Besides, BRC/IOP packaging standard can be followed for the following purposes:. the adoption of a formal hazard analysis system;. a documented technical management system; and. control of factory standards, product, process and personnel (BRC/IOP

Packaging Standard, 2005).

However, if packaging is critical component of one’s marketing mix, one needs to havea pipeline of packaging ideas and concepts in development. But many brands do nothave such type of system in place. That is why they and their suppliers are caught indownward-spiralling “vicious-cycle” working to cost-save their way to prosperity. In a“vicious cycle”, a company is 100 percent productivity focused with little or no newpackaging demand side growth. Margin erosion occurs continuously (Richmond,2004c).

BFJ107,10

762

But brand managers can break this vicious cycle. One can choose to includepackaging into one’s early consumer understanding and design briefs. Company’sinternal and external packaging resources can be involved at the earliest stages ofpackage creation.

Marketers meet directly with packaging suppliers to give direction, and focussupplier efforts on their most important goals and objectives. This approach describesa “virtuous” cycle where everyone succeeds by balancing innovation initiatives withcost and productivity while realising both top and bottom-line growth (Richmond,2004c).

Current efforts in this regard are more innovative in nature: they are meant forunderstanding how packaging can help solve consumer problems and spot new topline growth ideas. Thus packaging is an investment for CPG companies rather than anexpense. The use of tools such as finite-element analysis (FEA) software lets packagingdesigners and engineers study effectively complex packaging structure and optimisecost and performance. Application of technology is a strategic option worth taking intoaccount. It can save millions of dollars by substituting trial-and-error packaging designwith rational math/science-based FEA. The upfront usage of FEA can also optimisenew product/package design, permitting companies to capitalise on both innovationand cost savings (Richmond, 2004a).

However, Silayoi and Speece (2004) report that significance of packaging design as ameans for communication and branding is increasing in competitive markets forpackaged food products. The package conveys favourable or unfavourable impliedmeaning about the product. Underwood et al. (2001) suggest that consumers are morelikely to impulsively imagine aspects of how a product looks, tastes, feels, smells, orsounds while they are viewing a product picture on the package. Moreover, if one’sbrand competes in a crowded category, one trick for show up from the crowd isdisrupting the eye as the consumer walks past the target shelf set. Apart from that, aset of tools is available to measure and control print quality. Among the mostimportant quantitative tools are spectral data, density, dot area, ink trapping andcontrol of the viewing area. One should insist that printer use these devices andmethods for better print quality on package (Levey, 2004).

Basically, there are four main packaging elements potentially influencing consumerpurchase decisions, which can be divided into two categories: visual and informationalelements. The visual elements consist of graphics and size/shape of packaging, andinteract more with the affective side of decision-making. Informational elements relateto information provided and technologies used in the package, and are more likely tointeract with the cognitive side of decisions.

Research says that the impact of visual package elements on choice is strongerwhen consumers have low levels of involvement with the product due to time pressureand weaker when they have high levels of involvement due to less time pressure.However, people in different cultures are exposed to different colour associations anddevelop colour liking based upon their own culture’s association. While choosingcolour for packaging, one must take account of this critical issue.

On the other hand, the impact of informational package elements on choice isstronger when consumers have high levels of involvement with the product due toenough time in hand and weaker when they have low levels of involvement with theproduct due to time pressure. In addition, new packaging technology or new


business

763

technology claimed on packaging has a more positive effect on the purchase decisionunder time pressure than without time pressure Silayoi and Speece (2004). Anotherissue is food marketing that must be applied effectively.

Food marketingFood products frequently require the general marketing approaches and techniquesapplied to the marketing of other kinds of products and services. Topics such as testmarketing, segmentation, positioning, branding, targeting, consumer research, andmarket entry strategy, for example, are highly appropriate in food marketing.Additionally, food marketing is affected by other kinds of challenges–such as dealingwith a perishable product whose quality and availability differs as a function ofcurrent harvest conditions. The value chain–the extent to which sequential parties inthe marketing channel add value to the product–is predominantly significant. Today,processing and new distribution choice offer growing opportunities available to foodmarketers to supply the consumer with convenience. Marketing, services, andprocessing added do, however, cause notably higher costs (Kohls and Uhl, 2001). Inaddition, a survey in the UK Sunday Times shows that in poll of the 100 all-timefavourite top advertisements, six of the top ten and 50 of the top 100 were advertisingfood and beverage products. This testifies to the value of advertising and branding inthe food industry (Marvick and Dik, 2000).

The study of consumers assists firms and organizations in developing theirmarketing strategies by grasping issues such as:

. the psychology of how consumers consider, sense, reason, and select betweendifferent alternatives of food (e.g., brands, products);

. the psychology of how the consumer is affected by his or her environment (e.g.,culture, family, signs, media);

. the behaviour of consumers while shopping or making other marketingdecisions;

. constraints in consumer knowledge or information processing abilities affectdecisions and marketing result;

. how consumer motivation and decision strategies vary between food productsthat differ in their level of significance or interest that they cause to theconsumer; and

. how marketers can adjust and develop their marketing campaigns andmarketing strategies to more effectively access to the consumer’s mind.

Understanding these issues assist companies in adjusting their strategies by taking theconsumer into account.

