Contract Manufacturing and Packaging January-February 2011

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Contents

JANUARY/FEBRUARY 2011

Features 14

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Quality Control: From the Warehouse to Your House Taking a deeper look to make sure your product comes out right the first time.

Roundtable: Supply Chain Management CM&P talks to the experts about making your supply chain work for you and what trends are ahead in the new year.

Departments 5 6 17

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Point of View Raising the Bar: Sustainable Packaging and Corporate Culture

Trend Watch: The Health Squad While the supplement category faces challenges such as rising commodities, a focus on consumer health drives continued growth.

Food Focus: Mixing It Up Sauces appeal to Americans newly discovering they can cook in their own kitchens. Here are key category trends for 2011.

CONTRACT MANUFACTURING & PACKAGING is a supplement to PLBUYER and other BNP Media publications. CONTRACT MANUFACTURING & PACKAGING is published by BNP Media II, L.L.C., 2401 W. Big Beaver Rd., Suite 700, Troy, MI 48084-333. Telephone: (248)362-3700, Fax: (248)362-0317. Printed in the U.S.A. Copyright 2011, by BNP Media II, L.L.C. All rights reserved. The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations. Change of address: Send old address label along with new address to PLBUYER, P.O. Box 1080, Skokie, IL 60076. Canada Post: Publications Mail Agreement #40612608. GST account: 131263923. Send returns (Canada) to Bleuchip International, P.O. Box 25542, London, ON, N6C 6B2. For single copies or back issues: Ann Kalb at (248) 244-6499 or [email protected].

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January/February 2011

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POINT OF VIEW A SUPPLEMENT TO BNP MEDIA PUBLICATIONS

Editorial John N. Frank Editorial Director [email protected] Jordan Brandes Managing Editor [email protected] Josh Majka Art Director EDITORIAL ADVISORY BOARD Raymond Baribeau Confab Laboratories Inc. Bill Biedenharn Trillium Health Care Products Peter Cokinos Little Lady Foods Ryan Gladieux Plastipak Italia Kevin Meyer Century Foods International Tanja Mordeson RC International Tina Mori NexGen Pharma Technologies Lisa Shambro Foundation for Strategic Sourcing Brian W. Wassall L’Oreal USA

Advertising Brion Palmer Group Publisher [email protected] (847) 405-4072 Don Beal Associate Publisher [email protected] (908) 889-4506 Todd Tamcsin Regional Sales Manager [email protected] (623) 825-5414 Rose Weiss Advertising/Production Manager [email protected] Jill DeVries Corporate Reprint Manager [email protected]

Audience Development Peggy Perez Audience Development Manager Megan Neel Multimedia Coordinator Carolyn M. Alexander Audience Audit Coordinator

Corporate Directors Timothy A. Fausch Publishing John R. Schrei Publishing Rita M. Foumia Corporate Strategy Scott Kesler Information Technology Ariane Claire Marketing Vincent M. Miconi Production

2011 and Beyond W

elcome to a brand new year. As we enter 2011, contract manufacturers and those in the packaging industry face challenges unheard of even a few years ago. The difference is, unlike in years past, those in the industry are now equipped with the technology to handle hard times. While there is still much debate as to whether the recession is truly over, contract manufacturers are now armed with better supply chain management systems, better quality control technology and more distinctive brand extensions. Many examples of these can be found throughout this issue. With the new year comes some changes for CM&P as well. This year will be the start of the publication’s annual “CM&P Editors’ Choice Packaging Awards.” The awards will focus on exemplary design and packaging. Entries will be due on July 30, so keep checking www.cmpmag.com for more information and entry forms. We also are adding an event section to the CM&P site. This will allow visitors to keep up to date on events specific to the contract manufacturing community. If there is an event you think the rest of the industry should know about, don’t hesitate to reach out to us and let us know. CM&P is about helping companies function better. In order to help us do that we would like to hear from you. Visit our site and fill out the Readership Information Form on the homepage. This information will help give us an idea of who you are and how we can better serve you in upcoming issues. The new year is full of possibilities. No matter what the future holds for you CM&P plans to arm you with the tools you need to make your business more successful into 2011 and beyond. ||

Lisa L. Paulus Finance

Sincerely,

Michael T. Powell Creative Nikki Smith Directories Marlene J. Witthoft Human Resources Emily Patten Conferences & Events Beth A. Surowiec Clear Seas Research

Jordan Brandes Managing Editor CM&P Magazine

For subscription information or service, please contact Customer Service at: Tel. (847) 763-9534 or Fax (847) 763-9538 or e-mail [email protected] BNP MEDIA HELPS PEOPLE SUCCEED IN BUSINESS WITH SUPERIOR INFORMATION

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Editors Note: The article “Protecting Yourself From IP Theft,” which ran in our last issue, quoted Erin West. Ms. West has informed us that she was speaking for Tracy-Gene G. Durkin, partner, Sterne, Kessler, Goldstein & Fox P.L.L.C. in Washington, D.C. We apologize for any confusion.

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RAISING THE BAR

Sustainable Packaging and Corporate Culture nvironmental quality, along with social and economic considerations, all vie for superiority in the hierarchy of inputs affecting the manufacture, distribution and supply of products. Although customers are demanding green purchasing options, they are often not willing to pay a premium for them. What this means from a designer/developer /producer of such products is that the total cost of ownership must be engaged from the start. To do this, providers of sustainable, green products must complete life cycle analyses (LCA) of their own products from cradle (manufacture) to grave (disposal phase). Life cycle analysis is currently a contentious area as you can construct LCA ’s to potentially argue any perspective or bias. For example, by comparing statistical data through the LCA we can arrive at a robust comparison between products such as fossil fuel-based plastics and bio-based plastics. From this, the total cost can be calculated and compared so customers can make an informed decision when they benchmark this to their corporate environmental and financial goals. Increasingly these two disparate goals are convergent.

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Regulators National and international regulators have been legislating waste minimization for years. Added to this is the drive to develop low carbon economies as a response to the symbiotic threats of climate change and resource depletion. This chimes with recent government targets in developing low carbon economies. Packaging has a vital role in achieving this goal, both in terms of the industries’ energy and resource consumption, and how it impacts downstream in the globalized supply chain in terms of packaging’s effect on worldwide fuel consumption.

