Contract Manufacturing and Packaging September-October 2011

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Contents

September/October 2011

Features 8

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Teaming for Innovation CM&P takes an in-depth look at the creation of a product and how innovation was born out of the partnership of two companies.

Roundtable: A Matter of Trust CM&P sits down with industry experts to determine what factors can make or break a business relationship in the world of contract manufacturing.

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Point of View

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Tactics Watch: Beverages The beverage industry is becoming a healthier place.

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Special Report: Wading Through the Talent Pool CM&P takes an in-depth look into the hiring process

Raising the Bar: Lean ERP for Contract Manufacturing HBC Focus: Facial Care and Cosmetics Facial care and cosmetics are sitting pretty in an ugly economy.

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 Pitney Bowes, 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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September/October 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

Editor’s Note

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 Devon Bono Multimedia Coordinator Carolyn M. Alexander Audience Audit Coordinator

Corporate Directors John R. Schrei Publishing Rita M. Foumia Corporate Strategy Ariane Claire Marketing Vincent M. Miconi Production

elcome to another edition of Contract Manufacturing & Packaging magazine. This issue, we are putting a focus on the benefits of teamwork through partnership. As you will read in our cover story, working together can bring about not only a healthy working environment but it also can lead to award winning and innovative products that benefit both the manufacturer and the supplier. In coming issues, you will notice a greater focus on individual companies and manufacturers. In an effort to tailor the magazine to your needs, CM&P will be delving deeper into the day-to-day world of contract manufacturing. Each issue, we will feature a new company and highlight its achievements in innovation, teamwork, environmental stewardship and other areas. We invite each of you to reach out to the CM&P editorial staff so we can feature your company in an upcoming issue. This issue also discusses the vital topic of trust and business relationships. Our panel of experts deal with the details of finding the right partner and making a trusting relationship last. As always, I invite you, the reader, to reach out to the CM&P staff to let us know if there is anything you would like to see in future issues. You can contact us by the phone or via e-mail. Whether you are calling to talk about an article or want to contribute to a future issue, we always enjoy hearing from you. ||

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Lisa L. Paulus Finance Michael T. Powell Creative Nikki Smith Directories

Sincerely,

Marlene J. Witthoft Human Resources Beth A. Surowiec Clear Seas Research For subscription information or service, please contact Customer Service at: Tel. (847) 763-9534 or Fax (847) 763-9538 or e-mail [email protected]

Jordan Brandes Managing Editor CM&P Magazine

List Rental Postal contact: Kevin Collopy at 800-223-2194 x684 [email protected] Email contact: Michael Costantino at 800-223-2194 x748 [email protected] BNP Custom Media Group Christopher Wilson (248) 244-8264 [email protected]

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RAISING THE BAR

Lean ERP for Contract Manufacturing By Sean Molloy Industry Solution Principal for itelligence, inc.

ustomers of contract manufacturers want to know the exact location and condition of their products at all times. This has led to increased customer expectation for reporting, which in turn has made electronic data interchange (EDI) a necessity for new companies hoping to make an impact in contract manufacturing. In addition to its reporting capabilities, EDI also presents some subtle opportunities for savvy manufacturers. When companies pair EDI with a robust enterprise resource planning (ERP) solution, there exists an excellent opportunity to achieve true lean operations, while paving the way to integrate value-added activities into the manufacturer’s portfolio.

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ERP, EDI and Automation Everything in EDI requires double communications - if the customer sends an Advanced Shipping Notice, the manufacturer must reply with an acknowledgement. This double-entry dynamic, combined with the high volume of EDI transactions, represents the point at which doing business with larger companies begins to take its toll. Without a comprehensive ERP solution in place, a manufacturer will struggle to organize the volume of EDI messages, not to mention the task of manually creating documents for invoices, production, etc. A robust ERP system, on the other hand, differentiates between EDI messages. When receiving an advance notice of an inbound shipment of product from the customer, the ERP system will recognize the message type and, in response, automatically generate the appropriate billing, purchasing, and manufacturing documents. Every individual EDI message triggers a different response on the back end of the ERP system, creating an integrated and seamless, automated process. The manufacturer does not have to do anything on the

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technical side within the ERP solution to “link” these business transactions or to make them run. Contract manufacturers should make sure that their prospective ERP solution delivers these agreement types out of the box.

Scheduling agreements A state-of-the-art ERP solution will group related documents together in a centralized location via functionality, known as the scheduling agreement. Purchase orders are connected to production and advance shipping notices, for example, and all documents are connected to an overall customer forecast. Within scheduling agreements, information remains centralized, rather than scattered on disparate business documents isolated inside different functional modules, or outside the ERP via spreadsheets. Scheduling agreements are the one place where manufacturers can go to understand their exact progress with any given order. This centralized location proves especially useful when a discrepancy arises between customer and manufacturer inventory levels. Without a robust ERP solution, contract manufacturers cannot incorporate forecast schedules with ASN’s to automatically create production orders and line-item purchases. With a cutting-edge ERP environment, however, all these functionalities are handled within a self-contained, centrally located system of documentation. All data related to forecasts, inbound materials, production and packaging will reside within the scheduling agreement. || Sean Molloy is an industry solution principal for discrete and automotive industries at itelligence, Inc. Malloy is responsible for sales, development, quality and accreditation of vertical industry solutions.