Demographics and food marketingThe study of demographics entails understanding statistical characteristics of apopulation. For food marketing purposes, this may help firms understand the currentmarket place or predict future trends.

However, food is more and more being consumed away from the home – inrestaurants, cafeterias, or at food stands. Here, a large part of the cost is for preparation

BFJ107,10

764

and other services such as setting. Consumers are frequently very eager to pay thesecosts, however, in exchange for convenience and enjoyment.

Food-marketing issuesThe food industry deals with various marketing decisions. Money can be invested inbrand building (through advertising and other forms of promotion) to increase eitherquantities demanded or the price consumers are willing to pay for a product. Coca Cola,for example, spend a great deal of money both on improving its formula and onpromoting the brand. This lets them charge more for its product than can makers ofregional and smaller brands.

Nonetheless, some consumers show brand loyalty by not switching to any otherbrand or sometimes they show multi brand loyalty where they switch to number ofselected brands from time to time.

The “Four Ps” of marketingMarketers often turn to the “Four Ps,” or the marketing portfolio (Cohn, 2005) as a wayto explain resources available to market a product:

(1) Product. Firms can invest in the product by using high quality ingredients ordoing extensive research and development to make it better. Both McDonald’sand Burger King, for example, in fact spend millions of dollars to improve theirFrench fries (Perner, 2004).

(2) Price. Different strategies may be adopted in connection with price. Basically,there are two ways to make a profit – sell a lot and make a small margin oneach unit or make a large margin on each unit and settle for lesser volumes.Firms in most markets are in comfortable position if the market is balanced –where some firms compete on price and others on other features (such asdifferent taste preferences for different segments). The same idea goes for theretail level where some retailers compete on price (e.g., Food-4-Less andWal-Mart) while others (such as Vons Pavillion) compete on service whilecharging higher prices.

(3) Place (distribution). Most supermarkets are approached for more products thanthey have space for. Thus, many manufacturers will find it difficult to get theirproducts into retail stores.

(4) Promotion entails the different tools that firms have to get consumers to buymore of their products, possibly at higher prices. Advertising is what peoplethink of by default, but promotion also includes coupons, in-store pricepromotions, in-store demonstrations, or premiums (e.g., if you buy a package ofJimmy Dean hotdogs this week, you get a free package of Kraft mustard).

The food-marketing environmentThe food market is influenced by many different forces – e.g. sociological (fewerchildren mean less demand for certain products), government regulations,international trade conditions, science and technology, weather and other conditionsinfluencing harvest conditions, economic cycles and competitive conditions.Businesses must take all these issues into consideration while formulating theirbusiness strategy.


business

765

Moreover, competition is gradually more global, with both suppliers and buyersbeing extended increasingly across the world. Because of ever more complexmarketplace, managers need to cultivate more business and interpersonal skills alongwith technical knowledge. The food industry encounters pressures not only in terms ofnutritional value and safety, but also from environmental concerns (Kohls and Uhl,2001).

Besides, marketing and distribution related decisions and policies are now ofsupreme importance in the world of food marketing. This is owing to the present stateof economic crisis in much of the world and the cost efficiency issues that must beremembered in countries at varying levels of economic development. When studyingfood-marketing systems from varying cultures, one must consider the political,economic, cultural, and environmental aspects of the countries involved (Kaynak,2002).

Moreover, cross-cultural and religious food taboos must be taken into account whiledoing international food business. For instance, it would be grave mistake to try to sellbeef-based food products in India and similarly, pork-based food products in Muslimcountries like Saudi Arabia. Because both are strictly prohibited in respectivecountries, though they are widely consumed in western countries without any kind ofrestraint. That is why all aforesaid issues must be taken into consideration while doinginternational food marketing. However, best practices must be adopted to increaseoverall business performance significantly.

Best practices in the food and drinks industryIn June 1996, Leatherhead Food Research Association introduced the “Food and DrinksIndustry Benchmarking and Self-Assessment Initiative’’ with the help of theDepartment of Trade and Industry and the Ministry of Agriculture, Fisheries andFood, UK. A total of nine food companies that outclass in terms of the EuropeanBusiness Excellence Model (Lean Service, 2004) were opted for visits. This part of thepaper relates the best practices exercised by these companies in terms of the resultsthey have attained (in people satisfaction, customer satisfaction, impact on society andbusiness results) and the way in which they have attained them (through effectiveleadership, people management, policy and strategy, process management andresource management) (Mann et al., 1999).

For each business excellence criterion some general observations of best practicewill be mentioned.

LeadershipThis criterion reflects on “visionary and inspirational leadership, coupled withconstancy of purpose”.

Examples of best practice in leadership are shown below:. Board meetings prioritising non-financial success factors. A number of

companies used the balanced scorecard approach, developed by Kaplan andNorton (1993), to go for a balanced approach to evaluating performance.

. Regular senior management meetings on business improvement.

. Taking part of senior management in the design and execution of a formalimprovement process approach.

BFJ107,10

766

. Taking part of employees in policy and strategy formulation via meetings andthrough employee surveys.

. Demonstrating recognition.

. Confirming that time is allotted for employees to work on improvementactivities, allocating budgets to improvement teams, and the appointment offull-time improvement facilitators.