Industry In response to rising demands for green packaging alternatives, the packaging industry has begun to bring to market bio-plastics that are based on renewable resources and are biodegradable and compostable. Beyond sustainable materials, the industry has begun

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to implement green processes and systems. Utilizing a quality system approach and environmental standards (e.g. ISO14001) enables commercial entities to reduce the use of resources in their activities across all levels. In today’s recession-minded world, the one topic on consumers’ mind is cost. Due to the distortion of market demands, bio-based plastics will be more expensive than fossil-fuel-based plastics. This metric will change as we move from early adopters to main market implementation. The adoption of bio-based plastics is as much a technical challenge as a cost challenge. Using material quality measurements we can arrive at specifications for material performance both in the manufacturing process and also during product life. The industry has had to develop new approaches to creating a common set of test conditions and resulting standards for setting material specifications.

Society & Media The somewhat mystified state of current public opinion on the implications of climate change is very much one waged by two opposing views. As participants in society and consumers of media, we act on behalf of the life science supply sector and will take a position. This moral dictate has been represented by such bodies as the Sustainable Packaging Coalition, Green Blue, European Bioplastics Association, and other industry and social organizations that are promoting the sustainable vision. In order to engage in building a pathway to a sustainable, low carbon, green company, defining your corporate culture comes first, get this right and the path becomes a lot clearer. || David P. Walsh is the CEO of DGP Intelsius Ltd. a global manufacturer and distributor of environmentally safe, temperature controlled and regulatory-compliant packaging solutions. Walsh founded DGP Group in 1998. In the following years, Walsh built the DGP group headquarters and research and development center in the United Kingdom, and expanded its manufacturing facilities from the U.K. to the United States, Russia, the Netherlands and Malaysia.

January/February 2011

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ROUNDTABLE

SUPPLY CHAIN MANAGEMENT

Coming Together By Jordan Brandes business is the sum of its parts. From a contract manufacturing perspective, the supply chain determines the final product sent out to the customer. This issue of CM&P brings together experts who specialize in supply chain management to discuss the state of the industry and what developments are in store for the new year. This edition’s experts are Joe Puleo, Kevin Bauer, Lorcan Sheehan, Lisa Shambro and Annette Groenink. Puelo is the senior vice president of business development for Westerville, Ohio-based Exel, a contract logistics provider. Bauer is the president of Power Packaging, a food and beverage contract manufacturer based in Batavia, Ill. Groenink is the chief operating officer (COO) of The Strive Group, a Chicago-based merchandising display group that develops design, manufacturing, packaging and distribution solutions for companies like Kraft, Nestle and Johnson & Johnson. Shambro is a contributing columnist for CM&P. She is also founder of the New Jersey-based Foundation for Strategic Sourcing (F4SS), a non-profit organization that serves the consumer packaged goods industry. Joining the group is Sheehan, senior vice president, marketing and strategy at ModusLink Global Solutions, Inc. The Waltham, Mass.-based company specializes in supply chain solutions that can be applied to a variety of companies. The forum tackles many key supply chain management issues. When it comes to inventory optimization, for example, there remains some debate as to whether tactics have changed in the last year. Bauer’s views have

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not changed at all. “Consumer packaged goods (CPG) companies remain committed to right-sizing their overall working capital requirements, of which inventory remains a sizable component,” explains Bauer. Groenink disagrees, stating that inventory optimization has had to change in order to keep pace with shifts in the marketplace. “The ability to produce as close to the season or dates of the promotion has always been important, but really came into relief over the past year.” Sheehan explains that, because inventory levels have been pared down in the last year, companies are looking at new growth strategies to ensure that their supply chains have the flexibility to support growth and the ability to increase the on-shelf availability of products. As a collective, the forum seems to agree that the recession is on its way out. A ‘new normal’ is taking over, as Sheehan says. “The recession served as an important reminder that the supply chain has to be lean and the value stream needs to be well defined who the ideal partners are, what products are where, what the different demand triggers are, and so on,” says Groenink. Although credit markets have negatively impacted most suppliers, many have either found creative solutions or learned to live in the current environment, explains Shambro. In order for a company to be successful it must function like a well-oiled machine. The supply chain must act efficiently and provide unparalleled customer service, the panel agrees. To learn more about what the forum had to say on supply chain management see the complete roundtable. ||

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SUPPLY CHAIN MANAGEMENT ROUNDTABLE

Macro-economic conditions in the last 24 months have necessitated a more acute focus on opportunities for synergy and cost reduction. – Kevin Bauer, President, Power Packaging

CM&P: How has the recession changed the face of supply chain management? Are things getting better? Puleo: Being part of a global organization that serves multiple industry verticals gives us a broad view of the supply chain and business landscape. Leading indicator verticals such as transportation and technology are doing well, and all in all, it appears the economy is improving. While there are many positive economic signals, results are also mixed and consumer packaged goods companies (CPGs) have experienced modest growth thus far. The recession affected the transportation sector substantially, and now there is a smaller selection of carriers and less capacity. It also forced companies to be much more stringent around inventory management and maintaining the minimum amount of inventory to meet demand. I see this discipline continuing into the future. Bauer: Effective supply chain management was an increasingly important component of the business model prior to the recession. Macro-economic conditions in the last 24 months have necessitated a more acute focus on opportunities for synergy and cost reduction. CPG companies are looking for supply chain partners who provide world-class customer service and innovative ideas for continuous improvement under a competitive cost structure. Groenink: The recession served as an important reminder that the supply chain has to be lean and the value stream needs to be well defined – who the ideal partners are, what products are where, what the different demand triggers are, and so on. When the recession was at its worst, nothing could be wasted and there was more pressure on everyone. Now that it is showing signs of getting better, this pressure is still there, but the focus is more on operating in this new normal where the supply chain is lighter and leaner than ever before. Shambro: I can only report based on what I hear from our members – which is that business is very good. Obviously the credit markets have negatively impacted most suppliers, but many have either found creative solutions or learned to live in the current environment.

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Sheehan: Yes, things are getting better in the supply chain industry. There is a “new normal” way of thinking that is driving different behaviors and forcing companies to look at real challenges, rather than expecting growth to mask inefficiencies. Companies are designing more effective processes, emphasizing continuous improvement efforts, improving planning and collaboration practices, and promoting growth within sales and operations.

