The Fine Print of Contract Packaging

Accel offers a wide range of services including hand- and semi-automated assembly, as well as gift set packaging.

Contract packaging takes on a variety of definitions, but one thing is agreed upon: As brands look to streamline their operations, suppliers that offer a diverse set of capabilities repeatedly sign on the dotted line.

Written by Steve Katz, Associate Editor

It’s been said that it’s not easy to pin down a definition of contract packaging. And while the phrase means different things to different people, one thing is clear: Those that offer these services in the beauty packaging industry are innovative and versatile suppliers, capable of meeting a portion—or all—of a brand’s packaging requirements.

Tim Budic, marketing manager for CardPak, discusses why contract packaging’s definition is difficult to articulate, noting that it changes depending upon if you are in the business of contract packaging, or just a supplier to the process or industry. “It is in general hard to define because there are so many levels to the process and those levels are always in flux… the definition could seemingly change from project to project,” he says. “Contract packaging could be synonymous with contract manufacturing, but I think that most supply chain people view the two as different.”

The consensus in the beauty industry echoes Budic’s thoughts. It seems that contract manufacturing companies are often thought of as those that handle the product itself, like formulations and blends, for example. Meanwhile, contract packaging is all about the primary and secondary packaging, as well as the assembling of gift sets, samples and other components.

The Contract Packaging Association website defines contract packaging, or more accurately, the types of services provided by its members, as follows: “Association members perform all packaging functions from the simplest to the most complex and from the glamorous to the hazardous. Members’ packaging services range from manual and semi-automatic to full-speed, high performance packaging lines.”With that said, contract packaging covers a diverse set of capabilities.

Tara Abraham, owner and co-CEO of Accel Inc., says there is a general perception that contract packaging companies focused on manual to semi-automatic solutions are small, “mom and pop” type establishments generally doing business on a project-by-project basis, and this, she adds, isn’t always the case. She says, “Over the 15 years Accel has been in business, it has tried to change how it is perceived by offering a wide range of services and technologies that showcase its ability to meet client demands.”

Accel offers a variety of packaging specialties that include hand- and semi-automated assembly, shrink wrapping/banding, thermoforming, glue tipping and flow wrapping.

And what about contract manufacturing? “We believe that manufacturing really implies primary components of the product,” Abraham says, “while packaging is a secondary process that comes after manufacturing. For example, we put together gift sets with a variety of personal care components for a client. Contract manufacturers manufacture the bottles and the various lotions and also fill the bottles with the lotion. Accel Inc. takes the filled bottles and puts together the gift sets. Once the gift sets themselves are complete, we are responsible to ensure they can withstand the rigors of shipping; our goal is to have the gift set look the same on the store shelf as it did coming off our line,” she adds.

Regardless of how exactly it’s defined, the contract packaging sector has dramatically changed over the past few years. “From a factory-driven business organized by type of commodities, it has evolved into a full-service business driven by design, innovation and supply chain management,” says Greg Mager, co-chairman and founder of Maesa.Maesa envisions the contract arena as being just one part of a more holistic approach to beauty category management. “This is a more innovative approach for an industry known to need at least 15 different factories to make one fragrance. An increasing number of beauty brands and retailers are looking for turnkey supply partners that function as an extension of their own business. This more progressive approach necessitates a fully integrated organization that can manage and control the entire process from conception to completion,” Mager says.

Brent Burdick, director of operations for Paragon Packaging, points out that contract packaging is often used for secondary packaging, whereby customer-approved components are packaged into finished products—and quality is held to the highest standards.

“This is accomplished through uniform workmanship standards utilizing the precepts of skillful examples, specifications and procedures. The concept of secondary packaging can be priceless to a variety of companies by providing the finesse of line packaging, which can extend productivity and eventually lower costs. The end result allows the customer the chance to reach their target market,” he says. For Paragon, most of its contract packaging work relates to cosmetic and personal care products such as hair care products, powders, brushes, gift set and display assembly, among others.

Strong Relationships

Strong relationships with brand owners, as well as being equipped with the right knowledge, are integral to working successfully with a contract packaging company.

“Contract packaging companies typically have a strong relationship with the customer, simply due to the understanding that they are providing multiple elements on any given project, if not the entire project,” says CardPak’s Budic.

A single supplier may have a relationship with a customer, but the scope and reach is limited to that one item being produced and supplied. “Contract packagers are not typically limited to the narrow confines of a single item, product line, or customer contact. Contract packagers also have a greater general knowledge of the customer and the project,” says Budic. “They may not be experts at any one specific aspect of the project, but their general expertise is the foundational base for a project’s success.”