September/October 2011

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ON THE COVER

By: Jordan Brandes

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n the world of contract manufacturing, a company is defined by the products it makes. But products do not simply appear, they are created through collaboration and creative innovation between contract manufacturers and CPGs. Take, for example, the creation of Purex Complete 3-in-1 laundry sheets, introduced nationally in 2009 by Henkel, owner of the Purex brand of laundry products, and with the non-woven equipment support from Kleen Test Products Corp., a contract manufacturer. The Purex Complete 3-in-1 laundry sheets product was awarded the 2010 Edison Best New Product Award in the consumer household goods category, industry recognition of the innovation the product brought to the laundry care market. Kleen Test normally does not disclose the products it manufactures or the names of its clients, respecting client confidentiality. However, as industry attention

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focused on the launch of Purex Complete 3-in-1 laundry sheets the second quarter of 2009 and it became an award winner, Port Washington, Wis.-based Kleen Test’s involvement in manufacturing the product became generally known and so the companies agreed to speak with Contract Manufacturing & Packaging about the product’s development.

Collaboration Henkel is a Fortune Global 500 consumer goods company that markets and manufactures laundry, home care and adhesive technologies. Henkel’s consumer products business is headquartered in Scottsdale, Ariz. Its parent company, Henkel Corporation, is based in Dusseldorf, Germany. Kleen Test has seven facilities in Wisconsin and Ohio. The two companies had worked together in the past for the manufacture of other non-woven products.

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COLLABORATING FOR INNOVATION ON THE COVER

“Henkel prepared the prototypes at their Scottsdale laboraStaff from both companies, ranging from the executive levtory, but as the project progressed, a larger number of samples el to the production floor, took part in the project. “The comwere needed to satisfy requirements for fielding consumer mitment and participation of upper management from both tests. This is the point [in 2007] when Henkel turned to companies set the tone for the entire project. We received Kleen Test,” recalls Marc Maslanka, director of process engivisits from the president of Henkel Consumer Goods and neering laundry and home care, at Henkel. other senior leaders from Henkel’s headquarters in Germany, Discussing why Henkel opted to work with Kleen Test expressing their support for the project. ” Maxon says. rather than another vendor, Maslanka says, “Kleen Test had The Henkel team also was responsible for consumer existing capability for pilot-scale non-woven coating equipresearch and product testing. Kleen Test conducted its own ment. They also had idle production-scale equipment that research for six months during the end of 2008 until the belooked suitable for the application. Henkel and Kleen Test ginning of 2009 to deal with manufacturing problems as they partnered to make samples for consumer test purposes. came up throughout the product’s creation. During this stage, the basic parameters for applying detergent and fabric softener Challenges were identified.” Henkel came to Kleen Test Products with “The project was a model for collaboraa clear idea of what it wanted. Creating tion between a CPG company and conthe final product in a way that was both tract manufacturer. The joint execution of functional and unique to the consumer developmental trials and process design took the combined creativity of both comresulted in extraordinary speed to market,” panies in order to overcome the manusays Jeff Maxon, vice president of technical facturing challenges involved. A number services and Development at Kleen Test. of technical obstacles became apparent as A joint effort from both companies the product’s creation progressed. involved a commitment to ensuring the “Two issues arose when it came time product came out as envisioned in the for the project to move from pilot scale first meeting. to production scale. First, the coating Purex Complete 3-in-1 laundry sheets technology utilized during pilot scale are a combination of laundry detergent, was determined not to be accurate fabric softener and an anti-static sheet, all enough for the line speeds desired at coated on a single sheet so that consumproduction scale. Second, the curing of ers do not have to use multiple products the detergent and fabric softener coatings while doing a load of laundry. needed to be applied at an elevated temThree separate properties are incorpoperature and then cooled. The cooling rated into the product, allowing different demands for this product were beyond functions to occur as needed. The thick Henkel’s 2009 spotlight award what is normal in the nonwovens indusblue layer includes cleaning solution for a for special acheivment given to try,” explains Maxon. single load of detergent. What remains after Kleen Test Products for its work Converting is an industry term used the washing cycle is a stripe with the fabric by companies that work in the non-woin the creation of the Purex softener and anti-static formula on it that Complete 3-in-1 laundry sheets. ven sector. A converting machine takes can be put into the dryer directly from the the base nonwoven fabric and turns it washing machine. into a finished product ready for distribution. The sheet can be found in a package that mirrors the Producing the product was much like running a printing design of the product itself. With smooth curves and bright press, says Maxon. The coatings in the product’s laundry colors, the packaging is compact and distinctive. The curve of detergent needed to be heated at the proper temperature. the box allows multiple products to be stacked alongside each Once the proper temperature had been reached the liquid other on the shelf without wasted space. was applied to the nonwoven fabric. This combination The two companies tackled a variety of manufacturing needed to be cooled and dried quickly. challenges during the project, including making sure the coatThe team at Henkel knew that a unique shape for the ing technology used for lining the sheets was done correctly laundry sheet would give the product a look that would be and finding the ideal shape for the product. identifiable with consumers on the shelf. However, design-

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ON THE COVER COLLABORATING FOR INNOVATION

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ing a process to manufacture that unique shape presented challenges with cutting, stacking and packaging at high speed, explains Ed Kosobucki, director of manufacturing at Kleen Test. “When Henkel came to us, they had only found a way to coat one part of the fabric. This is typically how most fabric softeners work. The problem was that we needed multiple coatings to do multiple things [while in the washer and dryer] across different parts of the strip,” says Kosobucki. “The specialized nature of the multiple formulas on the sheet required that specialized blending, coating, and production systems be designed and constructed. The characteristics of the detergent required a novel solution to produce a coated substrate that could be converted into a cut pad without sticking or transferring active ingredients to other sheets,” explains Maxon.