. Leadership involvement in developing customer/supplier relationship.

. Quadrant- a company introduced open-plan offices and renamed its head officeas the support office and renamed all managers and directors as support staff. Asa result, it removed psychological and physical barrier to communicate freelywith top management (Mann et al., 1999)).

Policy and strategyThis criterion reflects on “how the organisation formulates, deploys and reviews andturn policy and strategy into plans and actions”.

Examples of best practices in policy and strategy are as follows:. Formulation of vision/mission statements based on the company’s situation and

ambitions, and the conversion of these into policy statements.. Taking account of the views not only of shareholders, but also of customers,

employees and the community at large when determining policy and strategy.. The connecting of business plans, team and individual plans to the company’s

vision and critical success factors, and making sure that resources are assignedwithin each plan.

. Confirming that employees understand and associate themselves with thecompany’s mission/vision and values.

. Broadcasting policy and strategy policy and strategy statements bycompany/departmental/unit meetings and speeches, as well as company noticeboards and newsletters (Mann et al., 1999).

People managementThe criterion reflects on “how the organisation releases the full potential of its people”.

Examples of the best practice in people management are as follows:. Incorporating human resource programme into the business plan to guarantee

that human resource levels, skill requirements, core competencies, training anddevelopment activity are directly related to key business objectives.

. Usage of employee surveys to evaluate the satisfaction and morale of employeesand present an indication of success or problems with the company’s overallcorporate strategy.

. The cascading of company targets through departmental, team and personalperformance systems.

. Letting employees make decisions and improvements in their own work areas,and supporting them to take part in improvement teams.

. Communication systems are open, effective and multi-dimensional (Mann et al.,1999).


business

767

Resource managementThis criterion examines “how the organisation manages resources effectively andefficiently”.

Examples of best practice in resource management within the organisation are:. Post-investment appraisals started to monitor the outcome on the cost base and

output and to make sure that pre-investment expectations are realised.. Use of activity based costing. It works on the principle of recognising activities,

tracing cost to those activities and then allocating various cost drivers (forexample products, customers and company infrastructure) against the costs.

. Systems to recognise and re-examine continually the information needs of thecompany/employees and offer it in a format that is easily understandable.

. Individuals accountable for the security and effective utilisation of fixed assets,such as equipment and company buildings as well as other resources such asmaterials, in process, final goods and consumables (gas, water, etc.).

. Frequently planning for, introducing and monitoring the effects of new techniques.Usually, improved technologies are recognised by close link with food researchassociation, customers and equipment suppliers, studying new or imminentlegislation and benchmarking against innovative businesses (Mann et al., 1999).

Process managementThis criterion examines “how the organisation manages itself through a set ofinterdependent and interrelated systems, processes and facts”.

Examples of best practice in process management are:. Detection of critical business processes and allocating ownership and

improvement targets to them.. Establishment of cross-functional teams to spot and deal with process problems.. Participation of all parties (that may be affected by process change) in the design

and implementation of the process change.. Use of standards like ISO 9000, ISO 14001 to educate, encourage and attain

process gains (Mann et al., 1999).

Customer satisfactionThis criterion examines “how to create sustainable customer value”.

Examples of best practice in customer satisfaction are:. Evaluating customer perceptions directly using techniques such as customer

surveys, focus groups and customer associations.. Evaluating customer perceptions indirectly by examining internal measures

such as customer complaints, response times, rework, repeat business measuresand market share.

. Formal complaint systems, which cover both written and verbal complaints andinform customers of the progress of the compliant.

. Application of customer care technique throughout the business. All customercontact points should be trained in customer care.

. Working with customer and getting aware of their needs (Mann et al., 1999).

BFJ107,10

768

People satisfactionThis criterion examines “how to maximise the contribution of employees through theirdevelopment and involvement”.

Examples of best practice in people satisfaction are:. Use of employee surveys to evaluate people satisfaction directly.. Use of indirect people satisfaction measures such as absenteeism, staff turnover,

employees complaints, requests, performance appraisal and level of commitmentvia number of suggestions and eagerness to take part in improvement activities(Mann et al., 1999).

Impact on societyThis criterion examines “how the organisation is exceeding the minimum regulatoryframework in which the organisation operates and to strive to understand and respondto the expectations of their stakeholders in society”.

Examples of best practice in impact on society are:. Key environmental and community impacts of the companies’ operation are

recognised and investigated, and improvement targets set.. Compliance of the standard BS 7750/ISO 14001.. Opening of factories once a year to the local community and the families of

employees (Mann et al., 1999).

Business resultsThis criterion examines “what the organisation is achieving as results that delight allthe organisation’s stakeholders”.

Examples of best practice in business results are shown below:. Application of a range of financial and non-financial measures to evaluate

business success.. Financial targets are typically set on an annual basis, with a tendency to make

better over a number of years.. Non-financial targets are inclined to focus on the needs of all stakeholders,

including shareholders, employees, customers, suppliers and the community.. Benchmarking performance at all levels of the organisation.

For the food industry to improve further, it needs to adopt the best practices shownhere. In particular, more food companies should think of using self-assessment as amethod for recognising improvement opportunities and evaluating their progresstowards business excellence (Mann et al., 1999). Another crucial issue is productinnovation that needs to be taken seriously for remarkable growth.