CM&P: How have your views on network and inventory optimization changed in the last year? Puleo: The recent recession has certainly stifled network changes the past few years. Now with more stable fuel prices and current capacity constraints, some companies may start to consider optimization projects again. Bauer: Our views on network and inventory optimization have changed little in the last year. Consumer packaged goods companies remain committed to right-sizing their overall working capital requirements, of which inventory remains a sizable component. As a strategic partner, it is imperative that we are diligent in providing recommendations to that end. Groenink: They’ve had to change a lot in order to keep pace with shifts in the market. One particular change we experienced at The Strive Group was a renewed focus on flexible capacity. Our clients cannot afford to sit on promotional displays that are out of season and if they’re not used, it’s a waste of money or very costly to take them apart and try to use them the next year. The ability to produce as close to the season or dates of the promotion has always been important, but really came into relief over the past year. Sheehan: There are a number of trends that we see happening in the industry today. Because inventory levels have been pared down over the last year, companies are looking at new growth strategies to ensure that their supply chains have the flexibility to support growth and the

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The recession served as an important reminder that the supply chain has to be lean and the value stream needs to be well defined. – Annette Groenink, COO, The Strive Group

ability to increase the on-shelf availability of products. In addition, we have seen freight costs stabilize at a relatively high level compared to previous years. As a result, network strategies that reduce freight costs in key lanes – like market configuration and postponement – have become more prevalent.

CM&P: What do you consider to be the most fundamental aspects of supply chain management in the business world today? Puelo: For CPG companies, it’s still about lowest total landed cost. Companies rely on and require a properly designed network, demand planning, technology support and an array of supply chain tools to optimize efficiency while maintaining customer service. Bauer: In order to compete in the supply chain business today, you must provide unparalleled customer service and you must have an established and demonstrable continuous improvement program. In order to excel, you need a global footprint and you have to provide innovative solutions. Groenink: There are several fundamental aspects. Flexible capacity is one of them and likely to remain critical. Strategic alignment of partners is another. In the past, many partnerships were more transactional where both sides were focused more on the project at hand than on long- term opportunities. Now, more and more, we’re looking for strategic partnerships where we can add value at every step in the supply chain. This has proven to be a real competitive advantage not only because it’s more efficient, but also and more so because we can collaborate on areas to cut costs, identify joint-value mapping opportunities, and gain greater visibility into all of the moving pieces in the supply chain. To that point, information exchange—and with it, improved visibility—is another fundamental aspect of supply chain management today. Having access to information as early as possible in the demand cycle is critical and, fortunately, this is becoming more common. While we used to just get insight into the specific programs we were working on about a month out, we’re now getting

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invited to business planning meetings that provide insight into what our clients plans are for the entire year ahead. Sheehan: There are many fundamental aspects of supply chain management that apply to the business world today. First, it is important that companies have strategic organizational alignment on how their supply chain supports competitive strategy. In addition, companies should have solid communications across enterprises and geographies; an execution strategy that combines inhouse capabilities, as well as outsourced capabilities; and a cradle-to-cradle approach that spans planning, forward and reverse logistics, and manufacturing.

CM&P: What are your views on global sourcing as it relates to the supply chain? Bauer: We live in an increasingly global economy. As CPG companies continue to invest in high-growth markets outside of the United States, we must be in a position to provide them with services and solutions that are scalable to any geography. Groenink: Global sourcing used to be all about getting the lowest price, but that no longer makes sense. Now it’s about sourcing to end up with the leanest and most effective, efficient supply chain. This means companies are taking a broader approach and figuring the total landed cost—so, factoring in transportation costs and delivery times—and making truly educated decisions about whether to source domestically or internationally. And it’s not just price that matters; sustainability is another major factor we’re seeing companies consider when deciding where to source from, and this is something I only expect to continue to gain traction. Shambro: We are actually seeing a reduction in global sourcing (defined as sourcing from a continent other than the one the product will be sold on) as companies work to get their supply chains under control, improve cash flow, reduce inventory and reduce unforecasted emergency shipment costs. Many are saying that the hidden, cash

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SUPPLY CHAIN MANAGEMENT ROUNDTABLE

and management costs outweigh any savings. Sheehan: Sourcing is driven by quality, price and leadtime requirements. In today’s economy, all sourcing has the potential to be global, but the right solution depends on an organization’s goals and ability to manage these sources.

CM&P: How do you keep your company’s supply chain green? Puelo: Our core value proposition is to make our customers more competitive by improving the efficiency and productivity of their supply chains. Efficiency and sustainability are by nature inextricably linked – especially in today’s economic environment – so we partner with our customers to assess and develop green initiatives that meet both criteria. Exel specifically focuses on four key areas:

designed to help them leverage environmentally sound processes and materials. Our cradle-to-cradle approach includes sustainable packaging redesign, network optimization, greenhouse gas foot printing, recycling and asset disposition. These solutions drive greater labor and energy efficiency, as well cost efficiencies in most cases.

CM&P: How will you change your supply chain management in 2011? Bauer: As a supply chain service provider, our focus in 2011 will remain on providing our current partners with world-class service and innovative ideas for reducing both the overall cost and the environmental footprint of bringing their products to market. At the same time, we will look at new market verticals where our services provide a

CPG companies are looking for supply chain partners who provide worldclass customer service and innovative ideas for continuous improvement under a competitive cost structure. — Kevin Bauer, President, Power Packaging transportation, energy, waste management and employee engagement. We work with our suppliers and customers to ensure sustainability efforts make the most impact across the supply chain and meet each organization’s objectives. Exel also participates in its parent company’s sustainability program, the Deutsche Post DHL GoGreen climate protection program. The program spans the entire organization and is designed to identify levers in every business unit to reduce carbon emissions, with a specific target of a 30 percent improvement in carbon efficiency by 2020 and a 10 percent improvement by 2012. Groenink: We take a very holistic view of the supply chain, which means we’re not just focused on the end-product being green. We also have an eye to how the product was produced, where the materials were sourced from, and how we could work with our strategic partners to remove unnecessary packaging or transportation. As a company, sustainability is very important to us and engrained in the way we operate. In fact, we’re actively involved in the Foundation for Strategic Sourcing (F4SS) and our quality director is a co-chair of its sustainability committee. This access to partner companies and information sharing among peers has been a great chance to learn about energy conservation, lean manufacturing and other best practices that enable everyone to go a bit greener together. Sheehan: ModusLink has a holistic view of the value chain and offers clients a suite of sustainable solutions

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competitive advantage Groenink: We won’t change so much as we’ll continue to focus on what has been successful: making sure everything we do adds value, contributes to flexibility and is responsive to customer needs. To help with this, information is critical and we’ll leverage data—from research on how shoppers behave to what influence retailers have to what our customers tell us—to build our supply chain and develop our products in the way that best serves our customers. Sheehan: In 2011, we plan to make additional investments in key areas of the supply chain including: • Sales and operations processes for our own activities, as well as our clients. • Packaging and product redesign to meet cost and sustainability initiatives. • Increased visibility across channels, enterprises and geographies. • A more formal framework to manage our own corporate sustainability initiatives.

