G-P is solidifying relationships with retailers like Wal-Mart by showing how packaging impacts the supply chain and through creative marketing techniques at its new Innovation Institute
G-P Forges Strong Customer Bonds Using Supply Chain Expertise, Innovative Marketing
By MONICA SHAW
Georgia-Pacific (G-P) Corp.'s containerboard and packaging business unit has been expanding its expertise and offerings to better impact the ultimate customer-the consumer. "Looking at the business from the outside in, not the inside out," as G-P's packaging executive vice president Steve Klinger describes the effort, requires G-P to approach packaging from its customer's perspective, which often involves helping those customers appeal more directly to the consumer.
Instead of only focusing on getting materials from the mill to the box plant and on to the customer's doorstep in a cost-efficient manner, G-P is now collaborating with its customers, such as produce growers, and their customers, such as retailers, to cut costs, improve sales, and boost productivity throughout the entire supply chain. This penetration into the supply chain, says Doug Keim, G-P director of marketing and business development for packaging, adds tangible value that customers are hungry for in a competitive marketplace.
"We look for the most compelling value proposition for the customer," emphasizes Keim. "Instead of letting our asset base stay a commodity, we made a strategic decision to fully understand the supply chain in order to help our customers see that they might be chasing pennies and losing millions with their packaging choices."
Nowhere is this emphasis more evident than in G-P's decision to offer reusable plastic containers (RPCs) as an alternative to corrugated packaging for its customers who grow fresh produce. This commitment to providing the most appropriate packaging in an unbiased fashion has garnered praise from large retailers such as Wal-Mart (see sidebar), who has worked closely with growers and with G-P on packaging and supply chain solutions, according to Bruce Peterson, senior vice president and general merchandise manager of perishables for Wal-Mart Stores Inc.
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Wal-Mart Maximizes Consumer Value with Supplier Collaboration, Packaging Choices |
"Our goal is to provide the maximum value proposition to the consumer," says Bruce Peterson, senior vice president and general merchandise manager of perishables for Wal-Mart Stores Inc. "If we do that better than the competition, then sales and profits fall into place. Any other focus would be totally wrong."
And few could dispute Wal-Mart's popularity and financial success. In the 12 years that Peterson has been at Wal-Mart, the company has grown from six supercenters to more than 1,500 and from zero distribution centers to 31. In the realm of perishables alone, industry analysts estimate company sales in the $18-$20 billion range.
One way Wal-Mart has attained its value proposition for consumers is through the use of standardized, display-ready packaging. Encouraging its produce suppliers to adopt a 40cm-by-60cm packaging footprint has allowed Wal-Mart distribution centers to efficiently construct a pallet of interlocked packaging in a standardized five-down configuration. The ability to create "unitized outbound shipping" for its retail stores "results in less damage and inefficiency," says Peterson, which saves costs and preserves the "farm-fresh" appearance of produce.
At the retail center, a package's display-ready aspects relieve store personnel from a "pack out"‹having to take contents out and stack them on a display. This last leg of the product's journey can turn out to be the most expensive without an emphasis on merchandising techniques.
"If you think of the supply chain as a continuum that ranges from growing or production to transportation, warehousing/distribution, and then distribution to the store, the time required for the store to receive it, store it, and put it on the shelf is very critical," describes Peterson. "You could do everything else right, but if you don't have a process that makes it easy for the stores to put products on the counter and for customers to buy them, you've really defeated the rest of the process."
As with most large retailers, Wal-Mart measures the productivity of each item or direct product profit using various techniques. This emphasis on productivity as a means to offer low prices led the retailer to "pioneer the use of reusable plastic containers for produce in the U.S." around 1998, since it was the only display-ready, standardized packaging available at the time, says Peterson.
"RPCs proved to very, very successful for us, but that led us to the broader logistic, which is really standardized, display-ready packaging, regardless of material composition," explains Peterson. "We worked with the Fibre Box Association and other organizations to come up with standardized components between the two mediums because there are very direct applications for plastic as well as corrugated."
G-P's position as a packaging supplier that supplies both corrugated and plastic products to Wal-Mart's growers has proven "indispensable," claims Peterson.
"G-P brings expertise and objectivity as to whether a particular type of produce goes into corrugated or plastic," describes Peterson. "I rely on them very, very heavily, and they are involved in our strategic discussions. By nature, Wal-Mart has a predisposition toward a collaborative environment, but this is the first time that I know of that a packaging provider has been so integrated into the process."
