2008: Taking Care of the Pennies (Part 3)
CANADA-ASIA BOTTLE CAP CO-PRODUCTION
Executive on Demand Position:
TBA
Project Outline:
TBA
Project Outcome:
A local manufacturer of bottle and can enclosures requested a review of his companies procurement strategies and manufacturing efficiency. The cap manufacturing industry is a very competitive business as well as a business that needs to be at the top of its game in developing and producing innovative packaging enclosures. A review of the cap manufacturing company it was evident that it experienced capacity and production planning issues that led to less than desirable financial results.
It is important to realize that a key success factor for a supplier of packaging enclosures to the packaged liquid filling industry requires the support to be a supplier of all enclosures regardless of size, volume or colour. The challenge for an enclosure manufacturer is being able to support the manufacture of caps that delivers little or no profit due to the commoditization of a product (industry loss leader – i.e. generic soft drink cap) to a customer in order to maintain a customer for the smaller volume higher profit contributing products.
At the request of the company a project was initiated to evaluate the impact of developing a partnership with an Asian based injection moulded products specializing in the production of enclosure caps. Several suppliers were identified, proposals requested, visits undertaken to evaluate the company capability and quality and finalize a co-production
agreement.
The outcome of the initiative was that production of enclosure caps that generated little to no profit were to be shifted to the co-production facility in Asia while the local facility was refitted to focus on more profitable and innovative enclosures. The strategy yielded landed cost savings in excess of 25%, however an additional cost related to managing
the buying process and the cost for storing the inventory needed to be added. Even with the added costs, for the Asian produced the enclosure caps contributed profits to the bottom line, the new focus in products locally produced on average a greater profit than was achieved historically and the manufacturing facilities throughput contribution increased significantly through better asset utilization.