Resources Henkel chose to make use of Kleen Test’s facility in Milwaukee, Wis., which is home to many converters and converting equipment manufacturers making it the ideal

T.H.E.M. Offering Sck Pack R&D Center

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Kleen Test Products facilities in Milwaukee, Wis. place for testing. The converters that the company used included coating equipment for the chemicals and cutting and stacking equipment to make the individual sheets, explains Maslanka. Henkel brought formulation expertise to the project. In turn, Kleen Test brought its non-wovens coating and converting expertise. The company ultimately modified a number of pieces of manufacturing equipment to coat, convert and package the product, Maxon explains. “The majority of one production facility was dedicated to the creation of the Purex product. Because of the many unique features of the product, a specialized batching system had to be installed and substantial modifications made to existing coating and converting lines. Over a three-month period, from the end of 2008 into early 2009, lines had to be cleared from the plant, the batching system installed and all of the coating and converting lines either brought in from other Kleen Test facilities or substantially modified. During that time, production scale trials continued and a 24/7 crew of workers was trained,” explains Kosobucki. “Since there was not an existing product that was similar, the quality departments from both companies had to work closely together to develop the manufacturing standards and quality acceptance criteria to use on the production lines,” reacts Heyer. Cross functional teams were set up so that each team could perfect a single aspect of the product. Details like product cutting, coating and quality control were all delegated to specific teams in order to make the process run smoother and faster. “By implementing a cross-functional team with members from both companies, we were able to compress the developmental timeline by making results and progress reports available to both companies in real-time,” adds Maxon.

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COLLABORATING FOR INNOVATION ON THE COVER

“Every project is different, so there is no typical timeline. However, as you are going through the process, you just intuitively know that it is moving along quicker because the different disciplines are sitting across the table from one another and can make quick decisions versus having to work things by e-mail between people who are in different cities,” says Maxon.. Progress was tracked using project management tools, he explains. The primary communication tool was a Gantt chart (a bar chart that illustrates a project’s schedule) which was continually updated by a Kleen Test engineer and available to all of the team members. The early team was comprised of engineering, product development, marketing, package engineering quality and project management. The team expanded later to include production, planning, maintenance and transportation.

Analysis First sold nationally during the second quarter of 2009, the Purex Complete 3-in-1 laundry sheets typically sell for anywhere from $5 to $7 depending on the store and can be found in most convenient and grocery retailers throughout the country. The laundry sheets are both innovative and hold consumer appeal as both companies claim, according to supermarket industry analyst Phil Lempert, known as the Supermarket Guru. “The Purex 3-1 sheets are on target - especially for the baby boomer consumer who started to turn 65 last year - who wants easy and convenient more than anything. Over the past 10 years or so, we have seen ‘sheet’ or ‘wipe’ technology become mainstream with all consumer groups and this is just another example of brilliant household science at work,” he says. “I would expect this product to do exceptionally well, especially with

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apartment dwellers or those who have either limited space for storage or have to use public laundromats,” explains Lempert. This is, in part, due to the overall size of the package and the dual nature of the product. The 3-in-1 function of the product allows the consumer to do more with a single package compared to standard laundry products. In most cases, the average consumer must bring detergent and a separate dryer sheet in order to do a full load of laundry. As mentioned in CM&P’s online review of the product, the Purex Complete 3-in-1 laundry sheets saves the consumer the effort of using multiple items to do a load of laundry. “In addition, from a shelf space point of view, as more smaller footprint supermarkets like Fresh & Easy and Walmart are proliferating, the full aisle of laundry products will disappear to a third of what is there now, so expect a huge bonus at retail with a product that requires less space and will have high turns and higher than average mark-ups,” says Lempert. The creation of the Purex product was a learning process for both Henkel and Kleen Test. Although this was not the first time the two companies had collaborated together, the Purex product allowed both companies to address CPG and manufacturing problems in a way that emphasized strong communication and teamwork. Henkel executives agree that the teamwork gave the partners a common objective and helped manufacture the product quickly and efficiently. “Kleen Test Products was a great facilitator in driving this innovation,” says Stephen Koven, director, laundry care, at Henkel. “The earlier in the process that the marketer and manufacturer can get together, the more efficient the commercialization process will be,” explains Maxon. ||

September/October 2011

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TACTICS WATCH

Going Au natural The beverage industry is becoming a healthier place By Joanna Pelletier

he beverage industry is becoming more focused on meeting consumer demand for healthier drinks and environmentally-friendly packaging, experts tell CM&P. The change in demand results from increasing concerns about personal health and the environment, analysts say. “For health reasons, there has been a shift to alternative beverages and away from carbonated soft drinks,” says Neil Stern, senior partner of the Chicago-based research firm McMillan Dolittle LLP. The demand for better-for-you drinks has been so high that big name manufacturers like Coca-Cola have scaled down their carbonated beverage product launches by half between the second quarter of fiscal 2010 and the first quarter of fiscal 2011, according to the Mintel Group Ltd., a Chicago-based market research firm. National and private label manufacturers have instead placed greater focus on expanding the selections within their natural and organic beverage lines. For example, in 2010 PepsiCo introduced Mountain Dew Throwback and Pepsi Throwback, the natural versions of each product, to cater to the rising trend. Both have now become a permanent part of Pepsi’s product portfolio. Sales of natural and organic beverages also have increased, according to Packaged Facts, a Rockville, Md.based market research firm. Last year, sales of natural and organic beverages rose from $35.5 billion to $39 billion, allowing retailers such as Publix to further enjoy growth in its private label juice category.

