Packaging Buying Process: It s a New World

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Archibald Holland
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1 Packaging Buying Process: It s a New World Presented by: Philip G. Kuehl, Ph.D. Senior Staff Consultant Westat May 13, 2003 BWI Marriott Hotel

2 Introduction: This PMMI survey used data collected in April 2003 from 194 machinery purchasers to provide customer insights on four major subject areas 1. Obtain profile data on machinery purchasers. 2. Identify machinery purchasing team characteristics. 3. Define machinery process trends. 4. Assess criteria for machinery and manufacturer evaluations.

3 Respondent Profile Data: Respondents have significant packaging machinery purchasing process roles, hold many different job titles though some engineering related title is frequently found, and are seasoned veterans in their employer organizations and in the industry Primary roles of respondents in the machinery purchasing process: 51% are in purchaser/final say roles 41% are in specifier/recommender roles 37 job titles were given by respondents with the most frequently mentioned shown below: Job Title Percent Packaging engineer 14 Project engineer 11 Engineer 8 Purchasing manager/director/agent 8 Plant engineer/manager/director 7 Engineering supervisor/director/manager 6 Vice president 6 Respondents have a job tenure with their employer of 7 years and have been involved in packaging for 6 years.

4 More Respondent Profile Data: Four major packaging industry customer segments are represented by respondents and a spectrum of different sized companies employ respondents Major packaging industry customer segments are represented by respondents: Customer Segments Percent Foods 28 Beverages 20 Pharmaceuticals 28 Personal care 16 Other 9 Respondents work in a spectrum of different customer companies based on sales volume: Company Sales Volume Percent Less than $200 ML 27 $200 ML to less than $1 BL 17 $1 BL to less than $5 BL 24 $5 BL and over 32

5 Machinery Purchase Process Roles: Respondents are frequently involved in a variety of different machinery category purchases for their companies Machinery Purchase Categories: Some Respondent Involvement Equipment for primary packaging functions like Percent forming, filling, capping, wrapping, and sealing 93 Labeling, coding, and marking equipment 91 Cartoning and case packing equipment 90 Conveying, feeding, orienting, placing, and related equipment 87 Inspecting, detecting, and checkweighing equipment 83 Shrink packaging equipment 78 Palletizing-utilizing related equipment 71 Skin/blister packaging equipment 36 Converting equipment 30

6 More Machinery Purchase Process Roles: However, respondents are most frequently involved in purchasing processes for one major machinery category Machinery Purchase Categories: Most Frequent Respondent Involvement Percent Equipment for primary packaging functions like forming, filling, capping, wrapping, and sealing 58 Cartoning and case packing equipment 11 Labeling, coding, and marking equipment 6 Conveying, feeding, orienting, placing, and related equipment 5 Inspecting, detecting, and checkweighing equipment 4 Shrink packaging equipment 2 Palletizing-utilizing related equipment 2 Skin/blister packaging equipment 5 Converting equipment 1

7 Purchase Process Teams: A strong majority of respondents work with purchasing teams but the same team is not necessarily used on a consistent basis across industry customer segments or employer sales volumes 74% of respondents work with a purchasing team at their location when packaging machinery purchases are made by their employers The composition of the purchasing team varies by industry customer segment and company size: Purchase Teams Same Team Different Team All respondents 58% 42% Industry Customer Segment: Food Beverages Pharmaceuticals Personal care Customer Sales Volume: Less than $100 ML $200 ML to less than $1 BL $1 BL to less than $5 BL $5 BL and over 40 56

8 More on Purchase Process Teams: Respondents in all customer segments and company sizes work with machinery purchasing teams that are well-defined Four to five persons sit on a typical machinery purchasing team and this does not vary by industry customer segment or company size The following individuals usually sit on packaging machinery purchasing teams: All Purchase Process Team Composition Respondents Plant/process/production engineering 82% Plant management 63 Maintenance 63 Purchasing 56 Process/production management 51 Corporate management 50 Packaging design 42 Plant/process/production engineering personnel frequently chair the purchase process team

9 More on Purchase Process Teams: 59% of respondents indicate that decisions move from their plant to division/corporate levels at threshold pricing points that vary across industry customer segment, customer sales volume, and purchases of machinery at a respondent s location Threshold Price Level (plant to ) Division Corporate All respondents $ 50K $250K Industry Customer Segment: Food 10K 50K Beverages 25K 500K Pharmaceuticals 100K 625K Personal care 95K 100K Customer Sales Volume: Less than $200 ML 5K 50K $200 ML to less than $1 BL 5K 72.5K $1 BL to less than $5 BL 75K 250K $5 BL and over 100K 500K Machinery Purchases at Respondent s Location: $250K and under 5K 50K $251K to $2 ML 100K 250K $Over $2 ML 162K 500K