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"G-P has been one of the most strategically brilliant companies I've dealt with in the realm of exterior packaging, whether it's RPC providers or corrugated providers, because it recognized both businesses as very viable," describes Peterson. "G-P decided to work with what was in the best interest of the customer rather than what was in their own particular interest at the time, which really provides objectivity to the discussion."
A more recent effort that impacts customers is the opening of G-P's Innovation Institute in Norcross, Ga. Known as i2, the $2.2-million revamp of the company's Technology and Development Center more closely resembles an advertising agency than a traditional package testing and lab facility alone (see box, below). This "consumerized" atmosphere was created to provide an experiential marketing capability, but the design and façade only reflect the creative processes G-P is using to provide supply chain advice.
"Wal-Mart, by nature, has a predisposition toward a collaborative environment, which i2 supports," says Peterson. "Experiential marketing is something that you'd see more from Kraft, General Mills, or Tropicana, although it would be more centered around the goods themselves. The i2 innovation process itself looks at the goods and their packaging, shipping, and setup-analyzing the entire spectrum of the supply chain all the way to the consumer. That's a radical departure in thought for a packaging supplier."
BEYOND MANUFACTURING EXCELLENCE. G-P's containerboard packaging business represented 12% of company sales in 2002, and it increased box shipments 7% that year under tough economic conditions compared to the industry average of just 0.4%. The business provides packaging for a wide variety of customers but has especially close relationships with large grocers, warehouse clubs, and mass merchandisers.
G-P's 55 packaging plants consume about 70% of the company's containerboard production. While it is not the largest in the industry, the packaging business does have the highest return on net assets-something G-P president and COO Lee Thomas attributed to "very disciplined capital investment" in a June 2003 Pulp & Paper article. Combining this discipline with production discipline by running to meet demand, G-P's financial performance has surprised many analysts tracking the packaging sector.
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G-P's Innovation Institute "Choreographs" the Customer Experience |
By focusing on manufacturing excellence and expanding the products and services it offers packaging customers, G-P has grown its packaging business in the last several years while others have struggled. The next step in terms of growth, says Doug Keim, G-P director of marketing and business development for packaging, is "to mature our sales and marketing effort."
To support its Innovation Process for customers, which combines input from retailers to boost sales and reduce supply chain costs, an innovative marketing approach was needed, especially to get major national accounts to collaborate on packaging solutions. Since its Technology and Development Center in Norcross, Ga., was laid out as a material and package testing environment, G-P began looking at ways to transform the facility into a unique marketing experience. "We've wanted to engineer this environment to appeal to large retailers," says Keim.
The transformation of the technology center into the Innovation Institute (i2) was part of a major shift in marketing strategy, says Keim. "G-P looked closely at its marketing program to assess what was working best. By reallocating some of the lower-impact marketing assets, G-P was able to free up funds to create an experiential marketing environment that allows us to add tangible value that our customers are hungry for."
Design matters. To revamp the 13-year-old, 25,000-ft2 facility and "choreograph a very specific experience for our customers to participate in," says Keim, G-P first sought input in the redesign from the 20 employees at Norcross. It also walked representatives from Wal-Mart through to gauge a customer's needs and interest.
Next, G-P solicited proposals from four experiential marketing agencies throughout the country to design i2. "We explained our sales and marketing goals, which are based on collaboration, and told them specifically that we need more open space and to take out 90° angles wherever possible," says Keim.
After conferring with key leaders in G-P's packaging unit, including executive vice president Steve Klinger, MG Design of Pleasant Prairie, Wis., was chosen. Momentum Management of Atlanta, Ga., was the general contractor. However, G-P paid direct for everything to lower costs, capitalizing on innovative furnishings from "dot-coms that went bottom up," says Keim.
The result? "Very close to what was designed, which rarely happens," says Keim. The aesthetics of i2 much more match an advertising agency than a testing lab, although that equipment remains. The facility not only features grocery shelves for visitors' products, mass retailer-type stacked pallets, and an actual back end of a semi that was salvaged to simulate loading, it also offers open areas for visitors to set up laptops and eat catered lunches in a café-like atmosphere. Employees benefit from new workstations and work areas that encourage more collaboration, which reflects a shift in employee skills.