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Natural and Organic “Our organic private label drinks continue to resonate well with our customers,” says Maria Borus, director of media and community relations for Publix supermarkets. “We’ve had our organic juice offerings for several years and each year the category continue to grow.” As the natural beverage category grows, stores like Fresh & Easy are taking notes and coming out with their

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own brands of natural coffees, teas and fruit juices. In addition to trying to appeal to customers on a value level, the snowballing rollout of natural products is an attempt “to look more wholesome,” says Jonathan Asher, senior vice president of the Fort Lee, N.J.-based retail consultant firm Perception Research Services.

Staying Green In addition to health concerns, consumers also are becoming more vigilant about reducing waste.. As a result, “the single serve water bottle that was the icon of chic style and

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TACTICS WATCH

fitness just a few years ago is now the symb symbol ol of evil and environmental insensitivity,” states Asher. Large and small manufacturers initially responded esponded to environmental sensitivity by using bottles ccontaining ntaining recycled plastic. Today, manufacturers are fin finding i additional dditi l ways to reduce waste. Pepsi, for instance, has reduced the amount of plastic used for its Aquafina water bottles by 30 percent, while competitors like Ice Mountain and Evian have completely transformed their bottles in the name of appealing to all that is eco-friendly. Coca-Cola also has responded to consumer demand for environmental sensitivity by integrating organic compounds into its plastic bottle formulas. Currently, bioplastic makes up 30 percent of the total material for a plastic bottle manufactured by Coca-Cola. “Over the past few months, we’ve seen several major beverage vendors incorporate percentages of recycled plastics into their packaging,” says Swenson. “Brand owners are realizing that they need to be responsible for the proper disposal of their products’ packaging and embrace extended producer responsibility.” Coke also has responded to increased eco-consciousness by selling its feature products in smaller cans. The use of smaller cans also appeals to the health-conscious, according to Asher. Natural beverages will experience growth as a result of the increased interest in personal health and wellness. Sales are expected to double from $39 billion to $78 billion by 2015, according to Packaged Facts. The ready-to-drink coffee and tea categories are expected to grow the fastest, with yogurt drinks, fruit juices and energy drinks trailing closely behind them. The emphasis on health and grab-and-go convenience, says Packaged Facts, is the largest selling point for these types of beverages. ||

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Industry At-a-Glance • From 2005 to 2010, the non-alcoholic beverage market grew 6 percent in current dollars to $50.5 billion in 2010. • Private labels continue to exert influence in the market and accounted for 21.4 percent of the total sales in FDMx in 2010. • Coffee sales grew more than 7 percent during 2008-10. • The average price of polyethylene terephthalate (PET) bottled water declined by 13 percent from 2008 to 2010. • Major vendors have begun incorporating percentages of recycled plastics into beverage packaging. • Natural beverages saw an increased growth as a result of the health and wellness trend. • The ready-to-drink coffees and tea segement is expected to grow the fastest within the category. • An emphasis on health and convenience are the strongest selling points for natural and organic beverages. Source: Mintel International, Ltd.

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HBC FOCUS: FACIAL CARE & COSMETICS

More Than Skin Deep Innovation is the key to growth in facial care offerings and cosmetics By Anne-Marie Kennedy

acial care and cosmetics are sitting pretty in an ugly economy. It’s true that most consumers like to put their best face forward even in the toughest of times. Although usually considered to be recession-proof, the skincare and cosmetics market has seen its share of struggle. But the latest reports indicate that, as the economy mends, the outlook is bright overall, with the category poised for healthy growth. “Rising consumer confidence, aggressive promotional activity and technological advances have propelled sales of cosmetics and toiletries in the United States by 2.4 percent to reach $36.5 billion in 2010 at the manufacturers’ level,” according to recently released data from Parsippany, N.J.-based research firm Kline & Company. After a slight decrease in 2009, the 2010 uptick has brought sales to above pre-recession levels. While the category is improving, it is not yet thriving. According to a report from Chicago-based research firm the Mintel Group Ltd., 27 percent of shoppers surveyed said they made replacement purchases in color cosmetics, but avoided “splurge” products in 2010, down from 33 percent in 2009. Another 39 percent of those surveyed said they actively looked for sales and tried to only buy products on sale during 2010 versus 45 percent in 2009. “Women are really starting to do their research when it comes to making cosmetic and skincare purchases. The days where favorite beauty products were simply automatic replacement purchases are gone,” notes Kat Fay, senior beauty analyst at Mintel in a recent press release. “Nearly a quarter of respondents claim to shop around more to compare prices, while 16 percent say they use the internet more to research prices and products.”