CM&P: How important would you say RFID technology is in the supply chain today? What do you see as the future of RFID in the industry? Puelo: We have tested and implemented RFID in supply chain applications within our business since the

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mid- to late-1990s. We’ve moved past simply piloting this technology, and our organization now has permanent RFID implementations worldwide. Exel/DHL Supply Chain Americas actively works with the international standards organization, GS1, and we’re delighted that this year that the GS1 EPCglobal Conveyable Asset Tag Environmental Testing & Implementation Guide was released to the public. This document helps end-users understand how to successfully apply RFID tags to various transportation assets and also provides testing requirements for RFID manufacturers to ensure that RFID tags can withstand the rigors of a global supply chain. By being able to “sense and respond” to events as they take place in the supply chain, companies can further optimize materials and resource planning while increasing security. This is a compelling value proposition, and our organization continues to evaluate and implement these wireless and sensor-based technology solutions where they have the greatest impact in our customers’ supply chains. Groenink: This is not an area that I have heard much about, but do think that the application of technology to supply chain has the potential to significantly improve the supply chain and make information-sharing easier than ever. Shambro: We are not seeing a broad movement to RFID at the unit level except in high-dollar-value product categories. At such a time that the technology costs come down, we expect to see greater adoption. Sheehan: Technology and application of RFID have not lived up to the initial expectations and hype. As a result, we need to demonstrate that RFID can emerge from the lab and pilot phases to become a scalable business process. There are certainly some good applications in the management of high-value parts and other niche applications. RFID has the potential to be powerful in the area of authentication of genuine product for pharmaceutical and high-value goods.

CM&P: How do you deal with information exchange in your supply chain? What methods work the best? Puleo: There are standard, tried-and-true applications including warehouse management systems (WMS) and

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electronic data interface (EDI). A number of supply chain technology tools are also now emerging that enable manyto-many communication, meaning many people input data and many people are able to view data. For example, Exel has a proprietary technology called SC3 that is a global transportation management system. It collects data and provides complete visibility to shipments anywhere in the world and across multiple carriers. The technology ultimately enables better management of inventory, lead times, freight costs and more. Bauer: The flow of information is a critical component in providing world class service. We leverage our significant information technology infrastructure in all aspects of the supply chain including Enterprise Resource Planning (ERP), Manufacturing Resource Planning (MRP), Warehouse Management Systems and Electronic Data Interface We provide a number of our partners with customized IT solutions that enable us to work collaboratively to meet their supply chain needs. Groenink: Information exchange is critical. In a perfect world, it’s shared quickly and as early as possible and is integrated with robust planning systems. If we have a partner that we purchase material from and we have access to our customers information that says what their demand is, as quickly as we can get that information to our partner, the better we can serve our client. Sheehan: We manage a host of information models, from CSV file transfers to XML, EDI and Rosettanet standards. We also use an SAP BI portal to share data with clients and appropriate stakeholders. Each method serves a specific purpose, so the key is to design and apply those that are most appropriate. It is important to recognize that not all suppliers will have EDI capability, and not all data needs to be real-time – although sometimes this is critical. Finally, you must consider the investment and maintenance costs.

CM&P: How do you best protect intellectual property within your supply chain? Puleo: With a business as complex and competitive as ours, intellectual property is certainly an area of competitive differentiation. It is important to set ground rules around information access and ensure those are followed. Exel also patent protects where possible.

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Information exchange is critical. In a perfect world, it’s shared quickly and as early as possible and is integrated with robust planning systems – Annette Groenink, COO, The Strive Group

Bauer: As we continually innovate, intellectual property is an area of competitive advantage where we devote significant resources. We protect innovation and intellectual property through traditional means (e.g. patents and trademarks) and through less conventional methods. Groenink: We take it very seriously. In the past, IP was very much viewed as design specifications, but we increasingly view IP— our “secret sauce”—as how we do what we do: management of inventory, traceability of product through the system and related process areas. The best way to protect it is to be aware of what IP is and what represents a competitive advantage, so you know what not to give away. From a tactical perspective, this means non-disclosure agreements and non-competes, while still giving customers the transparency they need to understand how we are going to handle their programs. Sheehan: You must recognize the importance of intellectual property, especially in an outsourced environment. ModusLink designs IP into process and structure, in addition to building safeguards. This allows for segregation of customer data in a system architecture, as well as authorization and access privilege standards and maintenance. We also practice appropriate physical security, such as proactive risk assessment and mitigation planning, physical access controls, a dedicated security

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council and visible reporting and investigation of incidents.

CM&P: Has the recession changed your inventory management practices? If so, how do you work with your supply chain to maintain leaner inventories and just-in-time deliveries of needed supplies? Puleo: The recession, without, question has put pressure on CPG companies to keep inventory at minimum without affecting service. Activities such as postponing and relocating distribution centers closer to the manufacturing plant improve inventory management efficiencies. Consumers’ cost-conscious behavior has also driven a greater number of SKUs through product customization and the very real threat of private labels. Secondary packaging is at an all-time high as individual retailers try to maintain and capture market share. Sheehan: There is an increased awareness for us, and our clients, of the impact of inventory management. Today, more than ever, it is important to understand the different planning models and how they apply to different scenarios. We consider the supply chain a key tool in inventory management, especially through postponement, global sourcing models, segregation of products by usage and visibility, forecast-driven conditioning and demand-driven replenishment. ||

