Case 4

Mask Packaging

Supply Chain Integration Initiative

Mask Packaging (MP), a leading player in the packaging industry was facing challenges of fulfilling the rush orders, which was causing logistic problems. Hence, it was necessary to look into the order management process to improve upon. MP is a Mumbai-based packaging manufacturing company and has been in the business for the last 10 years. It deals with the manufacturing of paper packaging required in the FMCG industry. Since inception, it has expanded to five factories. It had 250 employees and had a turnover of Rs. 175 crore (1750 mn). It makes products for fast-moving consumer goods, food industry, pharmaceuticals, health-care products and cosmetics and the agriculture industry.

The company has two divisions, that is, paper making and packaging. The paper division produces paper for packaging based on waste paper. The specialized paper machines make corrugated paper, liner paper, tubes and core paper. The Packaging Division produces corrugated board, solid board, tubes and cores. They also make packaging for the products such as flowers and bulbs. The customers of MP are leading players in industries such as FMCG, food, pharmaceuticals and cosmetics, and the agriculture.

During the last few years, it has changed its strategy to encompass not only the production of packaging, but also a range of value-added services around those materials. MP wanted to move from just providing commodity products to focusing more on the service they provide to customers. In addition to producing paper or corrugated board, this requires the ability to deliver products at the right moment, in the right quantity based on the customer's needs.

To support that strategy, Mask needed to cut costs while at the same time increasing speed and accuracy in its operations—a challenging task. The company as a whole had grown over the years 10 times leaving it with a wide variety of software spread across its various units; this made it difficult to get an integrated view of the business. Moreover, supply chain processes in its paper division—which manufactures products for use in the packaging division and for sale on the open market—were fragmented, driving up costs and delays.

To solve the problem of fragmented business, MP thought of an integrated communication tool using the e-business solution so as to give customers a good service. Using the new technology they faced the challenges of buyers markets as against the sellers markets in which they were operating in the past. In the past decades, customer expectations as well as customers themselves have considerably changed. Customers now tend to be more marketing driven, with dynamically evolving requirements, which requires a higher service level (e.g. in terms of variety in products, just-in-time delivery and smaller lots). It was clear that customer-wise solutions would become an important leverage for MP to stay competitive with other major players in the packaging industry. With the changing environment the company was confronted with a need for the following:

• Shorter lifecycle for its products
• Higher variability in demand
• Shorter lead-times

Initially MP reacted to this changing trends using flexibility measures in its production process including blind stock buffering, which ultimately resulted in huge holding costs, high administration costs and, more often than not, in investments in the wrong stock. Even with this strategy, they could not do away with rush orders. The end result was poor performance.

To overcome this, they invested in a software solution which enabled Mask to integrate its supply chain. It allowed MP to have a strategic collaboration with its customers through the information sharing and exchange. This helped MP to move from a product-oriented approach to a customer-oriented approach. The software covered the following:

• Tracking of customer's specific stock holdings (VMI)
• Optimizing customer's orders through advanced planning and periodic analysis of stock needs of customers
• Exchanging information on stock level

MP aimed at optimising both their own supply chain and that of their customers (mostly B2B). In essence, MP created a virtual organization, characterized by openness on the supply chain from both sides. The new approach with software solution created a trusted, open relationship between the company and its customers. The information sharing helped MP organize its material requirement planning within 2 weeks. Now, MP promises to optimize the customer's stock and demand, while improving the delivery reliability. MRP (material requirement planning) is reflecting the customer's needs for the coming weeks with respect to all the products MP is offering; these are sent online to MP on a daily basis. MP then processes the incoming MRPs and thus constantly improves the match between orders, production and stock levels.

On the basis of this data exchange, MP responds to the short-term needs of customers with products available in stock (Replenishment Proposal 1). To avoid shortages, the production division of MP brings the stock back to its prior level (Replenishment Proposal 2). Finally, production takes care of the long-term needs of MP customers, based on forecasting. An important advantage of being online is the agreement on common standards between the client and MP. Thus, both sides communicate in MRP files. Since last year, MP has started using a portal Web site, where customers can log in and place their orders.

The preparation phase took about 1 year and included planning and working on proposals for how the Web portal online concept should look and when it could be operational.

They run a pilot project to test the new concept, involving the paper division of MP packaging, a very large FMCG company and one of Mask's major customers. Periodic evaluations (every 3 months) were made to reveal possible weaknesses of the system and to suggest improvements. The pilot project was successful and it was fully implemented. This resulted in reduction in the number of rush orders, while the level of accuracy with respect to production and deliveries had increased. Moreover, instead of placing separate orders for each of more than 80 different MP products, the software has to send an updated version of its MRP to MP. Stock administration on both sides was simplified, especially for the customer. Apart from some communication problems at the beginning of the pilot project, no serious difficulties emerged during the implementation process.

MP and FMCG customer were very pleased with this new way of working and decided to continue the project. After the successful start-off, MP exported this concept to the number of customers that got involved in the growing project. MP adopted a step-by-step approach to this expansion instead of pursuing strategy.

The online integration concept created a win-win situation for both parties. MP experienced significant benefits as follows:

• Reduced need for working capital
• Decrease in stock value
• Lower operating costs from simplified administrative procedures
• Enhanced views of order history
• Fewer rush orders
• Increased visibility
• Increased delivery reliability
• Reduced stock shortages

Online integration helped MP to reduce the complexity in planning production processes and linking them with the supply chain. Production divisions are now facing fewer rush orders. The number of stock shortages decreased, which means that delivery reliability increased. Stock rotation periods have gone down from more than 8 weeks to 2–4 weeks, and the need for storage capacity subsequently decreased. Holding costs decreased and working capital requirements dropped by more than 30 per cent.

Although now maintaining less stock, the company has improved service levels. Delivery reliability (time and quantity) increased from 95 per cent to 99.5 per cent. Thus, for MP online integration has become a key variable in building long-lasting relationships with customers.

Furthermore, administrative burdens decreased by about 15 per cent and resulted in a more streamlined and responsive administration. The overall cost for implementing of online integrator is small relative to the total company costs. In addition, MP reported that their overall IT total cost of ownership (TCO) had decreased from more than 1 per cent to less than 1 per cent of revenue. This is believed to be very good in comparison with the TCO performance of other companies within the packaging industry. This case study of MP illustrates the potential online technology solutions to improve SCM through trusted open exchange of data with the customer via the Internet.

REVIEW QUESTIONS

• Discuss the various supply chain problems faced by mask packaging.
• How has MP overcome the above problems?
• What is an ‘online integrator’ and how has mask packaging implemented it?