"Our last several hires have consumer products backgrounds, so combining that with the existing packaging skills has created a different type of culture, a different type of work that's getting done out here," says Keim.
Customer reception. In August, i2 opened for G-P's largest national account customers. In February, the company plans to unveil it to local customers as well as to internal plant managers and sales managers, who can offer its services to their largest customers. So far, i2 is already booked with major accounts through the end of the year.
"i2 is a setting that brings ideas to life," says Bruce Peterson, senior vice president of perishables for Wal-Mart. "At i2, we don't just discuss what we are doing. We also have a lot of Œblue-sky' conversations, going in with the idea that there's nothing we can't do if we want to. It's amazing what comes out of that. It's just a radical approach for a packaging supplier to look at how exterior packaging impacts the total supply chain model. "
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Also, in 2000, G-P began a "Manufacturing Excellence" initiative, focusing on a consistent set of operating disciplines that provide control of the production process and allow G-P to deliver consistent quality from one location to the next. The reliability resulting from these initiatives helped G-P establish a manufacturing system that is both responsive and flexible to meet customer demands.
However, a change in the North American packaging market expanded G-P's involvement further into the supply chain than the customer's doorstep. A potential threat to its corrugated products-the RPC-offered an unlikely opportunity to impact the consumer and grow its business.
MORE THAN A CONVEYANCE. In 1998, Wal-Mart began exploring the use of RPCs as a way to provide undamaged fresh produce at a low price. At that time, the RPC was the only "standardized, display-ready" packaging option, and its suppliers approached the U.S. market in an "unconventional way" says Peterson, showing that "exterior packaging could provide more than just a conveyance; it could provide a retail solution."
Driven by the potential to cut additional costs out of the supply chain as a means to keep prices low, Wal-Mart began requesting that its produce suppliers use RPCs rather than corrugated, which presented a dilemma for both the grower and the G-P box plants supplying them.
"Our growers told us that there were retailers who wanted RPCs, but they were very comfortable with the relationship they had developed with our converting plants as far as sales and service," describes Brian Reilly, director, Innovation Institute. "G-P then looked at how to best serve its customers, so we chose to offer an RPC solution and rolled it out in 2000."
G-P worked in partnership with IPL to design and manufacture the new reusable plastic containers. IPL's facilities are located in St. Damien, Canada, and Union City, Calif. (a partnership with Jatco). G-P also has a facility for washing RPCs-a necessary step for their reuse-in Memphis, Tenn., and leverages its logistics network to support RPC retrieval and freight management. As Peterson describes the move, "G-P anticipated the opportunity for business in RPCs, and they hit it dead on."
Despite a business commitment to the new plastic containers, G-P did not forsake its corrugated roots. In conjunction with the design of the G-P reusable plastic containers, the company worked to quickly develop a display-ready corrugated (DRC) option that fit the Fibre Box Association's (FBA's) newly developed standard corrugated footprint. At 40cm-by-60cm, the footprint matched that of RPCs and provided interstackability with the plastic container.
"Two years ago, another packaging company told Wal-Mart that it could not provide a corrugated option with the same outer dimensions as a plastic one," describes Peterson. "Two months later, G-P had already developed it. Coupled with the RPC offering, G-P can offer an unbiased viewpoint and is now integral in helping us decide how exterior packaging can work in a total supply chain model."
Reilly agrees that G-P can now offer an objective viewpoint between the two materials. "Both sides have generated a tremendous amount of studies and publicity saying one is better than another, but at the end of the day, each produce commodity's supply chain will dictate which packaging option is best," he claims. "We want to provide the best solution for our customer. With either display-ready option, store personnel can simply take out the old container, put the new one in, and empty the old product on top of the new, building in rotation of the produce."
Currently, Peterson reports that about 80% of Wal-Mart's produce that "has application to RPCs" is going into them. However, this shift toward RPCs, which has grown steadily in the past five years, has "leveled off" in the past 18 months since the FBA came out with its DRC standard.
OPTIMIZATION BEYOND THE BOX PLANT. With the introduction of the DRC option in 2001, G-P began working even more closely with its growers and with Wal-Mart to choose the best shipping containers for each commodity. Known as G-P TOPS (Total Packaging Solutions), the initiative's goal was to take into account the needs of all players in the supply chain-from the manufacturer or grower to the distribution center, the retailer, and ultimately the consumer.