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ON THE COVER

By: Jordan Brandes

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t’s supposed to be the happiest time of the year. There is snow on the ground and a roaring fireplace in the living room. It is Christmas and the whole family is excited about finally opening their gifts. Except this year there are no gifts under the tree. Mass product recalls meant taking back gifts that might be faulty or contaminated. The end results of a product recall not only leads to unhappy customers but a tremendous financial loss to the company. According to the Food and Drug Administration (FDA) there are a variety of recalls that can be done on a product including: Class I: Dangerous or defective products that predictably could cause serious health problems or death. Examples include: food found to contain botulinum toxin, food with undeclared allergens, a label mix-up on a lifesaving drug, or a defective artificial heart valve. Class II: Products that might cause a temporary health problem, or pose only a slight threat of a serious nature. Examples include: a drug that is under-strength but that is not used to treat life-threatening situations. Class III: Products that are unlikely to cause any adverse health reaction, but that violate FDA labeling or manufacturing laws. Examples include: a minor container defect and lack of English labeling in a retail food package. Overall product recalls in the healthcare industry, for example, rose 10 percent from 2009 into the first half of 2010 based on the 1,752 alerts sent to subscribers of the Falls Church, Va.-based RASMAS National Recall Center. Biomedical device recalls rose to 10 percent from 8 percent in the healthcare industry as well based on alerts. While children’s consumer products used in the healthcare industry dropped to 8 percent from 9 percent, according to the study.

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Once a product reaches the retailer it is out of the hands of the manufacturer and into the hands of the public. A recall can end up potentially costing a millions while it retrieves defective goods, pay damages and cleans up its public image. Experts agree the goal of all companies should be to stop product recalls before they start. “We are seeing an evolution in the regulatory environment and a stricter control from the FDA,” says Andy Dratt, executive vice president of the private label beverage company Imbibe based in Wilmette, Ill. More and more companies do not want to leave regulatory operations open for interpretation, says Dratt. Too much of a gray area in interpretation can lead to muddled quality control and outdated regulatory requirements, he says. In order to stop a recall before it starts one must take control of the entire supply chain, says Venkat Rajaji, global PLM product manager at the Alpharetta, Ga.-based business software provider Infor. The process known as enterprise asset management (EAM) sets in place teams of people to monitor all the machines in the manufacturing process. “Companies run the risk of contaminating food if machines are rusty or malfunctioning,” says Rajaji. If you want to minimize recalls that result from you getting faulty ingredients from your suppliers, you can try one of two different approaches: rely on automated systems or put more people in place…which is better? The quality control world stands divided on that question. “We want to take human beings out of process,” says Stephen Kaufman, chief operating officer of the Chicagobased packaging company Schawk, Inc. Kaufman reasons that the quality control process boils down to good communication. The company uses a process called soft proofing, a mechanism that allows it to view on a computer screen what the final product will look like and change it accordingly, to perfect a product before it ever goes into

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QUALITY CONTROL ON THE COVER

DEFECT CLASSIFICATIONS production. That way, a client can change the product while it is still in the system. After a product is finished, it goes through an ESI study (every square inch) in which the product is dissected and the owners of each part can be found if changes need to be made. The post-construction process is run through a digital comparator, a device that determines if a product meets standards by comparing known data, which can spot changes in design structure and assure quality control. On the other end of the spectrum is Stephen Doyle, global head of operations for Intelsius, a packaging design firm based in Indianapolis, Ind. “The foundation [of superior quality control] is having the right people on the job,” says Doyle “quality training is mandatory for all employees.”

Warehouse Control “To control quality in the warehouse one must control the conditions of storage, and how the product is handled,” says Michael L. Hetzel, vice president, Americas, for the McHenry, Ill.-based third party quality services provider Pro QC International “All product types require their own QC protocols based on the critical, major and minor effects of non-conformances, potential causes of defects, methods of identifying defects and the customer chain to the end user, the inspection plan is developed out of this.” There are three types of inspections: first-article, in-process, and pre-shipment. First-article inspections are conducted during initial production. An in-process inspection takes place on the assembly line, or during the manufacturing process and determines whether the appropriate tests and checks are taking place and whether the quality checks are consistent with the customer’s requirements. A final inspection is a final sampling of the finished product to check that conformance is acceptable prior to shipment. Based on the outcome of a final inspection, a lot can be accepted, rejected, or placed on hold. One cannot inspect every dimension on every unit that’s produced. Not only is it logistically infeasible for large production volumes and enormously time consuming and expensive but studies have shown that inspectors fail to observe defects when inspecting items for very long periods of time, says Hetzel. That is why an inspection plan is created to guide employees in the warehouse. Although the plan is general it provides employees with the basic tools necessary to maintain quality control through the manufacturing process. Your company also can take part in a quality assurance (QA) audit to make sure everything is running properly

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Critical Any condition found which poses the possibility of causing injury or harm to, or otherwise endangering the life or safety of, the end user of the product or others in the immediate vicinity of its use. Major Any condition found adversely affecting the product’s marketability and sale-ability or adversely affecting its required form, fit, or function, and which is likely to result in the end user returning it to the source from which it was purchased for replacement or refund. Minor Any condition found which while possibly less than desirable to the end user of the product, does not adversely affect its required marketability, sale-ability, form, fit, or function and is unlikely to result in its return to the source from which it was purchased. Source: Pro QC International, 2010, www.proqc.com.

and in accordance with various regulations. Whether your company has chosen to take part in an audit voluntarily or at the request of an outside source, there are many steps that can be taken to maintain quality control from the moment a product enters the warehouse to the time it leaves. This is especially true in healthcare manufacturing and packaging. Take the example of USANA Health Sciences, a Salt Lake City-based nutritional and health care product distributor. “We take control through the whole process. Once it is in our system we make sure you can track that item anywhere along the supply chain,” says Jim Brown, vice president of operations, USANA. Given that the company’s work focuses on pharmaceuticals, quality control is essential to the safety of the consumer, says Brown. Once a material enters a USANA facility, it undergoes a series of micro-testing done on-site to determine if it is safe to use. This process is repeated after a product has been finished but before it leaves the facility. After that the material, usually an ingredient for a pharmaceutical pill, is cleared and entered into a product database that allows employees to find the product anywhere in the facility. “Testing and monitoring is put into all levels of produc-

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ON THE COVER QUALITY CONTROL