Product innovationWhile going for product innovation some critical success factors must be taken intoaccount:

. Solid up-front homework – to identify the product and rationalise the project.

. Voice of the customer – a slave-like devotion to the market and customer inputsthroughout the project.


business

769

. Product advantage – differentiated, unique benefits, superior value for thecustomer.

. Sharp, stable and early product definition – before Development begins.

. A well-planned, adequately resourced and proficiently executed launch.

. Tough go/kill decision points or gates – funnels not tunnels.

. Accountable, dedicated, supported cross-functional teams with strong leaders.

. An international orientation – international teams, multi-country marketresearch and global or “glocal” products (Cooper, 1999).

However, food safety and quality are important issues that must be handled effectivelyfor consumers’ confidence.

Food safety and qualityFood safety and quality assurance must be considered seriously while going for anytype of food venture.

The Global Food Safety Standard should be maintained to enhance food safety,ensure consumer protection, strengthen consumer confidence, to set requirements forfood safety schemes and to improve cost efficiency throughout the food supply chain.In this respect, benchmarking of food safety standards can be carried out withreference to the GFSI (Global Food Safety Initiative) Guidance Document (The GlobalFood Safety Initiative, 2004).

The objective of all quality assurance systems exercised by food manufacturers andprocessors is to produce safe products that comply with manufacturer’s specifications,including the requirements established by governments. The outcome is to preventunsafe or poor-quality products from reaching the marketplace (Gardner, 1993).Another important issue is managing supply chain efficiently and effectively to besuccessful and profitable ventures.

Food supply chain managementNowadays there is hardly any international business without significant competitionand challenges. Supply chain management (SCM) in the global food industry is noexception. In this section, first, major challenges of supply chain management in foodindustry will be identified and then, ways to address those challenges will be pointedout. Afterwards, the impact of e-commerce in food and consumer packaged goods willbe examined.

Food manufacturers are confronting many challenges in an industry going throughmassive changes in supply chain strategies and technologies. The balance of powercarries on to shift from the manufacturers to the retailers who are enhancing theirleverage to command price, service and supply chain technology developments to theirsuppliers. Retailers are taking costs out of their own supply chains by pushingresponsibilities back up the channel. They are pushing value added services (VAS) andvender managed inventory (VMI) back on to suppliers. Smaller more frequent ordersare needed with fulfilment focused on value add handling rather than warehousestorage. Efficient and timely order fulfilment is the new fundamental businessnecessity. In fact, the food industry is moving towards a model of incessant productflow based on customer pull (Aherne, 2002).

BFJ107,10

770

However, providing an uninterrupted flow of goods without large safety stocknecessitates exact demand forecasting, visibility across the supply chain andintegrated transportation networks. This is no small challenge and is compounded bythe fact that the food industry today is highly disjointed, broker intensive, has seasonalpatterns of production and is highly perishable. Most organizations have a disparatenetwork of trading partners (i.e. service providers, suppliers, contract manufacturers,distributors, and retailers).

But organisations within the industry understand the benefits supply chainvisibility presents and many are investing in logistics processes and informationintegration. For many the first step is to attain internal integration with few companieshaving even integrated their warehouse management systems (WMS) andtransportation management systems (TMS), instead letting these functions operatein departmental silos (Aherne, 2002).

Dissimilar IT systems, integration costs and the absence of information standardscontinue to be a barrier to external integration though many manufacturers andretailers are dedicating considerable attempt to integrate information systems. Manypilots in collaborative planning, forecasting and replenishment (CPFR) are underwaywith preliminary results demonstrating increases in sales, improved inventory turns,reduced out of stock and higher customer satisfaction all while reducing inventory andcycle time (Aherne, 2002). Besides, low cost technology (the Internet) and standardprocesses make the implementation simpler. Company may start CPFR as a pilot witha single trading partner to show the value proposition. Based on a high level ofcollaboration between manufacturers and retailers, CPFR provides visibility intovaluable consumption data at the retail level.

Through the collaborative supply chain system, partners incessantly spotexceptions to both sales and order forecasts, make changes, and communicaterevised forecasts to confirm the effective generation of orders (Marvick and Dik, 2000).

In addition, by implementing Efficient Consumer Response (ECR) and CategoryManagement (CM) among partnerships within the global food supply chain; significantcost reduction (efficiencies) and improved performance (effectiveness) can be achieved(Fearne et al., 2001).

In fact, in spite of the barriers faced by the food industry to supply chain visibilityand integration these remain the critical competitive armaments for organisations torealise profitability and market share objectives. Companies need to keep pace throughprocess change and supporting technology to harness enormous benefits in anever-increasing competitive landscape.

