Consumer Packaged Goods: Lightening the Load
Sorting through logistics challenges can be a dirty job for CPG companies. But well-planned manufacturing, smart packaging, and cost-effective transportation can help wash away inefficiencies from any supply chain cycle.
Companies that make and distribute consumer packaged goods (CPG) must be doing something right. In the midst of a global recession in 2009, and with freight costs up by 11 percent over 2008, CPG companies achieved higher levels of logistics performance than ever before, according to the Grocery Manufacturers Association 2010 Logistics Benchmark Report.
Consumer packaged goods represent a vast range of products, from frozen dinners to bubble bath, duct tape to ballpoint pens. Although supply chains vary depending on product, some major challenges apply to the entire sector.
Many of those challenges involve the ebb and flow of customer demand. A brilliant marketing campaign may boost demand for a particular item, or a trend may die out, causing a product to languish on shelves. A retail chain may display a product near the registers to encourage impulse buying – and increase the risk of stockout if the store isn’t prepared for the sales spike.
Other common CPG challenges involve the logistics of manufacturing, packaging, and merchandising. What’s the best way to unite a heavy product with its lightweight plastic bottle? Where should you perform kitting functions, add hang tags, or build consumer displays?
A determined CPG firm can find opportunities to improve performance all along the supply chain, from the sourcing of ingredients or materials to the delivery of the finished goods to retail shelves. The magic formula is different for every product. But one good example offers important lessons for the entire industry sector.
Here’s the story of one consumer product, starting with its origin as a variety of inbound ingredients and following its progress from plant to warehouse to retail store.
Fab laundry detergent has long been a fixture in supermarket aisles – the Colgate-Palmolive Company introduced the product to consumers in 1947. In 2005, Colgate sold Fab, along with Ajax, Dynamo, and several other detergents, to Phoenix Brands of Stamford, Conn.
Phoenix Brands was formed in 2004 with the goal of breathing new life into products that were underperforming for their previous owners. Like the Phoenix of legend rising from the ashes, these products would be reborn. Phoenix acquires brands, improves their formulas, enhances their packaging and graphics, and strives to earn its products star positions on consumer shopping lists.
To stay flexible while pursuing that goal, Phoenix’s founders designed the company from the ground up as a super-lean operation. “The idea behind our business model was to leverage partnerships across the board,” says Brendan Holden, Phoenix’s vice president of supply chain. Whenever it made sense to engage another company to take over a function, that’s what Phoenix would do.
For Fab, Phoenix’s major partners are contract manufacturer Marietta Corp., plastic bottle manufacturer Alpla, and third-party logistics provider (3PL) Menlo Worldwide Logistics.
Phoenix chose Marietta’s facility in upstate New York to make Fab, Ajax, and Dynamo because it already had the technology required to produce liquid detergents. “Liquid” was a key word in the search for a co-packer.
“We deal with a tremendous amount of liquid – hundreds of millions of tons of product,” Holden says. No other company he investigated offered the capacity to handle that kind of volume.
Together, Phoenix and Marietta converted an underutilized 300,000-square-foot warehouse at Marietta’s Cortland, N.Y., site into a turnkey facility for making and bottling liquid detergent.
The main ingredients in Fab are biodegradable surfactants (the substances that lift stains from clothes), other surfactants, powders, and fragrances. Phoenix sources these from throughout the United States; many are petrochemical products from the Gulf Coast region. Ingredients move to Cortland by truck and rail in all manner of containers.
“Some are delivered as truckload shipments of 55-gallon drums, steel or plastic totes, or bags, in the case of powdered materials,” says Holden. “Some also come in rail hopper cars and by commercial truck.”
A Reason for Resin
Another material that flows into the plant is plastic resin, used by Austrian firm Alpla to mold detergent bottles. Phoenix decided to put a bottle blowing operation in the plant to save on transportation costs. “Moving empty bottles is a waste of money,” says Holden. “These are big bottles; not many can fit on a truck, causing costs to go through the roof.”
Alpla’s blow-molding operation occupies a 70,000-square-foot section of the Cortland site. “The bottles are made, labeled, spouted, then moved directly to the filling line,” Holden says.
With one rail spur already available at the plant to bring in plastic resin, officials at Phoenix decided they wanted a second spur to accommodate other materials. Negotiations with New York State and the New York, Susquehanna, and Western Railway eventually yielded a deal to add the new tracks.
“We achieved dramatic savings by being able to transport resin directly by rail, instead of in hopper trucks,” Holden says.
Phoenix also worked with local officials to devise routes for the trucks that carry materials and products in and out of the plant, which sits not in an industrial park, but in downtown Cortland. None of Marietta’s past operations had prepared residents for the truck traffic that Phoenix would produce, and the manufacturer wanted to ensure its operation wouldn’t disturb neighbors in the community.
“Today, when we on-board a carrier to provide transportation, we dictate approved routes and times into the plant,” Holden says.