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HBC FOCUS: FACIAL CARE & COSMETICS

As shoppers continue to scrutinize their spending, venues with competitive pricing and products that provide an added value are poised for success, agrees Matthew Stych, research director for the London-based global retail analyst firm Planet Retail. “Recent years have seen a trend towards the blurring of shopping channels, with younger consumers in particular willing to purchase premium products, not just in department stores but also in drugstores, specialty stores and even via the internet or TV shopping. Mass merchandisers are also raising their game in terms of merchandising, which is presenting increased competition to drugstores in the mass segment. These shifts are driving the opportunity for private label and retailer-exclusive lines,” he says. As an example, he points to the successful development of the UK’s Boots private label No7 Protect & Perfect Intense Beauty Serum. “We expect value-seeking consumers to increasingly demand facial care products whose benefits are validated by scientific evidence,” he predicts.

Facing the issues With savvy consumers sensitive to ingredient and product claims driving the market, the biggest pressures facing contract manufacturers are often just keeping up with the demand to get high-quality, competitively-priced new products to market quickly. “More and more, the consumer is asking for natural, sustainable materials to replace the synthetic products out there,” says Ed Schack, principal of Lanoka Harbor, N.J.-based EES Cosmetics Solutions. Compiling the necessary natural, organic or sustainable materials means longer lead times and a lot of research and development to ensure that natural products perform as well as their synthetic counterparts. “Contract manufacturers have to balance what their customers want: quality, quickness and competitive pricing, and still provide the functionality. The challenge is that everyone wants everything yesterday,” he explains. “The biggest issue facing contract manufacturers is the ability to manufacture a continued stream of new products in a market that is very fast-paced with shrinking lead times. In addition, the ever-changing packaging presents challenges to manufacturers attempting to streamline operations and reduce costs through automation,” says Stan Vander Roest, manager of contract sales and finance at the Ada, Mich.-based Access Business Group. Companies are addressing these issues by developing concise policies and procedures for new product introductions. The process is continually reviewed and

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leaned-out to create the quickest and lowest cost model for product introductions, he says. “Our clients are asking for ways to shorten the new product introduction cycles, ways to reduce costs and for assistance with new product development. Consumers are asking for innovation and uncompromised quality,” Roest explains, noting that category growth will come through, “the development of new and innovative products that provide scientifically-based benefits to the end consumer.”

Super-Fruits = Super-Growth One innovation that will continue to penetrate the market is the development of products made with superfruits or super-foods, and whose product claims are backed by clinical studies. “Super-food ingredients are still prevalent, such as acai berry, olive oil, lemon juice, and green teas, as well as the focus on ‘natural’,” says Fay “but some of the higherend skin care formulations are featuring plant stem cell technologies.” Products containing super-fruits such as pomegranate, mango, coconut and sea buckthorn are as in demand as ever, notes Shack. “People are interested in the anti-oxidant/anti-inflammatory properties of these super-fruits. Consumers have a lot more information at their fingertips and have done their research.” “Because of the prolific amount of product introductions it’s safe to say that skincare is slated to grow sales,” forecasts Fay, nothing the positive growth in the category. When it comes to color cosmetics, she says, the eye segment and face makeup is expected to outpace lip product sales.

Men Go Mainstream According to data from Chicago-based research firm Euromonitor International, U.S. male consumers spent $4.8 billion on men’s grooming products in 2009. The fastest growing segment was skin care (facial cleansers, moisturizers, and exfoliants) with sales of $217 million. In other words, men’s cosmetics are no longer limited to shaving cream and after-shave. “What started this movement was that funny term that emerged a few years ago, ‘metrosexual.’ Men were given permission to no longer be hung up on purchasing skin care products and are a lot more comfortable with it,” says Schack. “All the big companies are marketing to men now.” Many men’s skin-care products are designed to perform the same function as women’s, providing SPF protection, retinol, or anti-aging properties; they’re simply packaged and marketed specifically to appeal to men. ||

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ROUNDTABLE

DEFINING BUSINESS RELATIONSHIPS

A Matter of Trust: Defining Business Relationships By: Jordan Brandes business partnership is built on a foundation of trust. Here, Contract Manufacturing & Packaging magazine experts from across the manufacturing world discuss how companies can create trust with their business partners and what factors can destroy it. Featured here are Dr. Robert Hurley, Keld Jensen and Brian Sinta. Sinta is vice president of sales and packaging at Baltimore, Md.-based marketing consultant firm Vertis Communications. He has been working in the packaging industry for more than 20 years, creating strategic client relationships with cosmetic and personal care manufacturers. Hurley is the author of the book “The Decision to Trust: How Leaders Create High-Trust Organizations.” He also is a professor of marketing and management at the Bronx, N.Y.-based Fordham University and the president of the consultant group Hurley Associates. Jensen is the managing director of the MarketWatch Centre for Negotiation in Denmark, an associate professor at Copenhagen Business School and an internationally recognized expert on negotiation and communication.

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He has written 16 books on the topics of trust, negotiation and business communication and has contributed to many mainstream news publications including the Financial Times, Bloomberg BusinessWeek, Christian Science Monitor and IndustryWeek, among others. Though they come from different backgrounds and different countries, they share many of the same views when it comes to creating a solid business relationship. “When trust is established in a business relationship, both parties are free to reveal information to the other that could improve the collective outcome of the transaction,” says Jensen. Once trust has been established between companies, both must be careful not to break it. “When a company makes a mistake without the ability to look at the root cause and implement corrective actions to avoid the same mistake in the future, a partnership will end very quickly,” explains Sinta. Collectively the forum addresses the ethics of starting, gaining and maintaining a solid business partnership. To learn more about what the forum had to say on trust, read the complete roundtable discussion beginning on the next page.