Furthermore, companies can establish “supplier clusters” to help them improvetheir efficiency and focus. Companies can appoint lead suppliers to take overallresponsibility for certain commodities. For example, in Indian gourmet business, theventure will have a lead supplier of meat, its meat cluster, who will work from aforecast to buy in different types of meat from other suppliers. The lead supplier willprocess different types of meat further if necessary and deliver it to us on a daily basis,pre-checked for quality, so that deliveries can be made directly to the production line.The cluster will manage all of the administration for the activities including paying thesecondary vendors. The same lead suppliers system can go with rice and vegetablescluster as well as for spices. Moreover, food prepacking will reduce wastage problemsand control quality, presentation and pack size. That is why a similar process can also


business

771

exist for packaging operations. The lead supplier will deliver all the packagingrequirements 2/3 times a day directly into the factories. Our company will only pay onconsumption and net usage so there is no expensive inventory lying around taking upvaluable floor space and all other costs associated with managing packaging can beavoided (Marvick and Dik, 2000).

Furthermore, one can seek to develop long-term partnerships with those retailerswho will lead the industry in the future. On the top of that, concentrating efforts on alimited territory (City Centres) can produce greater operating efficiency, speed deliveryand customer service, promote brand awareness and permit saturation advertising,while avoiding the diseconomies of stretching operations out over a much wider area.

Besides, lessons can be learnt for packaged food industry from key indicators forthe development of successful partnerships in the fresh produce supply chain:

. Proactive relationships across all aspects of the business (moving away fromexclusive buyer/account manager contact to multi-functional linkages across thebusiness).

. Complete electronic integration (now accessible for even the smallest suppliers ascosts have come down with time and experience).

. Information sharing (directed at improving and increasing existing business andinevitably drives exclusive/closed supply chains, which goes some way tooffsetting the risk of sharing information with suppliers).

. Innovation, but innovation should not be simply product related. Firms shouldseek to innovate in everything that they do – SCM, IT, customer management,demand management and, even in entrepreneurship, to convince employees thatinnovations that fail are a fact of life, but, failure to innovate is inexcusable andequal to a death wish!

. Ability to assist/shape customer’s view of the category and its futuredevelopment (strategic relationship).

. Customer specific products, services and investments (supply chain exclusivity).

. Financial stability (retailers don’t want to invest in key supplier if they are goingto go bankrupt!).

. Supply chain management (integrity and efficiency).

. Cost management.

. Product range management (ECR related issues such as category planning andnew product development).

. Promotion and merchandising (Fearne et al., 1999).

Therefore, according to Fearne and Hughes (1999), the key elements that continue todistinguish the successful companies from the rest are:

. Strategic orientation – does the senior management have the vision to take thebusiness forward?

. Organizational structure and business culture – ability to meet customer needsat every level of the business.

. Ability to exploit (i.e. add value to) market information. Here, adding valuemeans innovation in new product development and customer service remains the

BFJ107,10

772

only sustainable source of competitive advantage, difficult to achieve and mostdifficult to emulate.

. Ability to measure and control the full costs of servicing customer requirements.

. Ability to innovate (Fearne et al., 1999).

Additionally, there are major factors that influence successful establishment andsustained operations of supply chain partnerships:

. Clear benefits for all partnership and alliance members;

. Business proposition underpinning the partnership that makes long-termcommercial sense;

. Focus on specific partnerships, products and markets;

. Build upon successful partnerships;

. Apply lessons learned from the partnership to gain benefits in other business areas;

. Partners/alliance members should have a good strategic fit;

. The commercial relationship should be based on interdependence;

. Companies have similar corporate values and the same commercial ethos;

. Mutual trust and respect;

. Be sensitive to cultural differences;

. Ensure that both parties live up to their commitments;

. Structure the decision-making process so that actions can be taken swiftly whenneeded;

. Manage the learning process and then adjust the alliance agreement over time tofit new circumstances;

. Aim high on quality – make it difficult for others to follow;

. For junior partners: pick a senior partner with a long-term commercial future;

. Build relationships and communication links between all levels of the twobusinesses;

. Gain full endorsement of the venture by the most senior management and strongpersonal commitment of all staff;

. Members should hold a common view on the long-term objectives of thepartnership;

. Partnership members should hold a common view of what the final consumer wants;

. Raise the veil of secrecy and focus on sharing information required to make thepartnership a success;

. Investment in physical plant and, for horizontal partnerships, joint investmentby members build commitment to the venture;

. Build flexible organizations that meet the specific needs of each partnership;

. Fix problems as they arise – delays only serve to disrupt; and

. To ensure success, partnerships require their fair share of commercial goodfortune (Hughes and Ray, 1994).


business

773

In a word, it will always be tough to realise remarkable improvements by just focusingon individual pieces of a process – it needs to take a much more holistic approach andalso be prepared to take some risks by involving all the players who are oftencompeting parties in the chain. The rewards will embrace the suppliers who take actionand demonstrate their ability to collaborate and deliver superior performance.Suppliers will take a bigger slice of the market share pie letting them accomplishgreater economies of scale and further enhancing their quality service to the majorcustomers (Aherne, 2002).

The other big-ticket technology items that will affect the food industry is e-business.E-business is an invincible, crucial moment. Very soon, the name for e-business islikely to be, just business.

Many of today’s mass-market products will not be competitive in the e-world.Consumers are increasingly better informed and harder to please. They will buyproducts that satisfy their own tastes, and food choices will have to be almost as variedas individual customers.