Along with manufacturing and bottling liquid detergent, the Cortland plant performs a range of value-added functions. “We create displays at the facility, along with regular case stock,” Holden says. The plant also can add coupons, hang tags, and other decorations to bottles as required.
Suppliers are responsible for delivering many of the materials needed to manufacture Fab. Menlo Worldwide Logistics handles the rest. Menlo also takes charge of moving all the finished product from the plant through the distribution network, and putting most of that product into the hands of Phoenix’s customers.
When a supplier works with Menlo to move a partial truckload to the Cortland plant, it chooses a less-than-truckload (LTL) carrier from a list that the 3PL provides. If there’s enough material to build a full truckload, the supplier e-mails details about that shipment to a Menlo load planner, who chooses a carrier.
“That starts the core carrier process,” says Jeff Harris, a Nashville-based senior account manager at Menlo. As often as possible, Menlo builds continuous moves for the carriers that handle freight for Phoenix Brands. After drivers drop off a trailer full of materials in Cortland, they pick up a trailer loaded with finished product to haul to a distribution center (DC).
Menlo mainly uses truckload (TL) carriers to move Fab from plant to DC. “The carriers commit to weekly capacity and support regional delivery needs,” says Steve Zeltzer, senior program manager at Menlo Worldwide Logistics in Monroe Township, N.J.
It’s not easy to ensure that there are always enough trucks to load product at the Marietta plant, says Lori Sullivan, director of customer operations at Phoenix Brands’ office in Indianapolis. It’s important to get the numbers right, though, because the plant doesn’t have a lot of storage space.
One key to balancing product with truck capacity is information sharing. “Phoenix Brands provides great visibility to its demand, so we see short- and long-term requirements and what the future will bring,” Zeltzer says. “Then we work with the carrier base to ensure that they’re connected to what future demand will look like.”
A team in Menlo’s central routing office monitors the loads moving out of the plant to make sure they’re keeping to schedule. “We’ve developed a software solution that both the manufacturing plant and our planners have access to, and it creates visibility from the moment the load is ready,” says Harris.
Except for product bound to the West Coast, loads shipped out of the Marietta plant generally reach their destination the next day. Tracking the trailer once it’s on the road isn’t a major concern. “If we need after-hours status, we can view the shipment on the carrier’s Web site,” Harris says.
The 3PL sends truckloads of Fab, Ajax, and Dynamo to six of its own DCs, in Fontana, Calif.; Columbus, Ohio; Atlanta; Cranbury, N.J.; Edmonton, Alberta; and Mississauga, Ontario. Menlo also delivers to a warehouse in Dartmouth, Nova Scotia, operated by AMCA Sales, Phoenix’s sales broker in that region.
AMCA Sales has developed strong relationships with retailers in Atlantic Canada. “Because of that expertise, they were a better fit to house product and deliver into that maritime area,” Sullivan says.
Most product that arrives at the DCs is stored, rather than shipped right out to customers. “In order to be responsive, we try to keep about four to five weeks of inventory on hand,” Sullivan says.
Demand for any brand of detergent tends to be volatile, rising and falling as retailers run promotions. Because Menlo also serves other shippers in the six DCs that handle Fab, Phoenix Brands gains the flexibility it needs to accommodate that ebb and flow.
“Our footprint can flex into more or less space as needed,” Sullivan says. That gives Phoenix the right amount of floor space, and the right number of dock doors and resident experts to handle any demand level.
Phoenix and Menlo also rely on Menlo’s core carriers to help them navigate the peaks and valleys of demand created by patterns of store promotions.
Each week, Phoenix publishes a deployment schedule, which details how much volume it expects to send to each distribution center during the following week. Menlo shares the schedules with its core carriers and shows them how to make optimal use of the information.
“We have meetings at the main factory, where we view the entire process carriers go through from a manufacturing and planning perspective,” Harris says. “We show them how to use reports to see when peaks will occur, so they can ramp up capacity to support a specific destination or larger peak of outbound volume from that manufacturing plant.”
The reports also help carriers adjust their resources to plan for upcoming periods of lower demand. “They are committed to supporting us through both peaks and valleys,” Harris says.
At its DCs, Menlo plans, manages, and executes the transportation of Fab to customers. As Phoenix Brands receives purchase orders from retailers, it transmits the information to Menlo via electronic data interchange. Menlo’s transportation management system analyzes and optimizes upcoming shipments.
Data about loads that will move via LTL carrier goes to the warehouse management system, so the warehouse team can make the necessary arrangements. Information on TL freight gets uploaded to an online tendering application so carriers can bid on it.
To help carriers negotiate fluctuating demand at the New Jersey and Ohio DCs, Menlo augments their equipment with its own pool of trailers. Those “flex trailers” provide extra capacity during demand peaks and relieve pressure on crews in the DCs.
“They can preload trailers to get product out the door,” Harris says. Menlo sometimes also uses those trailers to move product from Cortland to the DCs when volume soars especially high.