Logan Wertkin, marketing and sales for Cosmetic Solutions, points out that the right partnership goes a long way in putting a brand owner’s mind at ease. “The biggest advantage of working with a contract packaging supplier is minimizing your risk. By taking the ‘manufacturing’ component away from most clients, they are free to focus on their areas of expertise while knowing their goods will be delivered,” she says.

Bringing Fresh Ideas

As is so often the case in the beauty packaging space, innovation is everything. Contract suppliers gain business when they bring fresh ideas to the client.

“The vast majority of innovations and advances in the packaging world are developed by independent contract packagers as they compete in an open, free-market,” states Margery Woodin, VP of marketing and sales for Identipak. “This is a tremendous advantage for outsourcing companies, for they are routinely presented with innovative, out-of-the-box ideas.”

A Contract Manufacturer’s Role Kolmar Laboratories is a company that would fall under the custom manufacturing heading. As more and more cosmetics brands are shutting down in-house manufacturing operations, they are outsourcing to companies like Kolmar, which prides itself on meeting all outsourcing needs. “Our reputation was built around a core competency in shade matching and color management,” says Robert Edmonds, President & CEO at Kolmar, “but the company’s capabilities extend beyond color cosmetics to creams and lotions, OTC skin treatments, dissolvable films, coated gauzes and wound dressings. Kolmar collaborates with each of its customers to create and deliver products that are unique and brand appropriate. “From complexion and skin care items to lipstick, powders and eye makeup, Kolmar blends an intimate knowledge of industry trends and product marketing with robust manufacturing processes to deliver a large share of the nation’s most successful beauty products on the market today,” Edmonds says. There are a variety of new challenges that face Kolmar today. Among them are the increasing complexity of managing global suppliers of raw materials and packaging, heightened consumer safety concerns, and increased product testing requirements. The company has adapted to overcome these challenges, utilizing its dedicated technical and regulatory team. Kolmar’s prides itself on being up to date on all of the international regulations for raw materials, and keeps current with industry requirements through participation on the Personal Care Products Council (the only custom manufacturer to hold a board seat). “Having an onsite regulatory team is a service that sets Kolmar apart from our competition and one that is greatly beneficial to our customers,” Edmonds says. In addition to manufacturing the product, another aspect of the supply chain Kolmar facilitates is the material and packaging procurement.“From securing raw materials to ordering components from the customer’s supplier, Kolmar handles all of the logistics to make the entire process as easy as possible for the client,” says Tom Calcagno, Vice President and General Manager. The requirements of the beauty industry are constantly in flux. To keep up, Kolmar has developed a series of scorecards that measure progress against operational goals, from defect rates to housekeeping audits. Explains Calcagno, “Accountability for these targets flow through separate teams that are set up across different manufacturing areas in a ‘plant-within-a-plant’ concept, and utilize shared services to optimize overall site performance. This structure and metric system allows for timely decision-making and greater ownership, as management layers have been eliminated, which ultimately leads to faster speed to market for their customers.”

Identipak is growing its services to include manufacturing of stick packs and fill of powder and larger size liquid pouching. “Although known for our detailed die-cut sachets, we have recognized there is a need for high-speed filling of larger fills, usually over 1oz. These new production lines are great for resale sachets of hair treatments, face masks, and any other beauty item that requires a multiple use dosage,” Woodin says.

Accel’s Abraham says that when a client involves Accel up front by providing initial project packaging specs, Accel will explore ways to improve upon the initial design quality, assembly speed and overall cost. “This really allows us to be proactive through innovation—rather than reactive at the end of the process without input into the design. We have engineers on staff that review the packaging and make recommendations to reduce overall packaging costs. By making the simple recommendation to move from bubble wrap to a shrink band in a pack-out, we decreased the amount of material (and environmental impact) by over 100,000 cubic feet and reduced the time at the store to unwrap finished goods for display by over 4,100 hours,” she says.

Whip Smart is a contract packaging company that is differentiating itself in the market with its ability to test and prototype products, using a state-of-the-art in-house design studio. “Smart Studios can allow a consumer to test packaging concepts with prototypes before committing to the manufacturing process,” says Mark Mondello, Whip Smart’s director of operations. The company’s capabilities in 3D renderings is making it possible for customers to bring uniformity and image consistency to their product images regardless of the end use. “Our engineering department allows clients to customize all components for manufacturing, and it can also produce models for inspection,” he says, adding, “the greatest advantage of working with a contract packaging supplier is that—as a customer—you get to be involved in the process without having to worry about the fine details. A customer can spend more time driving the bigger picture.”

CardPak showcases its green capabilities to brands, offering a wide array of paperboard packaging products and formats that include blister cards, folding cartons, clamshell inserts, sleeves, skin board, and specialty displays. The company’s primary service, however, has become its EcoLogical Line of Packaging, which Budic says is “helping to guide contract packagers to sustainable packaging concepts and solutions for their customers and to address the concerns of major retailers regarding source and material reductions, as well as recyclability requirements.”