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tion,” says Brown “we make sure we can track everything.” Beyond individual product control, the warehouse itself must be monitored to maintain quality assurance. “Warehouse monitoring is done with digital temperature and recording devices checked daily and trended,” says Shelly Baxter, quality engineer, USANA. The data are collected every hour and downloaded daily into trending graphs. This allows a human element into the equation by reviewing the data and adjusting equipment accordingly. “Quality control should take a human approach but still use as much technology that is available,” says Brown. Quality control is based “upon a foundation of tangible, measurable criteria and processes,” says Tim Fletcher, vice president of operations of the Moonachie, N.J.-based flexible packaging company LPS Industries, Inc. “[The criteria] include strict adherence to Federal and EU guidelines and using only materials certified by our suppliers as meeting criteria we’ve established.” Whether the product is a pill or the gift you’re anxiously awaiting to give to a family member, every company should make sure its final product is held to the highest quality standards. “The most important action a customer can take is to provide as much detail as possible at the front end of the job. In addition to the typical input about who is the end user, what is the end use, what’s being packaged, materials, dimensions, special features, etc., the QC process is aided immensely by understanding the complete picture,” says Fletcher. “The product must meet the final customer’s expectations,” says Hetzel “You can’t inspect quality into a product, you need to control the process. Properly applied quality management doesn’t cost anything, it improves profits.” ||

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QUALITY CONTROL TECHNIQUES Failure Testing: In a failure testing quality control technique, the end product is put through a series of tests to determine the circumstanced under which it will fail to perform its function. For example, increasing factors of material stress, vibration, temperature, and other forms of wear and tear will eventually reveal any weaknesses the product has. These weaknesses can then be researched and improvements can be found. In some cases this process of improvement can be simple with only small modifications a product can be made to perform much better. But in cases where improvements are needed extensively, the process can be very time consuming and financially straining. Statistical Control: Statistical control is a quality control technique that uses mathematics to uncover the likelihood of product failure. If the probability of failure is extremely low, than the whole batch of products may be passed off as acceptable. If there is an indication that based in the sample product, that there may be a higher probability of failure, the product is re-evaluated and any errors are corrected. In ideal circumstances the probability of error or defect is found before the products are produced and the problems are corrected.Company Quality: This quality control technique involves the entire company’s participation when it comes to quality control. This technique is certainly not limited only to those in the field of manufacturing either. Principles of job management, adequate processes, performance and integrity criteria and identification of records as well as competence in areas such as knowledge, skills, experience, qualifications and elements, such as personnel integrity, confidence, organizational culture, motivation, team moral and quality relationships are all terms that are pertinent to the application of the company quality control technique. Total Quality Control: The total quality control technique is usually used in cases where other methods of quality control have still not corrected the quality concerns or there is still some sort of sales decrease. In cases like these the total quality control team would place more emphasis on giving the customer what they wanted and less emphasis on trying to perfect a product that even in its perfected state is not pleasing the customer. Customer specifications would be re-evaluated to see if there are any areas of importance that have been neglected or not addressed with as much emphasis as may be needed. Management teams would ensure that their employees are sufficiently qualified for the work that they are being asked to perform. Source: www.businessknowledgesource.com January/February 2011

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MIXING IT UP

SAUCES

Mixing It Up Sauces appeal to Americans newly discovering they can cook in their own kitchens. Here are key category trends for 2011. By John N. Frank recent TV commercial for a Chicago-area pizza chain has a long-time customer summing up why the chain is successful in three words. “The sauce – excellent,” he says. Many Americans, prompted to cook at home more because of the Great Recession, are saying the same thing when they start planning their latest cooking adventures. Sauces ranging from simple tomato for pasta to hot sauces to barbeque and ethnic variations are benefitting from the cook-at-home trend. In addition, baby boomers are searching for more intense flavors as their taste buds age and Americans of all ages are becoming more accustomed to trying a wide range of ethnic cuisines from places like India, South America and Africa. All are expected to continue stirring up sauce sales in 2011 and beyond. More men are taking their cooking efforts from outside into the kitchen as well, and when they cook they want big, bold signature flavors that require sauces, the experts say, another plus for sauce sales. The only potentially bad seed in the sauce pot this year could be rising commodity prices which will squeeze processors if brand owners and retailers balk at passing those cost increases on to consumers and so refuse to pay higher prices themselves.

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Key Ingredients When consumers scan the sauce aisles this year, they’ll be

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looking for a combination of flavor and healthy ingredients, sauce sages agree. On the health front, products with high levels of salt or those that use high fructose corn syrup could turn off some shoppers, for example. LiDestri Foods’ Francesco Rinaldi pasta sauces were early to the low-sodium movement, coming out with a lowsodium variety in 1985. The brand more recently introduced its ToBe Healthy line that has reduced sodium levels plus no sugar and Omega 3 fatty acids, says Grace Leong, managing partner with Hunter Public Relations, New York. Hunter works on the Rinaldi account and with such clients as Kraft. Victoria Packing Corp., Brooklyn, N.Y., is offering a lowsodium tomato sauce, aware of consumer concerns about sodium in prepared foods. The processor achieves a lower sodium sauce by not using tomato paste in its recipe. Two Guys Food Group, Bergenfield, N.J., touts lower sodium levels in its tomato sauce which also is gluten-free and has no added sugar. The fewer ingredients, and the simpler they are, the better to appeal to a growing base of consumers, notes Scott Stark, Two Guys’ CEO. Research firm Euromonitor International echoes his sentiments. “Shoppers are also seeking out products which make natural claims with clean labels that list a few recognizable and pronounceable ingredients rather than a long list of unpronounceable chemical additives,” its September

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2010 sauces report notes. “A lot of food companies are getting a lot smarter as it relates to different herbs and spices,” says long-time food trend watcher Phil Lempert, who bills himself as the Supermarket Guru and runs a Web site by the same name. “We will see a lot more ingenuity when it comes to spices and herbs being used as salt replace-

Another brand known for regional loyalty in the Mississippi delta area, Sweet Baby Ray’s, is continuing to gain national distribution, Mintel International Group Ltd., Chicago, notes in a report it issued on ethnic sauces in July 2010. Sweet Baby Ray’s increased its market share 1.5 percent from 2009 to 2010, Mintel estimates. In the hot sauce world, “the Frank’s brand enjoys strong shelf presence, despite a limited number of stock keeping

The Sauce Scene Category

Dollar Sales

Dollar Sales % Chg vs. Year Ago

Unit Sales

Unit Sales % Chg vs. Year Ago

BARBEQUE SAUCE

$432,899,100

3.86

235,873,800

1.73

STEAK/WORCESTERSHIRE SAUCE

$241,279,100

(2.33)

80,366,000

(1.68)

MEXICAN SAUCE

$1,073,305,000

(1.49)

409,839,000

(0.55)

SPAGHETTI/ITALIAN SAUCE

$1,616,270,000

(0.46)

755,961,200

0.51

ALL OTHER SAUCES

$760,896,500

3.76

355,438,600

2.87

Source: SymphonyIRI. Total U.S. FDMx (supermarkets, drugstores, and mass merchandise outlets excluding Wal-Mart), 52 weeks ending Nov 28, 2010.

ments,” he says. Another health angle sauce makers should be playing up this year is to tout the vegetables and fruits in their products, Lempert suggests. Consumers know they should be eating more fruits and vegetables, yet per capita consumption remains stubbornly below recommended levels, Lempert says. So “I think we are going to see a lot more fruits and vegetables added to sauces” and marketed as a way for consumers to raise their consumptions levels without changing their eating patterns, Lempert predicts.