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DEFINING BUSINESS RELATIONSHIPS ROUNDTABLE

CM&P> Define trust as it applies to building a business relationship? Hurley: When we use the words “trust” or “distrust” it characterizes our relationship with another party. That party could be a person, a group, or an organization. I define trust as confident reliance on another party when there is uncertainty and vulnerability. When there is no uncertainty or vulnerability, we exchange without considering trustworthiness. But when there is risk of loss, we ask: can I trust that person or group? Distrust can be healthy and even advisable, but when present in the extreme and in the wrong situations, it corrodes the cooperative instinct. It turns collaborative exchange into a slow and anxious mess of protective maneuvers. We know from research that our beliefs and judgments about trustworthiness affect our intentions and behaviors toward others in fundamental ways. For example, if we distrust a contract manufacturer, we will monitor them more closely and perhaps even consider ending the relationship because we feel it puts us more at risk. Jensen: When you do not have a prior course of dealing with a new business partner, you have no basis upon which to assess the person’s honesty and forthrightness, their sense of fair play, or their willingness to behave in a cooperative, as opposed to a combative, manner. In Western cultures, understanding these variables is the foundation for building trust in a business or commercial context. Similar to the dynamic in a personal relationship, trust enables a business person to be comfortable enough to open himself up to risk. The risk could be financial, or it could relate to time, status, the sharing of knowledge, or making an up-front investment without knowing what the outcome will be. When trust is established in a business relationship, both parties are free to reveal information to the other that could improve the collective outcome of the transaction and to take action knowing that the other party will perform according to expectations and share in the benefits that accrue from the collaboration. Sinta: From our perspective, trust in a business relationship is formed when we maintain a brand’s equity, and consistently deliver upon that brand’s original design intent throughout the concept-to-consumer process. In other words, it is our mission for a customer to see a package on the shelf, as it was intended in the initial conceptual stages. Our brand advocacy throughout the entire process produces this result. Successfully creating communication lines between the supplier, marketer and converter ensures the

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design intent and brand emotion will flow from beginning to end, and this will ultimately build and ensure trust both upstream and downstream.

CM&P> How can a company build trust in a solid business relationship? Jensen: Historically, companies have attempted to minimize risk using tools such as legal instruments, references, track record/reputation in the industry, and published rating and ranking systems. However, business is nothing but a human interaction conducted within a commercial context. Trust begins through a relationship built between two people or a small group of people, which is then extended to the organization as a whole through representations and assurances made by the first parties who defined the dynamic. Essential ingredients to building trust are excellent communication and negotiation skills, as well as highly developed emotional intelligence. Hurley: Research shows that there are five key areas that businesses much excel at to inspire trust: 1. Alignment of Interests Before we place our trust in someone else, we weigh the question ‘How likely is this person to serve my interests?’ High trust companies make sure that their customers’ interests are well aligned with the internal incentive structures employed at the company. When the person deciding to trust and a trustee’s interests are well aligned, it’s much easier for both parties to trust. 2. Benevolent Concern - We tend to trust and feel positive affection for those who are willing to put our interests above their own—to demonstrate benevolent concern for us. Businesses that demonstrate that they care for their customers inspire trust and those which appear self-centered inspire distrust. 3. Capability - Because trust involves an assessment of how comfortable we are in relying on someone, judgments of simple competence can be paramount. We are only trustworthy to the extent that we can capably fulfill a given responsibility. Businesses that have a track record of delivering on commitments inspire trust. 4. Predictability and Integrity - At some point in the trust

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decision, the party deciding to trust asks, “How certain am I about my prediction as to how the trustee will act?” Businesses that say one thing and then do another inspire distrust. Those who establish a predictable pattern by honoring their word, inspire trust. 5. Communication - Because trust is largely a relational concept, communication is critical. Frequent and open communication can lead to trusting relationships even when other relational factors are low in trust. On the other hand, poor communication almost always leads to a tendency not to trust. Spirals of distrust often begin with miscommunication, leading to perceived betrayal that causes further impoverishment of communication and eventually ending in a state of chronic distrust. Businesses which excel at clear, open and frequent communication tend to be more trusted and are sometimes even able to create emotional bonds with those being asked to trust and can set off a virtuous cycle of trust, in which their openness induces others to open up and reciprocate with feelings of confident reliance. Sinta: We build trust when we deliver on what we promise. We’re committed to preserving brand equity, reducing time to market, and eliminating waste in the graphic lifecycle. For many of our customers, growth is directly correlated to delivering new products to market before their competition. If they’re delayed or don’t uphold the brand’s integrity, we’re inhibiting growth and ultimately betraying their trust.

CM&P> Does it matter how long a company has been around in business when it comes to the issue of trust? Are newer companies considered more or less trust worthy when searching for a business partner? Jensen: Companies that have a positive track record with employees, customers, suppliers and strategic partners form a strong foundation of credibility and trust. In a way, trust becomes an aspect of their brand. Since newer companies have a limited track record, they may be perceived as being less trustworthy or riskier to deal with. However, trust is built on the shoulders of the current executive team and front-line managers who define the cultural values of the organization. Trust, like love, many people say, is difficult to develop and easy to lose. It can be destroyed in a heartbeat, and then it is almost impossible to rebuild. At the end of the day, what matters are the people, not the corporations. Hurley: It is always the case that skepticism meets the new company on the block. The famous example of this

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was when Hewlett Packard was just starting, they labeled their initial product the “HP200” not HP1 because they thought it would make them seem like a more established company. In risky situations, trust requires a track record and absent that, new firms must take extra steps to build trust and credibility. Because these new companies may be short on proven capability and predictability, they often have to go beyond other firms on benevolence, communication and alignment of interests. Early on these fledgling firms need to over-deliver in order to establish credibility and trust. Sinta: No. Today, building trust requires innovative approaches to preserving brand equity and getting products to market. Many companies that have been around longer are set in their ways; they don’t use innovative methods to preserve the original design intent, and get products to market sooner. Younger companies are often leveraging new technologies, and more innovative solutions to achieve these results.