E-business is changing the business world by:. increasing the speed of transactions;. redefining every business process;. changing conventional concepts and rules about strategic alliances, industry

specialization, and customer relationships;. creating a wealth of information about customers, enabling businesses to

anticipate and satisfy individual needs with pinpoint precision;. blurring the lines between industries; and. challenging every business to reinvent itself (Smith, 2000).

While e-commerce has made the industry go for remarkable change, it also is offeringnew ways to address those challenges. Low collaboration and integration costs lessenthe necessity for high levels of costly vertical integration. In addition, returns andmarket valuation are obtained from intellectual property and supplier and customerrelationships and less from physical assets. Moreover, it has become easier and morecost effective to acquire information about suppliers, manufacturers, retailers andconsumers. Furthermore, there is least barrier to enter the food and consumerpackaged goods markets through online ventures (Marvick and Dik, 2000).

Many traditional consumer products companies are facing difficulty to takeadvantage of, and remain competitive in the new economy. To face the challengenecessitates rapidly addressing changing supply and demand opportunities andthreats within the limitations of their existing technology, processes and organisations.In some cases, entirely new strategies and business models are needed. Industryexecutives must ask their organizations the following strategic questions:

. What e-commerce investments will provide the greatest impact on shareholdervalue?

. How do we best balance risks and rewards between short-term quick hits andlonger-term strategic capability improvements?

. How can we quickly and successfully leverage the new business modelsemerging in the marketplace?

BFJ107,10

774

Accenture has developed a well-defined framework to assist consumer productscompanies in approaching opportunities and risks within the world of e-commerce.

The value realization framework (Marvick and Dik, 2000) comes of use inevaluating potential opportunities to decide which strategic e-commerce initiatives willbest fit the organization and to discard those initiatives for which the risks outweighpotential benefits. Consumer products companies should view their portfolio ofopportunities in even-handed way to harness both strategic advantage andshareholder value.

UCCnet is being developed as the electronic exchange for information and servicethrough a common, open, scalable platform between B2B trading partners in over 23industries. The open, Internet-based platform will substitute EDI transactions withless costly, but more adaptable electronic communications between suppliers,manufacturers, wholesalers, retailers and third-party providers. The open architectureof UCCnet will promote open competition and development of compatible applicationsystem and services by solution providers (hardware vendors, software vendors andISPs).

On top of that, UCCnet plans to be the food industry trade exchange, presentingvalue by facilitating the synchronised exchange of information and data, the formationof collaborative e-business relationships and access to compliant business applicationsand services through an electronic trading community. Organisations and Internetbased technological solutions such as UCCnet will potentially alter the face of businessin the food industry.

Therefore, the commercial advantages of working together are possibly to be fargreater than the gains to be made by the more traditional approaches. Theseadvantages include the following:

. an improved level of service to customers;

. better supplier performance as relationships become closer;

. reduced inventory costs;

. quicker responses and shorter lead times;

. better utilisation of distribution centres;

. simpler and speedier administration; and

. standardised and integrated transport and storage systems.

This adds up to reduced costs, higher profitability and a competitive advantage.In a word, the companies that are the most progressive in the management of the

supply chain are expected to be the most successful and profitable (Issues paper, 1996).However, future or emerging trends must be observed prudently for company survivaland growth.

Future trendsApart from super efficient supply chain management and electronic businessprocesses, other emerging trends within and external to manufacturing plants demandsensibly formulated strategies to keep one’s company ahead of the competition.Strategic packaging plans permit one’s company to align operations with overallbusiness objectives and to get ready to meet technology, globalisation and regulatory


business

775

issues and the growing demands for performance by financial markets. There arevarious emerging trends that influence packaging and formulation of strategies,needed accordingly to meet them (Packaging Strategy Development, 2000).

Technology issuesAuto-ID, automated materials handling and technology driven enhanced packagequality are current aspects under technology issues.

With regard to Auto-ID, bar coding and emerging RFID (Radio FrequencyIdentification) technology computerise data entry and remarkably decrease error rates.Many customers are asking for Auto-ID solutions to assist them in tracing bothreturnable and disposable packages through the supply chain.

Concerning materials handling, usage of mechanical help, mechanisation,automation and control system integration growingly address ergonomic issues,enhance labour productivity and meet high volume requirements.

In connection with package quality, the growing availability of multi-functionproprietary and programmable imaging devices for real time quality control, set thenew level of expectations. Similarly, computer software can address structural,economic and dimensional issues (Packaging Strategy Development, 2000).

Information technology integration issuesERP system and transaction analysis are two aspects under IT integration issues.

With reference to ERP system, company-wide enterprise resource planning (ERP)systems are causing the need for information flow across the company and necessityfor automating the data entry process. Packaging systems demand upload real timeproduction and performance data.

Regarding transaction analysis, companies are focusing on reducing transactioncosts by turning to electronic solutions. Average cost of handling a purchase order forpackaging materials will drop from $150 to $5 (Packaging Strategy Development,2000).

GlobalisationStandardisation and integration are two prime features under globalisation issues.

As outsourcing and exporting increase, growing standardisation and control ofpackaging materials are needed. Meanwhile, the requirement for brands in eachcountry to mirror brands in others force packaging materials standardisation betweencorporate organisation to provide product and flawless customer service from multiplesources (Packaging Strategy Development, 2000).