"We worked together to provide packaging solutions that lead to less labor in stocking, less produce shrink, and increased shelf velocity," describes Reilly. "We combined RPCs with the FBA-standard corrugated option to help meet those requirements."
G-P's TOPS initiative was the inspiration for development of its Retailer Packaging Systems Optimization (PSO) Audit. Offered by the Norcross technical center, this highly detailed process assesses the customer's total packaging needs and operations with a focus on cost savings and increased revenue for the retailer and manufacturer. The process involves a visit from G-P's PSO team to the customer facilities to observe nine different factors such as the number of box sizes and styles being used; transportation issues, including cube utilization; process improvements to increase efficiency; and velocity impacts from package changes.
"The PSO process allows us to work closely with our customers to truly understand their supply chain, whether that be from our box plant to the customer's distribution center or all the way to the retail store," says Steve Fallona, manager of packaging solutions for G-P. "Taking into consideration all the players in the supply chain is critical and allows us to understand the cost impacts to them and the entire supply chain implications as a result of a proposed packaging solution. Working closely with the retailers through PSO allows G-P to gain an enhanced knowledge of the retailers' needs and a deeper understanding of the trends before the competition."
The PSO offering is supported by a total cost analyzer-a real-time calculator that can simulate changes to variables within the nine parameters.
ANALYZING THE SUPPLY CHAIN SPECTRUM. To further bolster its relationships with major customers, G-P has created its Innovation Process-a methodology that involves G-P getting closer to its customer's customer by analyzing how consumers and store personnel use products in a retail setting. While a collaborative approach is welcomed by Wal-Mart, some customers are suspicious, says Keim, who sees this interaction as necessary to providing better packaging value.
"Being close to your customer's customer can be viewed as unhelpful if handled incorrectly, but we emphasize that we are there to add value," describes Keim. "We're not going to design these solutions in a vacuum any longer, and we feel that this 'triangle function' should be welcomed. There is real power in having a consumer products manufacturer with a retailer perspective combined with our expertise in the supply chain with packaging solutions. We can do exceptional work for customers by developing these relationships with retailers."
The Innovation Process is supported by G-P's newly renovated Innovation Institute (i2) in Norcross (see box, above), which features an environment that encourages collaboration through experiential marketing techniques and facilities design.
Innovating from the outside in. The five-step Innovation Process starts when G-P sends a team to observe the environments in which the package is used, which can involve a distribution center or a store. "We watch people stock shelves and even their practices in the back room," describes Reilly. "We gain an understanding of how they are selling the product, whether it's from the display or from the shelf."
Next, G-P meets with the customer to review findings and brainstorm solutions. Designers then create various prototypes to meet specific requirements-from cutting costs to boosting sales. When the top three or four prototypes are selected, says Reilly, G-P often visits the customer's headquarters for final approval. In one case, G-P worked with the retailer, visiting stores after hours to conduct further stocking trials.
Graphics. While many national account customers supply their own packaging graphics, G-P's Color-Box litho-laminate graphics group in Richmond, Ind., often coordinates with them or even designs packaging in support of the Innovation Process.
"At i2, we work closely with Color-Box to marry a solid structure with a packaging design that pops off the shelf," explains Reilly. "We've worked with major external accounts, as well as with our own Dixie products brand managers to create graphics that really grab people and to solve marketing problems."
Examples. G-P recently used its Innovation Process to help a major dry foods customer who was selling much more of a particular product from the display rather than the main shelf. The customer wanted a package that did not build cost into the system but would allow the retailer to either stock the product on the shelves or quickly convert the corrugated case into a display-ready version. Currently, G-P is perfecting the designs that proved most successful during after-hour store trials.
Another example of the Innovation Process highlights Keim's concept of "chasing pennies and losing millions." POM is a tissue brand offered in Sam's, targeting the B2B market. Originally sold in a one-color direct print box, G-P suggested a two-color preprinted box, and, later, five-color printing, when POM asked for help in increasing sales.
"Going with five-color printing resulted in a slightly more expensive package, but sales jumped two to three times the normal club channel growth after it was introduced," explains Reilly. "It was a simple case of improved graphics and substrate, but it showed that the cheaper box was actually not delivering on the customer's sales objectives within the store."
The new packaging was introduced at the same time as product enhancements, which created crossover appeal from B2B to consumers.
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