CM&P> What criteria goes into building trust, both short-term and long-term, in a partnership with a contract manufacturer? Jensen: Short-term trust is a pre-condition for long-term trust, and they are directly proportional to each other. The criteria for establishing trust will vary on a case-by-case basis and are entirely dependent on what the business partner is looking for. For some, it may be as simple as meeting contractual commitments such as delivery time and quality control. For others, it may go far beyond satisfying the needs of the contract. For them it may be dependent on the pro-activity of the partner, frequency and effectiveness of communication, depth of experience, financial stability, and overall objectives and goals of the company. However, there are always a number of behaviors that are guaranteed to destroy trust — these include lying, deception, misrepresentation, hostile negotiation strategies and spying. Hurley: There are some basic criteria but companies that are really good at establishing trust go even further to understand how different suppliers weigh different trust criteria. They don’t just assume that every supplier takes the same path to trust. Some basic questions that suppliers ask are: • Does the contract manufacturer reliably do what they say they will do (capability and predictability) • Do they understand our needs and try their best to

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DEFINING BUSINESS RELATIONSHIPS ROUNDTABLE

“Business is nothing but a human interaction conducted within a commercial context.” – Keld Jensen

meet our needs (communication and benevolent concern). • Do they communicate with openness and transparency (communication and integrity)? • When our interests conflict how do they resolve the issue in a fair way (alignment of interests, benevolence)? Sinta: We believe short-term trust is built on a project-by-project basis, so, again, ensuring brand equity, maintaining efficiency and delivering on intentions from concept to the consumer. Long-term trust is about taking care of a client when things don’t turn out as planned. Resolving a bad situation and fixing what went wrong, instead of falling back on a limitation of liability clause in your agreement, will help build long-term trust.

CM&P> What actions can end a partnership with a contract manufacturer? Jensen: From an internal perspective, there are a number of factors that can contribute to a partnership falling apart. These include dishonesty, lack of communication, failure to meet contractual obligations, distrust, the inability to collaborate and work together creatively, changing the rules midstream, withholding important information, creating an imbalance of rights and responsibilities, issuing threats and indulging in other combative or unfair tactics, and being greedy when the benefits begin to roll in. In the end, it is the human factor which matters the most to the success or failure of the business relationship. Hurley: Failure to honor one’s word and a loss of confidence due to a failure to deliver in a mission-critical area will often cause a loss of trust and an end to the relationship. Trust can be repaired but it requires a good deal of effort because it involves changing certain perceptions of trustworthiness back to the pre-trust violation levels. Real reforms and real demonstration of trustworthiness over time are required. Sinta: Mistakes will undoubtedly end a partnership. When a company makes a mistake without the ability to look at the root cause and implement corrective actions to avoid the same mistake in the future, a partnership will end very quickly.

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CM&P> A good partnership goes both ways, what can a CPG company do to gain the trust of a contract manufacturer? Jensen: First and foremost, it begins with respect. This entails respect for both the manufacturer as an organization and the representative of the manufacturer as an individual. It also includes respect for the contractual commitments and the negotiation process itself. Other key factors include openness, honesty and good communication skills, such as being an empathetic listener and being able to deliver messages effectively. Demonstrating an understanding of the other party’s position and a willingness to listen to their concerns goes a long way to building trust in this context. Indicating a willingness to meet their demands halfway in exchange for something in return can advance the relationship. Showing the other party that there is much to be gained through a spirit of cooperation and that both parties can actually realize more from the transaction if they work together also fosters a trusting relationship. Trust is a relationship, and if a person is not able to communicate it first, and then get it back in return, it is worth almost nothing. Hurley: Trust and distrust are contagious. When a supplier enters into the relationship with a contract manufacturer with a trusting orientation, it tends to induce this same orientation in the contract manufacturer. The opposite is also trust. When a supplier begs with suspicion and no trust, it teaches its partners to do the same. When suppliers model the five key dimensions of trustworthiness (alignment of interest, benevolence, capability, predictability and integrity and communication) it increases the odds that the contract manufacturer will reciprocate with like behaviors. Sinta: In many industries, companies today are doing twice as much with a fraction of the staff. We find that people are generally looking for partners that will step up and lead rather than waiting to be led. They can gain our trust when they allow us to direct them in areas such as new technologies and different approaches to workflow. We find trust being built when companies aren’t overly controlling and are open to hearing and implementing new methods and approaches that will ultimately lead to revenue and successful business. ||

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HR MANAGEMENT

Wading Through the Talent Pool CM&P takes an in-depth look at the hiring process By: Jordan Brandes company is only as good as its employees and when it comes time to bring in new talent, the experts agree, the process must be done right. At a contract manufacturer the human resource department is designed to help you and your company in its task of finding new talent in the workplace. In order to make sure that your company hires the best professionals in the marketplace, both manufacturers and the human resources department must work together. Knowing the role of the HR department can help the process of bringing in new talent run smoother and faster. “Human resources exists to achieve the organization’s goals and objectives. The unique knowledge, skills

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and abilities of a company’s human capital relates to an employer’s competitive advantage and advances the organization forward. The idea is that there is a correlation between the functions of human resources and the company’s performance. Therefore, the human resources operation must be in concert with the overall business strategy,” explains Christina Stovall, director of the human resources services center at Euless, Texas-based outsourcing firm Odyssey OneSource.