10 More on Purchase Process Teams: Total machinery purchase activity at a respondent s location varies by industry customer segment and company size Purchase Activity All Respondents Primary Pkg Functions Carton-Case Packing All respondents $1 ML $1 ML $.5 ML Industry Customer Segment: Food 1 ML 1 ML.15 ML Beverages 1 ML.75 ML.8 ML Pharmaceuticals.6 ML 1.5 ML.5 ML Personal care 1 ML 2 ML.8 ML Customer Sales Volume: Less than $200 ML.25 ML.25 ML.15 ML $200 ML to less than $1 BL.75 ML.75 ML.35 ML $1 BL to less than $5 BL 2.2 ML 1.75 ML 1.75 ML $5 BL and over 2 ML 5 ML.5 ML

11 More on Purchase Process Teams: Respondents in all industry customer segments and company sizes tend to identify the difficulty of purchase process steps into three categories 1. Purchase process teams in all industry customer segments and company sizes usually find it very easy to: Work with manufacturers that were selected during production and installation. Gain agreement from process participants to negotiate a final contract. 2. Purchase process teams in all industry customer segments and company sizes usually find it moderately easy to: Identify manufacturers for fulfillment of specifications. Conduct and complete acceptance testing.

12 More on Purchase Process Teams: Purchase process characteristics (Continued) 3. Purchase process teams usually find it moderately difficult to: Gain final management approval to place the order. Identify training, technical support, and follow-up services needed for machinery applications. Identify technical and engineering specifications. Establish criteria to evaluate technical, financial, and other bid provisions.

13 Use of Consultants, Integrators, and OEMs: Respondents, in overall terms, are frequently using OEM manufacturers in integrator roles Overall Customer Use Use consultants/engineering firms for engineering/project management without assembly or manufacturing services 35 Use integrators that provide engineering, project management and assembly services 40 Use OEM manufacturers that accept responsibility to integrate other equipment

14 More on the Use of Consultants, Integrators, and OEMs: Use of OEMs in integration roles varies by industry customer segment, customer sales volume, and machinery purchase activity at a respondent s location Industry Customer Segment: Food Beverages Pharmaceuticals Personal care Customer Sales Volume: Less than $200 ML $200 ML to less than $1 BL $1 BL to less than $5 BL $5 BL and over Machinery Purchases at Respondent s Location $250K and under $250K to $2 ML Over $2 ML OEMs Integrators Consulting and engineering firms

15 OEMs Outperform Integrators: Respondents confirm that OEMs, when used as integrators, are viewed to almost universally provide higher levels of customer satisfaction than non-oem integrators Overall Industry Customer Segment Food Beverages Pharmaceuticals Personal care Customer Sales Volume Less than $200 ML $200 ML to less than $1 BL $1 BL to less than $5 BL $5 BL and over Machinery Purchases at Respondent s Location $250K and under $250K to $2 ML Over $2 ML OEMs Integrators

16 Purchasing Process Changes in the Past and at Present: Respondents in all industry customer segments and company sizes confirm that five major purchasing process changes are already in-place Purchasing Process Changes In-place at Present 1. Using manufacturers who know our business, needs, and metrics Purchasing process simplification using fewer manufacturers and centralized processes 3. Using more customized packaging machinery Compressing purchasing process time to save time and money 5. Using contract packagers as an outsourcing strategy

17 Some Movement Toward Process Change: Respondents in all industry customer segments and company size suggest that some movement toward six purchasing process changes is occurring at present 1. Limited machinery customization and low costs-service requirements produce commodity mentality. 2. Purchase processes influenced by governmental policies and regulations. 3. Engineering focus to finance, operations, marketing and purchasing orientation. 4. Right-downsizing of technical and engineering staff shifts functions to manufacturers. 5. Loyalty to manufacturer diminishes as price becomes more important. 6. Purchaser seeks OEM vendors to engineer, manage, and integrate all components.

18 Limited or No Movement in Process Change Toward: Respondents do not feel that packaging machinery purchase processes are presently moving or will move in three directions in the future 1. Fewer purchasing decisions at plant vis-à-vis corporate level. 2. Machinery leasing strategies to finance purchases. 3. Use of reverse auctions in packaging machinery purchasing.

