The Role of Contract Packaging

Being able to offer marketers a variety of services—from filling and sealing, to shrink-wrapping and packout—is a growing strategy for packaging suppliers.

By Janet Herlihy, Editor

Defining Contract Packaging is a lot like defining art. People have a hard time putting it in words, but they know it when they see it—or think they do.

What Cosmetic Packaging & Design discovered as we tried to build a definition is that the term means different things to different people. For some, it is a menu of services having strictly to do with taking a finished product (any type of consumer good) and getting it ready to be shipped out to a distribution center or even direct to retail.

For the cosmetics, fragrance and personal care market, it can be a company that fills a container for a brand marketer and then handles getting the product through to pack out.

Packaging Specialists Specialize in Packing

Market Resource Packaging LLC (MRP), which defines itself as a “supplier of contract packaging services,” is a packaging specialist (not to be confused with companies that manufacture packaging/components).

MRP has over 10-years’ experience, offering a menu of services including: high-speed shrink wrapping; shrink banding; overwrapping; vertical bagging; hand/kit assembly; value packs; P.O.P. display design and assembly; bundle wrapping; glue tipping and much more.
John Del Mauro, chief executive of MRP, said that he and Joe Jaruszewski, company president, purchased the business, based in Cranbury, NJ, three years ago. Active mainly in the cosmetics and personal care, food and pharmaceuticals markets, MRP is beginning to see activity pick up and the size of projects increase after something of a slowdown since the second quarter of 2002.

“We call ourselves ‘secondary packagers,’” explained Del Mauro. “Product comes to us in some sort of a primary package and we take the items into the final pack out stage.”

MRP is also involved in placing items in gift sets or other boxes, such as the separate pieces that go into hair color sets. “We can design, procure, assemble and load product into P.O.P. displays,” Del Mauro noted, adding, “More and more retailers don’t want to have to do anything more than take the shroud off and put the display in place.”

MRP offers its services from a 300,000 square foot facility that runs around the clock, five days a week. “We have about 1000 employees that are casual laborers because the flow of work fluctuates.”

Staffing is one major advantage contract packagers offer, according to Del Mauro. “If a manufacturer wanted to do the work in-house, they would have to maintain a staff, regardless of day-to-day needs.”

The manufacturer would also have to invest in the specialized machinery that MRP has that can handle shrink wrapping, cartoning, high speed labeling, etc. “More clients are moving to organizations that can supply full turnkey services,” Del Mauro added.

Contract Packaging in the HBA Business

A contract packer is a company that buys or makes a container or package, fills that package with whatever necessary and then completes whatever processes needed to end up with a finished product ready to be distributed, according to James Thorpe, managing director of London-based HCT Europe. HCT offers those kinds of services and can fill and label a container in addition to supplying the empty container.

“Full-service is the buzz word,” Thorpe said. “Whichever company can provide the work quickly and cost-effectively can do it. The traditional suppliers are all competing against each other on some projects even while they are working together on other projects.”

“The current definition of a contract packager is a company that fills containers with bulk,” said Keith Strope, president and chief executive officer of TricorBraun, St. Louis, MO. “The company may or may not make the container and/or the bulk. It is the act of filling that makes it a contract packager. At the end of the day, the customer gets a finished product,” Strope said.

TricorBraun is not a contract packager, according to Strope, because what the company does is “provide outsource package solutions. Starting with design services where packaging can be created if so desired, TricorBraun provides a complete, empty container. The empty container then goes to the marketer or contract packager to be filled. TricorBraun will often invest in a mold and place the mold with a manufacturing company for a specific customer, but does no package manufacturing or filling itself.

There’s Filling and Then There’s Filling

There’s filling a primary container with some sort of bulk, and there’s also filling a secondary container with finished products. Edward Friedhoff, president of Flex Products, Carlstadt, NJ, explained that the company will provide standard plastic packages (as either primary or secondary containers), alter a stock package to satisfy customer requirements or create a custom container, and then do whatever fulfillment is required. For example, CVS needed a clear plastic box to hold its Perennials fragrance bottle, which features a slim silhouette and a petal-like cap. Flex Products made a container with a custom base to hold the bottle securely in an upright position and then placed the bottles inside the containers. A project for Revlon involved creating a slim plastic box to hold Wet/Dry Eyeliner pencil. The box was designed with a cap and base, each formed to hold the pencil in place. The company placed each pencil in a box and then packed three boxes in a cardboard carton, which in turn was packed in a larger box for shipment.

“Companies are trying to be innovative,” said Friedhoff. “We do the packaging as an add-on service. When a product has multiple components, a marketer might have to ship parts all over. But freight is expensive and they can have the work done in a central location. Companies are also asking suppliers to reduce costs without losing value, so we try to offer alternatives that might cost less.”