HR and Management When it comes to the hiring process, there are two factions at work: human resources and management. “In a well-oiled company, they should work hand-in-hand with everything coordinated by human resources to make sure the process runs smoothly,” says Schroeder. Ideally, human resources will design the entire process from job description and identifying the final candidates to making an offer and integrating the employee into the company, states Wienick.

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HR MANAGEMENT

“As an internal function of an organization, human resource management entails the decisions, policies, practices and actions for the entire employee lifecycle. In practice, it can be everything from workforce planning, integrating candidates, and managing performance to properly exiting employees,” says Stovall.

Who Decides Before a company can begin the search for a good candidate, whether it is looking for a chief executive or a line manager, the first step is clearly defining what the position entails. “This depends on the size of the company and the position it is looking to fill,” says Beth Schroeder, general counsel at the Los Angeles-based law firm Silver & Freedman. “Usually it takes a handful of people to define the role they are looking to fill. They must look at what has worked in the past and see how it can be applied to the current position.” That is where human resources comes in, accessing the current situation and creating the definition for both the role they are looking to fill and who needs to be present in order to achieve goal. Another key factor is whether or not the company has decided to conduct the hiring process in-house or through an outside firm. “There are a variety of ways a company can fill a position,” says Schroeder, “if [it] decides to conduct the process in-house, then it will most likely use its own human resources department. If it decides to hire from outside, the company can talk to a recruiter or even a trade association to help with the process. Many do not realize that trade associations are great when looking for new hires.” The human resources department would take the helm of this side of the project, coordinating with the outside company to make sure each step of the hiring process is taken care of in accordance with a company’s guidelines.

The Interview While the experts admit that every company approaches the hiring process in a different fashion, there are a few steps which are universal, such as sitting down for an interview. The interview can last anywhere from a few minutes to a few hours depending on how rigorous a process the HR staff has planned. After going before a panel of interviewers consisting of HR representatives, managers and employees that will most likely be working with the interviewee in the future, the potential candidates can be evaluated a number of ways, including psychologically and, in some cases, physically if the job demands heavy labor. “You want to make sure that the person you are

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Top Employee Interview Questions Although much of the talent management process involves planning both before and after a new employee is hired the interview itself is fundamental. Below you will find some common questions that can be used during the interview of a manufacturer or anyone else with technical expertise: 1. Describe a critical system or program for which you acted as the primary developer and tell me how that system, program, or process is being used? 2. Describe for me a situation where you were required to gather a large amount of data, to analyze it objectively and to make a decision or a recommendation based on the results. 3. Describe a time when you had to build a collaborative relationship either within your department or outside in order to achieve a particular goal. What steps did you take to ensure this was a success? Source: http://www.blueskyinterviews.co.uk

interviewing will know how to react in certain situations on the job,” explains Wienick. Often times the tests are written and contain questions meant to gauge how a candidate would respond both as a leader and a general employee. Like a square peg in a round hole, even if an employee interviews well they may not have the right skills for the task at hand. Not all companies agree with the use of psychological testing in determining the right employee. “You can never test without running it by a lawyer first,” says Schroeder. Some questions may not be appropriate for the position and others may be unethical, she explains. “A good interview and a good background check can usually tell you more about a person than a psychological test,” states Schroeder. A Google search can give you insight into a potential candidate as well. “People lie on resumes all the time, make sure to be thorough.” Googling a job applicant can show you information about their past that they might not want to tell you during the

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interview, like showing up in the police blotter or being a part of a job not listed on their resume.

The Hiring Process The process of bringing on a new employee can take anywhere from a few days to six months depending on the position, says Mitch Wienick, president and chief

executive officer of the Wayne, Pa.-based career coaching firm Kelleher Associates. “Companies have become more calculating and scrupulous in the hiring process over the past decade. Since hiring someone usually takes multiple people and multiple candidates, you have to coordinate around everyone’s schedules, allowing them time to work and, in some cases, travel during the whole process.”

The Talent Pool Experts agree that the talent pool is still plentiful with people looking for their ideal job. “There has been a lot of movement in the industry, far more than five years ago,” says Schroeder. “During the recession many people lost their jobs and some of those that are employed are not in the job they would like, many are looking for that ideal job again.” The recession has left a lot of great talent on the market, agrees Wienick. “Not everyone has fully recovered from the recession but now that the marketplace is beginning to recover you will see a lot of movement this year,” explains Schroeder.

Sealing the Deal Once the final candidates have been chosen if a third party service has been used they will leave it up to the HR to close the deal. This involves making an offer and negotiating salary. Much of this is done exclusively by the HR staff, although management can help the process along by speaking with the candidate directly, say the experts. Often times, a candidate will speak with his or her future boss to ease in the transition from interviewee to employee. ||

AD INDEX COMPANY Access Business Group, Contract Sales Celsis International The Scoular Company T.H.E.M. Tower Laboratories Ltd.

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