Customer serviceMass customisation, package style proliferation and shorter delivery time are keyfeatures under customer service issues. Outsourcing packaging function to the lastpossible moment minimises inventory without affecting customers and generates newadded value view of packaging to order. Moreover, mass customisation and flexibilityfor packaging system are needed for diversity of presentations to meet every needduring package design between marketing and operations. Additionally, shorterdelivery time is out there as packaging materials supplier integration is used for

BFJ107,10

776

competitive market advantage recognising just in time (JIT) concept (PackagingStrategy Development, 2000).

Environmental responsibility issueThe environment will remain a major issue for the packaging industry. Issuesinvolving recycling, reducing the amount of waste going to landfill and sourcereduction, air quality will remain on the agenda of governments of developed countries(Issues Paper, 1996).

Safety issuesErgonomics and litigation are two important features under safety issues. Decreasedpackage weights could be handled manually, but more strict condition for repetitivemotion activities and more complicated measure of risk alter the rules, movinggovernmental burden to plant self-inspection. On the other hand, more stringent legalaction is out there for unsafe packaging environments (Packaging StrategyDevelopment, 2000).

Economic issuesEquipment investment, Team concepts, inventory and outsourcing are key featuresunder economic issues. Packaging equipment automation and its maintenance arepreferred over long-term dependence on labour and associated issues. Besides,automation increases corporate image, above and beyond economics, degree of controland machine pacing.

As team concepts, productivity improvement from employee empowerment andinvestment in workforce skills and learning is crucial. While tight labour marketswould force improvement in some areas, marketing driven requirement forcommunication of branding concepts across the organisation and synergy ofknowledgeable employees generates value.

Regarding inventory, management of inventory as a capital investment is anessential part of return on assets measurement. There is growing demand for packageto order versus package to inventory, with enhanced importance on responsivenessand reliability.

With regard to outsourcing, companies are focusing on their corecompetencies and third party companies (packaging, storage, logistics) arenegotiated to supply total solutions for non-core activities in a cost effectiveway will be the norm for many producers and distributors (Packaging StrategyDevelopment, 2000).

The impact of social changeChanges in family structure, an ageing population, growing number of single parenthouseholds with all adults working will continue affect the way products are packaged(Issues Paper, 1996).

Freshness, tamper evidence, labelling and other trendsWhile consumers want convenience, they also want freshness and extended shelf life.Besides, tamper evidence and standard labelling are gaining ground (Issues Paper,1996).


business

777

Moreover, there are few other trends in food industry that are worth examining.Over the past decade, many packaged goods companies have been able to raise theirearnings without substantially enhancing their unit volumes. They have attained thisby decreasing advertising appropriations, increasing productivity, cutting costs, etc.Meanwhile, most product development activity has concentrated on line extensionsrather than new products (Smith, 2000).

In addition, with expenditure virtually flat, competition will deepen and success willgrowingly be decided by a company’s ability to increase sales through innovation andgrowth. This will be rendered by e-business that will permit major cost savingsthrough efficient consumer response principles, rather than focusing on just productreformulation.

Moreover, consumer choice is largely decided by eating quality, which in turndepends on an understanding of taste, texture, nutrition and food safety.

Furthermore, the basic strategic commodity no longer is natural resources or lowskilled labour, but knowledge in the age of information. The companies that can useimaginative power to foresee a wide range of possibilities will be in much betterposition. They are able to analyse what shapes social activities today not by the eventsof the past, but by the potential of the future (Smith, 2000). For instance, the “halal”food (meat products prepared according to Muslim law) market is now estimated to beworth $150 billion dollars a year. But the global market for “halal” food is potentiallyworth up to $500 billion dollars a year. Prudent companies should work together to tapinto the booming industry (Daily Star, 2004).

However, company surveys can be the next step for this research paper to identifycritical issues in packaged food business from existing corporations’ perspective. Forthe time being, this research paper’s holistic view would guide one to identify salientcritical issues in packaged food business that must be taken into consideration whethergoing for successful venture from scratch or trying to improve overall businessperformance of existing ones.

ConclusionPackaging is indispensable component of modern lifestyle. The key trends fosteringgrowth in developed packaged food markets are convenience, functionality andindulgence. The real value of packaging is that the package is an integral part of theproduct today. While corporate functions divide the component parts, the consumerdoes not differentiate between the product, the package and the equity. They are one.Besides, food products frequently require the general marketing approaches andtechniques applied to the marketing of other kinds of products and services. Whenstudying food-marketing systems from varying cultures, one must consider thepolitical, economic, cultural, and environmental aspects of the countries involved. Inaddition, for the food industry to improve further, it needs to adopt the best practicesshown in this research paper. In particular, more food companies should think of usingself-assessment as a method for recognising improvement opportunities andevaluating their progress towards business excellence. Moreover, while going forproduct innovation, some critical success factors must be taken into account.Furthermore, the objective of all quality assurance systems exercised by foodmanufacturers and processors, is to produce safe products that comply manufacturer’sspecifications, including the requirements established by governments. The outcome is

BFJ107,10

778

to prevent unsafe or poor-quality products from reaching the marketplace. On the topof that, the companies that are the most progressive in the management of the supplychain are expected to be the most successful and profitable. Last but not least,companies should look forward to emerging trends for business success. Failure to doso will result in companies being overtaken by events and their competitors. All thesecritical issues must be observed in packaged food business whether going forsuccessful venture from scratch or trying to improve overall business performance ofexisting ones. A holistic view for packaged food business has been presented here.Think what you can do in an industry of over $1 trillion dollars!