Why and What to Outsource?

The outsourcing of such operations as design, package manufacturing, filling and packing, is on the increase, according to TricorBraun’s Strope. He said, “Companies are tending to focus on what they do best, so marketers are focusing on marketing their products. Some are even outsourcing things like payroll. More are outsourcing research and development as well as packaging and filling.”

Advantages to the marketers are mainly that they are able to concentrate on their core competencies, but there may also be cost advantages too. For some marketers, outsource providers can offer economies of scale that the marketers don’t have access to internally.
Using contract packaging services also enables the marketer to be very flexible, because they don’t have to invest in the plants, people and machinery for manufacturing a particular product, according to Duncan Coopland, vice president of sales and marketing for Body Blue, a Canadian contract manufacturer and packer. “Particularly now, with product life much shorter, it’s not economically feasible to set up manufacturing for a product that may only be in the line a year or two. It’s better for marketers to use companies that specialize in the manufacturing they need.”

DMI, Wharton, NJ, is a full service contract manufacturer, which also provides a full range of packaging options filling lipsticks, lip glosses, tubes, jars, bottles and all types of hot pour products.

In answer to the demand, DMI offers turnkey services. “We can provide the primary component as well as any packaging option our customer may want, such as blister carding and display units,” explained Nancy Duvinsky, DMI’s director of marketing and business development.

Duvinsky agreed that Contract Packagers give the marketer flexibility to use company resources effectively. “A program that is in and out for the marketer may be a drain on their resources, but DMI is there ready and staffed to run with these programs,” Duvinsky said. “A contract packager may have expertise that a marketer does not. In the case of DMI, we are the largest stretch packing company in the world.”

Many companies that have been strictly contract manufacturers are adding packaging services, according to Sharon Garment, senior vice president cosmetic development of Cosmetech Mably Interna­tional (CMI), a division of the Techpack Group. Tradition­ally, those companies made formulations according to the customer’s specifications and filled that formula into a package/container, then packed the filled containers to be sent to the customer. Now, these companies are adding more and more contract packaging services to their capabilities in order to satisfy their customer’s requests. Being able to shrink wrap, place tamper-evident devices and create and ship point-of-purchase displays are just some of the packaging duties contract manufacturers are taking on.

Contract manufacturers are also being called upon to acquire the necessary components of packaging—jars, compacts, lipstick tubes, etc.—rather than simply receive and fill them.

CMI is now offering to coordinate a beauty project, start to finish. Not only will it supply the packaging, but it will also take care of all the other aspects, from initial design, product development and formulation to filling, sealing and pack-out. Rather than building plants to provide all the additional operations, CMI is forming strategic alliances with contract manufacturers and fillers based on its clients’ needs and cost efficiencies.

“Each project has to be analyzed carefully to determine the most logical, cost effective way to handle the process from where the package is made, to where the bulk is made, to where the filling as well as whatever packaging services will be done. There are nuances in contract manufacturing and contract filling. Some take on projects from small,independent marketers, others only work for the majors. It’s important to do the homework to find out exactly what a customer wants and needs.”

For the large, multinational marketers, it is usually more cost-effective to farm out the products that require smaller volumes than to tie up their own manufacturing with them. The marketer will turn to a specialist contract manufacturer who can develop whatever is necessary to produce the product.

Some Containers Require Contract Packaging

Certain suppliers, especially those that manufacture various sampling systems and unit dose containers, are contract packagers because the container is filled in line as the container is made.

Marietta Corp., which manufactures bar soap and produces hotel amenities, also supplies flexible packet samples and thermoforms. The company fills liquids, gels and lotions into retail and sample size bottles, jars, tubes, packets and thermoforms. Marietta is FDA Registered and GMP Compliant.

In addition to producing a variety of unit dose packages, Unette, based in Wharton, NJ, specializes in the filling of liquid, cream and paste products into their own single-use tubes, which are available in a range of films, including multi-layer polyethylene structures, Saran and laminated foil.

The company also offers contract filling of plastic bottles, tubes and jars of virtually any shape and size ranging from three to 300cc, and prides itself in meeting the challenge of handling unusual or difficult bottles, caps and labels. “We are contract packagers in that we can take the pieces, fill them, put the cap on, put the label on and then package or pack it up and send it off,” said Joseph Hark, company president.

The company began offering contract packaging in the 1980s and now those services make up about half its business, according to Hark. “We have recently expanded our capacity to maintain short lead times, while maintaining high quality. Contract packaging is growing as a means to control costs in these uncertain times. With the economy in a stall, some of the larger companies have put expansion projects on hold, and have turned to contract packagers to help meet requirements for additional capacity.”