The line consists of ClubPak, SustainPak, and ShelfPak, which offer what Budic says is breakthrough design and sustainable material usage for a variety of industries.

Versatility

The nature of contract packaging—when a brand relies on an outside supplier—makes being versatile an all-important trait. And this versatility can manifest in a number of ways: speed, cost and capabilities.

“Due to the lean company structure of most contract packagers, production lines can be set up rather quickly, additional qualified personnel can be hired within 24 hours, and processes and procedures are easily adapted,” Identipak’s Woodin says.

Turnaround time is another aspect of the supply chain that brand owners hold in high regard. With versatile, streamlined production lines in the area of experience and expertise of the contract packager, additional shifts can be implemented when necessary to increase production output to meet a specific deadline.

Woodin also emphasizes that with the experience of the contract packager in a specific style and market of manufacturing, production efficiency is usually high, thus leading to lower costs. “The overhead costs of a contract packager are significantly lower than the outsourcing company. If the contract packager is located in a geographical location where labor costs are lower, such as South Texas, this factor will show through in the bottom line,” she says.

Many contract packaging companies promote their variety of services as a major asset. “The many services that we offer are the benefit itself. In other words, what we provide can allow a critical mistake such as a canceled or delayed launch, to be corrected in a timely fashion and returned quickly to the market,” says Paragon’s Burdick.

“An Accel strength is the variety of services we offer clients,” states Tara Abraham. “Manual and semi-automatic assembly is our primary capability. However, as we worked with our clients, we began to expand those capabilities to custom thermoform trays, automatic gluing, shrink wrapping/banding and flow wrapping. Additionally, we expanded our ‘value add’ services such as package design/engineering, drop and vibration tests, shipper/inner pack design, ribbon tying, gift wrapping, as well as sourcing/procurement.”

Maesa’s Mager emphasizes the benefits of a one-supplier situation. “One vendor means one company is responsible for timeline and quality. Fully integrated design and package development greatly increases speed to market and efficiency,” he says, adding that Maesa is known for its expertise in turnkey beauty and fragrance for specialty stores.

Maesa offers the full array of services required to successfully launch a beauty brand or product. Its capabilities include branding, design, comp creation, marketing, product development, packaging development, quality control, testing, and manufacturing. “Maintaining all of these talents, expertise and services under one roof allows us to streamline the development process for our clients,” Mager says.

Educating Clients

The sometimes vague, muddled definition of contract packaging can sometimes be a roadblock to potential customers. “Perhaps the greatest notable challenge is educating customers on how wide a range of services exists within contract packaging,” says Whip Smart’s Mondello.

Abraham notes that for Accel, it can be hard to communicate its end-to-end capabilities and break away from the perception that contract packagers only provide value at the end of the process…the packaging. “Because contract packaging is so diverse, when clients think of us, they often have differing perceptions. One client may think, ‘They are that company that does our gift sets,’ while another client thinks, ‘They flow wrap our kits.’ It’s up to us to cross sell those capabilities to both current clients and potential clients; if we don’t, they won’t see the benefit of our diverse offerings.”

Communicating is critical to contract packaging success, and it’s paramount that suppliers and brand owners are on the same page.

“One challenge that we run into quite often is the unrealistic expectations of clients, which is due in part to poor planning on their end,” says Wertkin of Cosmetic Solutions. “The challenge becomes trying to align the reality of the situation with the customer’s needs and wants. And this mostly relates to lead times.

Woodin concludes, “It is very important to conduct detailed contract reviews to avoid misconceptions or assumptions that can lead to poor quality results.”

Despite the Recession

In light of the economic downturn, the contract packaging space has continued to grow. In fact, it’s been suggested that—for some—the recession’s effects have perhaps provided a boost.

“As businesses continue to look to streamline their operations, the growth of outsourcing will continue,” says Wertkin. “The recession kind of fragmented the industry a bit, as we found that many large-scale contract packagers hit tough times when their clients began to scale back their runs below MOQ (minimum order quantity). Many of the small- and medium-sized players in the industry reaped huge benefits from this and were able to experience serious growth.”

“A recession actually benefits contract packagers and manufacturers due to the fact that larger companies tend to slim down in all areas possible and in turn, increase their outsourcing to leaner companies,” says Woodin. “Simply put, in today’s economy everyone is thinking about ways to save time and money; this benefits companies like ourselves.”

If anything, the recession has forced CPG companies to reevaluate their breadth of influence, operations, and cost. “And that,” Budic says, “is where the contract packaging companies can become extremely valuable and primed for growth.”