Manly Sauces When it comes to flavors, regionalism is in, the experts say. Kraft Foods, for example, last June rolled out regional varieties of its Bulls-Eye barbeque sauce, appealing to regionconscious consumers. Varieties include Memphis, Kansas City, Carolina and Texas, the four best known barbeque regional styles in the Untied States, Leong notes. Sauce processors “need to understand there is no one consumer anymore. [This] year is going to be all about regional. It’s going to be understanding what different regions of the country like in terms of taste and using more local ingredients in their sauces,” Lempert says.

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units and flavors,” Mintel notes. “One reason is an image of value with moderate pricing overall.” Frank’s RedHot Original Cayenne Pepper sauce saw sales rise 32.6 percent in 2010, Mintel says. Hot sauces are attractive to men doing more of the cooking at home. More dramatic merchandising of hot sauces can get more male shoppers into food stores, suggests Mike Klanac, senior director of marketing with The Carriage House Companies, a Fredonia, N.Y.-based maker of private label sauces. “Line up your hot sauces,” Klanac suggests to retailers. “Pyramid them in order of heat, placing them across your display shelf above the barbeque area,” he says. “Men in the kitchen [are] big on flavor and they’re big on signature dishes,” says Esmee Williams, vice president of brand marketing at Web site Allrecipes.com. “Certainly hot sauce is a key element in their arsenal of cooking.”

Spanning the Globe On the ethnic front, Americans are becoming increasingly interested in foods from South America, particularly Brazil, says Robin Avni, principal with robinavni lifestyle topics, insights + trends, a Seattle area-based consulting firm. Avni coauthored a 2011 food trends report with Allrecipes.com. Looking at recipe searches in 2010, Allrecipes.com found

January/February 2011

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SAUCES MIXING IT UP

the largest jump year-over-year was for South American concoctions, up 41 percent, followed by Japanese, up 38 percent, and Korean, up 36 percent. “Sauce is the magic to bring out ethnic cuisine,” Avni explains. “As consumers expand in learning more about different ethnic cooking, what differentiates a dish is the sauce. We see a willingness on the consumer’s part to really experiment a lot more with different sauces.” Look for 4.2 percent compound annual growth through 2015 in the ethnic sauces area alone, predicts Mintel. U.S. sales in that subcategory rose 4.8 percent in 2009, Mintel estimates. “Spicier, ethnic and healthier items were the driving forces in the category,” adds Euromonitor. Sales of sauces, dressings and condiments rose 3 percent in 2010 to $17.8 billion with volume growth for the category of 2 percent, well above the 0 percent compound annual growth rate seen for the category from 2005 through 2010, Euromonitor reports. Barbeque sauces and such subcategories as marinades and glazes sold best in the 52-week period ending Nov. 29, 2010, according to sales data provided exclusively to Contract Manufacturing & Packaging and its sister publication PLBuyer by Chicagobased research firm SymphonyIRI. “What we’re seeing is there’s a sauce for everything right now. It’s being demanded by the consumer that one sauce doesn’t fit all anymore,” says Leong. “Americans grew to love ethnic foods through restaurant experiences,” Euromonitor states in its report on sauces issued in September, 2010. “They also showed increased appreciation for spicier foods…Spicier and ethnic flavors such as chipotle then migrated from foodservices to the home as consumers looked to recreate the unique new flavors that they had tried in restaurants.”

A Bitter Flavor Note One ingredient that sauce processors likely don’t want

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to see in their mixes this year will be rising commodity prices, but most forecasts expect prices for raw materials to rise as economies around the world continue to recover. Weather also plays a role in commodity prices. “A cold winter in the state of Florida and in Mexico led to smaller tomato harvest in early 2010,” Euromonitor notes in its report. That translated into rising tomato prices. Ann Stettner, a co-owner of Greenville, N.Y.-based Wild Thymes, a branded and private label sauce maker, says she late last year was quoted a price on garlic by a supplier “and it was astounding how much it had gone up.” Commodity price increases anywhere from 30 to 100 percent are becoming common, she says. With forecasts of rises in everything from tomato to garlic prices, sauce makers could find margins squeezed. Retailers try to keep a 20-30 percent price difference between their private label sauces and national brands. In pasta sauce, for example, that’s meant holding prices in the $2.99 to $3.99-a-jar range. Rather than raise that, some retailers have opted instead to take jar sizes down from 26 ounces to 24 ounces. Branded sauce makers have been battling private label gains of recent years with more advertising and added promotional spending, using couponing and discounting to narrow the price gap between their products and private label competition. Keenly aware of consumer price sensitivity, they also would seem unlikely to pass along commodity price increases to consumers and so could see their margins squeezed. That in turn could mean they’ll squeeze contract manufacturers to cut their costs somewhere, somehow. While cost concerns bubble under the surface, Euromonitor predicts the category will continue to grow. “The cooking from scratch trend is expected to remain relevant even as the U.S. economy makes a slow recovery,” it notes. “Consumer demand for products that make cooking easier and more flavorful, such as sauces, dressing and condiments, will remain strong.” ||

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THE HEALTH SQUAD

SUPPLEMENTS

The Health Squad Rising commodity prices and consumer health concerns drive continued growth. By Lynn Celmer

s baby boomers age, they are doing anything they can to hold onto their youthful vitality, which in turn is helping drive increased use of vitamins and other supplements in the United States. Women also will become a larger share of the U.S. population in coming years, according to a 2009 report on vitamins and minerals from Mintel International, Chicago. This also will benefit the category, since women use more vitamins and minerals than men do, according to the same report. In addition to a growing desire to remain active and stave off the effects of aging, older consumers tend to have