On top of the value-added work that Marietta performs for Fab at its plant, staff at Menlo’s DCs provide similar services to meet retailers’ special needs. For example, they build multi-SKU displays for retail stores, add hang tags to bottles, and relabel products when necessary.
Peaks and Valleys
Most of the product moving out of the warehouses goes to customers’ own DCs. But when some of Phoenix’s customers run sales on Fab, they arrange to bring the product directly to their stores.
“Their volume with us is large enough that we can afford to do it that way,” Sullivan says.
The direct-to-store program includes Saturday deliveries to ensure that customers always find the Fab they’re looking for when sales are advertised in the Sunday papers.
As it maintains regional networks of carriers that commit to handling Phoenix’s volume through all its peaks and valleys, Menlo also has developed a base of local carriers committed to making direct store deliveries in an environment of volatile demand.
On the East Coast, for example, four or five carriers handle store deliveries from the Cranbury, N.J., distribution center. Just as it assembles officials from its regional carriers in Cortland to familiarize them with Phoenix’s deployment reports, Menlo brings key employees from its local niche carriers to Cranbury to prep them for the direct-to-store challenge.
“We review process requirements and expectations,” Harris says. “We go through the loading process with the carriers to show them how it works.”
To optimize the deliveries these niche carriers make, Menlo builds multi-stop truckloads. “The truckload carrier might have four specific loads for different customer sites and deliver them as ‘stop off’ loads,” Zeltzer says.
Deliveries to inner city stores are especially tricky. A city might restrict the size of trailers that can enter its jurisdiction, or local government might prohibit deliveries at certain times of day because of noise concerns. “Those arrangements must be coordinated through Menlo and its carriers to ensure strong execution,” Sullivan says.
Densely populated cities may also pose physical obstacles. Stores in New York’s five boroughs are particularly unprepared to receive the 53-foot trailers that most carriers use today.
“Menlo has done an extensive job working with the niche carriers that can support special equipment requirements to get into difficult delivery points,” Zeltzer says. Generally, Menlo’s carriers take 48-foot trailers into New York.
Menlo’s skill in delivering products such as Fab the final mile to customer locations has earned Phoenix praise from buyers and retailers alike.
From the customer’s viewpoint, receiving loads of Fab might look as easy as dropping a load of laundry in the washer. But the chain of events that starts when suppliers ship orders of surfactants, plastic resin, and other materials, and ends when a stock clerk arranges newly delivered bottles of Fab on a store shelf, is anything but simple. For a CPG brand owner such as Phoenix Brands, it takes a fab-ulous degree of planning, coordination, and communication to deliver the goods.
California Innovations: CPG Keeps Cool
Consumer packaged goods manufacturers seek improvement opportunities all along the supply chain. When one such company, California Innovations, moved the kitting operation for its HardBody cooler bags into its logistics partner’s warehouse last year, the brand owner shortened the product’s supply chain and saved some cold, hard cash.
Toronto-based California Innovations manufactures soft-sided cooler bags at about a dozen factories in China, shipping them in containers to the Ports of Los Angeles and Long Beach. A plastic injection molder in Chino, Calif., makes the rigid plastic liners that turn a soft bag into a HardBody cooler.
Before 2009, California Innovations trucked the bags and liners to a company in Garden Grove, Calif. That partner assembled the coolers, then shipped them to a warehouse in Fontana, Calif., owned by third-party logistics firm Weber Distribution. Weber stored the assembled bags, along with other California Innovations products, and shipped them as needed to major retailers across the United States.
In January 2009, the plastics manufacturer started shipping the liners directly to Weber’s facility. Workers there assemble enough HardBody coolers to meet the demand indicated on California Innovations’ monthly forecast, pack them in cartons, and use them to fill customer orders.
“It was more cost-effective to do the kitting from Weber’s facility,” says Carlos Garrido, director of operations at California Innovations. Cutting one facility out of the supply chain has reduced the lead time on the coolers and cut transportation costs.
The change also lets Weber store the coolers disassembled until it’s almost time to ship them. Assembled coolers occupy two to three times as much space as the soft bags. “We don’t want to tie up too much warehouse space with idle inventory,” Garrido says. Delaying the kitting process reduces storage costs.
When the components converge at the warehouse, Weber starts an assembly line. “Every step in the process is set up, measured, and monitored for potential bottlenecks,” says Bob Cesario, Weber’s director of operations. “Based on the order volume and customer, most finished goods move directly to staging for outbound orders.”
Weber ships full trailerloads of the coolers to distribution centers of large customers such as Walmart and Lowe’s. Less-than-truckload shipments take coolers directly to stores. Weber also recently started shipping via parcel carrier to customers who buy the coolers through e-commerce sites such as Amazon.com or Walmart.com.
One big challenge in the HardBody supply chain is timing: getting the components delivered, building the coolers, and getting them ready for shipping to customers just when they’re needed. “Careful planning and efficient execution are the cornerstones to ensuring that a CPG supply chain runs smoothly,” says Cesario.