19 Internet Interface in Purchasing Process: A majority of respondents are using the Internet in their purchase process roles and identify six major impacts of their Internet usage 52% of respondents frequently use Internet as part of their purchase process roles The Internet is impacting the purchase of packaging in six major ways 1. Enables better machinery purchases. 2. Manufacturer web sites are valuable and important Reduces reliance on trade publications. 4. Results in compression of purchase cycle Reduces reliance on sales personnel during cycle. 6. Reduces reliance on trade shows to gain information

20 Financial Criteria for Purchase of Capital Equipment: Respondents almost universally use ROI as the overall decision-making criteria for capital equipment purchases Rank Order ROI -- Return on Investment 90 ROA -- Return on Assets 39 ROCE -- Return on Capital Employed 24 Other Criteria

21 Highly Important Factors in Machinery Purchases: Respondents in all industry customer segments and company sizes feel that four interrelated factors drive most machinery purchases as determinant attributes: (1) reliability and throughout and (2) safety features and machine design Rank Order of Factors* 1. Reliability (up vs. downtime) 2. Throughput 3. Safety features 4. Machine design 5. Change over time 6. Ergonomics 7. Total cost of machine operation 8. Flexibility (handle range of size and shape) 9. Purchase price Definitely Important Important *Factors like machine delivery time, simplicity, machine diagnostics, and machine footprint are unimportant.

22 Highly Important Factors in Evaluating Manufacturers: Respondents in all industry customer segments and company sizes evaluate machinery manufacturers using five major criteria Rank Order of Factors 1. Problem solving/engineering expertise Spare parts availability Important 3. Training and documentation Very Important 4. After market sales support Overall reputation

23 Secondary Factors* in Evaluating Manufacturers: Respondents feel that five additional factors somewhat contribute to their evaluations of machinery manufacturers 1. Knowledge of buyer s business 2. Local access to technical and engineering services 3. Knowledgeable sales personnel 4. Integration expertise 5. Installation capability *Factors like length in business, financial growth, information access, industry references, site visits, U.S.-Canadian ownership are not factors respondents use to evaluate manufacturers.

24 Conclusions and Implications: Packaging machinery manufacturers should consider these factors as customer-driven strategies are developed and implemented Confirm or challenge these survey results based upon your company s experience. Recognize that a variety of different job titles identify key purchasing process participants so broaden your contacts and relationships in customer organizations. Note that process participants are involved in many types of machinery purchasing processes so crossselling opportunities should be pursued by your company. Identify the composition of customer purchase process teams and speak their language or address their expectations in your marketing strategies and proposals.

25 More Conclusions and Implications: For strategy development and implementation Understand that decision-making levels are correlated with machinery prices so multi-level appeals, at plant location, division, and corporate levels, must be incorporated into sales strategies and proposals. Assist purchasing teams to establish business and technical criteria needed to gain management approval. Develop and embrace integration strategies to leverage your product line coverage and build additional customer value and relationships.

26 More Conclusions and Implications: For strategy development and implementation Recognize current and ongoing changes in customer marketing processes. Identify and fully address customer requirements and metrics. Work with customers to simplify the purchase process. Create rational value-adds through cost-effective customization. Work with customers to compress purchase process time and expenses. Structure and implement strategies to capture contract packaging prospects.

27 More Conclusions and Implications: For strategy development and implementation Integrate and highlight Internet strategies as a key component of your marketing plans and customer services. Provide and constantly communicate two sets of determinant attributes because these drive customer purchasing processes for your machinery. Reliability and safety. Throughput and design.

28 More Conclusions and Implications: For strategy development and implementation Be a value-adder and solutions provider through your competencies and resources in the following areas. Expertise in design engineering to meet customer needs and specifications in a unique manner Spare parts availability to reinforce awareness of your customer commitment Training for high performance operation by customer Service availability to reduce customer down-time costs and other negative impacts Your reputation as a dependable and customer driven manufacturer.

29 Create Your Competitive Advantage by Understanding Customer Requirements and Their Purchasing Processes "If you don't have a competitive advantage don't compete." Jack Welch

PACKAGING TRENDS. The challenge of market, material and machinery advances. Presented by Ben Miyares, Vice President, Industry Relations

PACKAGING TRENDS. The challenge of market, material and machinery advances. Presented by Ben Miyares, Vice President, Industry Relations PACKAGING TRENDS The challenge of market, material and machinery advances Presented by Ben Miyares, Vice President, Industry Relations PACKAGING MACHINERY MANUFACTURERS INSTITUTE www.pmmi.org The leading