References

Aherne, J. (2002), “Supply chain management in the food industry”, Leading Edge News,25 November, available at: http://newsweaver.ie/leadingedge/e_article000110367.cfm

BRC/IOP Packaging Standard (2005), available at: http://www.food-technologists.co.uk/PageL2.asp?PageName=NewPage&PageNameL2=SCOPEOFBRCSTANDARD

Cohn, T. (2005), “The principles of marketing: marketing principles”, available at: www.marketingprinciples.com/articles.asp?cat=419

Cooper, R.G. (1999), “The invisible success factors in product innovation”, Journal of ProductInnovation Management, Vol. 16 No. 2, pp. 115-33.

Daily Star (2004), “Halal food market potentially worth $500b”, Daily Star, 8 October.

Euromonitor (2004), “Global packaged food: from added value to availability”, Euromonitor, 16June, available at: www.euromonitor.com/article.asp?id=3259

Fearne, A. and Hughes, D. (1999), “Success factors in the fresh produce supply chain: insightsfrom the UK”, International Journal of Supply Chain Management, Vol. 4 No. 3, pp. 120-9,available at: www.wye.ic.ac.uk/CFCR/pdfdoc/fresh-produce.pdf.

Fearne, A., Hughes, D. and Duffy, R. (2001), “Concepts of collaboration supply chainmanagement in a global food industry”, in Eastham, J.F., Sharples, L. and Ball, S.D. (Eds),Food and Drink Supply Chain Management Issues for the Hospitality and Retail Sectors,Butterworth-Heinemann, Oxford, pp. 55-89, available at: www.wye.ic.ac.uk/CFCR/pdfdoc/global-food-industry.pdf

Gardner, S. (1993), Consumers and Food Safety: A Food Industry Perspective, available at: http://www.fao.org/docrep/V2890T/v2890t05.htm

(The) Global Food Safety Initiative (2004), available at: http://cati.csufresedu/cab/rese/ShanghaiConf/Benoitpercent20Rossignol/Benoitpercent20Rossignolpercent20=paper.doc

Hughes, D. and Ray, D. (1994), “Factors determining success in partnerships and alliances”,Breaking with Tradition: Building Partnerships & Alliances in the European Food Industry,Wye College Press, Wye, pp. 199-215.

Issues Paper (1996), Packaging – Ten Trends for the Next Ten Years, available at: www.packcoun.com.au/issues/issues13.html

Issues Paper (1997), Packaging Its Essential Role, available at: www.packcoun.com.au/issues/issues14.html

Kaynak, E. (2002), Cross-National and Cross-Cultural Issues in Food Marketing, InternationalBusiness Press, Binghamton, NY.

Kohls, R. and Uhl, J. (2001), Marketing of Agricultural Products, 9th ed., Prentice-Hall, EnglewoodCliffs, NJ.


business

779

Lean Service (2004), European Business Excellence Model, available at: www.lean-service.com/6-3.asp

Levey, G. (2004), Optimizing Your Flexo Printing for Striking Package Graphics, available at:www.brandpackaging.com/content.php?s=BP/2004/08&p=11

Mann, R., Adebanjo, O. and Kehoe, D. (1999), “Best practices in the food and drinks industry”,British Food Journal, Vol. 101 No. 3, pp. 238-53.

Marvick, D. and Dik, R. (2000), “Industry-wide internet initiatives in food and consumerpackaged goods”, Ascet, Vol. 2, April, pp. 197-202.

Packaging Strategy Development (2000), available at: www.industrialhandling.com/Packstrategy.htm

Perner, L. (2004), Food Marketing, available at: www.consumerpsychologist.com/food_marketing.htm

Richmond, M. (2004a), Opportunities in Packaging: Innovation and Savings, available at: http://pti-solutions.com/resources/articles/

Richmond, M. (2004b), The Real Value of Packaging, available at: http://pti-solutions.com/resources/articles/realvalue.php

Richmond, M. (2004c), The Virtuous Path to Success, available at: http://pti-solutions.com/resources/articles/

Silayoi, P. and Speece, M. (2004), “Packaging and purchase decisions”, British Food Journal,Vol. 106 No. 8, pp. 607-28.

Smith, C. (2000), The Characteristics of the Food Industry Supplier of the Future, available at:www.foodstarch.com/news/smithspeech/new_speech1.asp

Underwood, R.L., Klein, N.M. and Burke, R.R. (2001), “Packaging communication: attentionaleffects of product imagery”, Journal of Product & Brand Management, Vol. 10 No. 7,pp. 403-22.

Further reading

Del, H., Best, R. and Coney, K. (1998), Consumer Behavior: Building Marketing Strategy, 7th ed.,McGraw-Hill, Boston, MA.

EFQM Model (2004), available at: www.valuebasedmanagement.net/methods_efqm.html

BFJ107,10

780

critical issues in packaged food business

Documents