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more age-related ailments and thus have the highest usage rates of vitamins, reports research firm Euromonitor International, Chicago. The possibility for severe cold/flu seasons, against which vitamins such as A and C are recognized as preventative supplements, also has the potential to drive sales in the coming years, according to the Mintel report. U.S. consumers as a whole also are taking a more preventative approach to their own health in the face of rapidly increasing healthcare costs and shrinking healthcare coverage. For many, vitamins aren’t a luxury, but instead a part of their daily dietary regime, much like food. A modest expense on multivitamins or single vitamin

January/February 2011

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SUPPLEMENTS THE HEALTH SQUAD

tablets is viewed by many as a good value if it helps avoid hefty medical bills. “The trend today is towards supplements that target specific ailments,” says Peter Sokoloski, private label manager at Bloomingdale, Ill.-based NOW Foods. “As our population ages, you’ll find that more consumers are looking for natural solutions to their common healthrelated concerns.” With respect to ingredients, vitamin D is one of the best-selling vitamins on the market today, says Jeff Reingold, senior director, research and development for Hauppauge, N.Y.-based Contract Pharmacal Corp. (CPC) “There have been recent studies indicating that Vitamin D deficiencies can be the root cause of depression or even heart disease. Retailers are responding to this research by revising existing formulations and creating new formulas to include or highlight the Vitamin D content,” he says. Despite accounting for just a tiny portion of overall sales, Vitamin D sales doubled to more than $10 million, boosted by studies showing widespread U.S. population vitamin D deficiencies that also touted numerous benefits of Vitamin D supplementation, according to the Mintel report. Contract Pharmacal also has seen an increased demand for specialty niche items, such as herbal products, Reingold says. Products range in appeal from energy and weight loss to mental acuity, bone, heart and joint health. Probiotics and homeopathics also are gaining considerable momentum, he says. Probiotic supplements are said to help promote a healthy digestive system. Flavored product sales also are on the rise. Reingold says CPC is receiving a large number of requests for flavored powders and chewable tablets. Products such as Wyeth’s Centrum Silver and Centrum Cardio and Bayer’s One a Day Men’s Health Formula, One a Day Women’s Active Mind & Body and One a Day Performance, have gained significant sales by marketing products to consumers with specific gender, age and health/nutritional goals in mind, according to Mintel. Other categories seeing a rise in popularity are nutritional oils and detoxification products which are said to

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help rid the body of toxins and waste, says Sokoloski. “The benefits of nutritional oils seem to be far-ranging, from healthy skin to cardiovascular support. Concerns with digestion, weight management, fatigue, skin health and other issues have led to significant gains in the detox category,” he says.

Special Delivery In packaging, the stick pack, a single-use, flexible pouch, is a novel delivery form quickly gaining notoriety. “Market demand is rapidly increasing for this single-dose package of powder products, which is convenient for consumers to carry and consume,” Reingold says. “Consequently, more and more products are being launched and reinvented in this dosage form.” Tee Noland, director of business development for Royston, Ga.-based Pharma Tech Industries, agrees: “I think there’s a universal demand for more portable dosing of pharmaceutical products,” he says. Consumers are looking for products that are packaged in a unit dose format, as opposed to a bulk format. Portable options also help with patient compliance as the dosing is already done for them. Sales of vitamins and minerals rose 6.2 percent in 2009 to an estimated $11.2 billion and are expected to maintain that growth through 2014, Mintel says.

What’s Doing Well Mineral supplements sold best in the 52-week period ending June 2009 (most recent), Mintel notes. “Mineral supplements sold well in 2009 as economyconscious consumers concerned with avoiding illness and taking sick days, turned to supplements as a way to help maintain good health,” Mintel states in its report. As more and more retailers recognized the growing demand for affordable products, they rolled out more private label supplements contributing to an 11.4 percent growth in private label between June 2008 and 2009. Multivitamins fared less well than other supplements between June 2008 and 2009, although still managing 2.7 percent sales growth during that timespan to $739 million.

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Although growth in the multivitamin segment lags behind that of others, multivitamins that provide specific care, for things such as dietary needs or age-related ailments like macular degeneration, are likely to help the segment to grow, Mintel says. “Targeted products will likely continue to grow sales for companies such as Wyeth and Bayer as consumers demand products that serve specific needs,” it notes. Lettered vitamins, such as vitamin C and D, have recently been spotlighted as effective in maintaining good health and have benefited from the good publicity. Sales of 1-and 2-letter vitamins in 2009 grew 16.5 percent compared with 2008, reaching $395 million. Private label lettered vitamins also fared well as a number of users

looked for affordable alternatives to the national brands. If marketers continue to tout the benefits to consumers of specific lettered vitamins, Mintel predicts the subcategory will continue to grow. As of June 2009, sales of liquid vitamins showed a small gain of 5.8 percent to $148 million, according to the Mintel report. Although the vitamin and mineral segment is doing well, the number of consumers cutting back on household items due to tightening budgets has the potential to possibly stunt some of that growth, Mintel notes. Competing products, such as vitamin/mineral-fortified foods and drinks, as well as somewhat of a category newcomer—probiotics—also offer a

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January/February 2011

possible threat to sales, as some consumers view these items as convenient alternatives to taking separate supplements, Mintel adds. Some things that may leave a bad taste in the mouth of manufacturers include rising commodity prices and increasing scrutiny by the Food and Drug Administration (FDA) over dietary supplements. Increased demand from emerging international markets and a smallerthan-anticipated U.S. harvest are contributing to skyrocketing corn prices, according to a U.S. Department of Agriculture (USDA) report. Corn startch is an essential ingredient in vitamin production. Consolidation in the industry also has led to an increase in the price of talc, which is commonly used in the manufacturing of vitamins and other supplements, says Noland. While rising costs are a concern, industry experts agree that the vitamins/minerals market is almost recession-proof, according to the Mintel report. “Because workers continue to feel the effects of the economy and are uneasy about missing work days due to illness, they will likely use supplements to help ward off sickness,” its vitamin and mineral report says. In order to perpetuate the growth of the vitamin and mineral segment, manufacturers must continue to tout the health benefits of specific items and focus on goal, gender and age-specific products as consumer demand for them increases. ||

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