James Alexander Corp. specializes in manufacturing unit dose ampoules that by their very nature must be filled and sealed in line. Francesca Fazzolari, company president, explained that she considers the entire process of making the ampoules, filling, sealing and printing them to be “contract packaging.” The company also mixes the bulk for its customers if necessary. “Sometimes, a product must be mixed and filled within a certain period of time, so it’s important to be able to do it all. “The customers provide shippers and we pack the ampoules as they come off the machine. We work with a customer to provide them with as much as they need,” Fazzolari said.

The company also occasionally sells blank ampoules but in most instances are asked to fill, seal and pack the items.

“Flexpaq is a contract packager because our customers supply bulk and we are contracted to fill their product into a variety of sampling or trial size packages,” explained Jim Gabilanes, Flexpaq’s vice president of sales. “The filling is done by following a strict set of GMP’s and conducting micro testing to assure the quality of the product before it leaves our facility in South Plainfield, NJ.”

The Filling Station, Walpole, MA, is a highly specialized contract packager in that the company fills tubes. “We’re not making anything,” said Chris White, president and owner of the company. “The majority of our customers send us bulk and tubes. We fill and seal the tubes and then test each tube for its package integrity.”

The Filling Station is very busy these days, because five years ago when White started the company, his model was to work with strong, small companies that would place orders to fill 5000 tubes. “Now those customers are ordering 25,000 at a time. We set out to be a small run specialist, filling high end products sold through a very limited distribution.”

Body Blue’s Coopland explained that once the particular bulk is produced, Body Blue fills it into primary containers, which come mainly from North America. “While we don’t manufacture any packaging,” Coopland said, “we will design and build a mold for a customer if volumes warrant it.

“Then we can do decorating and labeling. Then the items are packed out, shrink-wrapped and sent from our two plants to our distribution center. Our customers can pick up the orders or the products are shipped according to specifications.”

As a turnkey, full service supplier, Body Blue is usually the “buyer of record,” for raw materials and primary packaging as well as packaging materials such as cartons. “But some of our customers are the largest brand marketers and will negotiate the price for packaging because their total volume requirements will dictate a better price or because they already own a unique mold.”

Challenges for the Supplier

“The challenge is always timing,” said DMI’s Duvinsky. “A supplier of contract packaging services must have a team that knows how to plan the with flexibility. A supplier must know how to coordinate and make all the parts come together, from formula development and testing, to the design and filling of the final package.”

Quick turn around times are both a challenge and an opportunity for Body Blue, according to Coopland. “Body Blue is a kinetic enterprise and its infrastructure supports quick change,” he said.

Constant pressure to reduce costs is a more serious challenge, especially “reverse auctions,” a phenomena gaining popularity in the beauty business. A large national brand will bid out a piece of business to a number of contract packaging companies. Eventually, sometimes after several rounds of bidding, the lowest bid will get the contract. “It reduces the validity and value of partnership,” said Coopland. “The reason Body Blue is successful is high quality people—our staff, our customers and our suppliers. To reduce it all to the lowest bid takes away the value of quality people in the equation.”

Out Sourcing Heads East

The proliferation of full-service suppliers goes along with the movement of more of the business of producing HBA products to the Far East, according to HCT’s Thorpe. “A lot of the packaging is already being made in China, but filling is moving there too now. And once filling starts to be more common, it’ll be natural for the manufacturing of the bulk to move as well,” he said, adding, “Companies in the U.S. and Europe will have to find partners and move into the Far East as well to stay in the game.”

Thorpe predicted that in 20 years, there will still be some actual manufacturing of cosmetic, fragrance and personal care in the U.S. and Europe, but theorized that two-thirds of the market’s products will be created in the Far East.

White of The Filling Station agreed there has been a movement to the Far East, but is confident that The Filling Station will continue to thrive. “It depends on the size of the order and knowing your suppliers. One customer had tubes made in Israel and filled in Taiwan. The price was about half of what it would have been in the U.S., but when it was delivered, 80% of the order was leaking. The customer had no recourse and no product. He decided to move his manufacturing back to the U.S.” For huge, multinationals, saving $.01 on each of a millions units adds up to a significant savings, but for a small brand marketer, the savings isn’t worth the risk, according to White.

Intercos, a major contract manufacturer headquartered in Italy, has manufacturing sites in Italy, Switzerland, the U.S., and Malaysia. The company recently opened a sales office in China with a goal to be operational as a manufacturing site—to make bulk and fill bulk—as well within two years. Achim Ruehlemann, executive director of sales for the Intercos operation in Congers, NY, said much of the company’s packaging comes from the Far East, but most of the bulk is currently made in the U.S. and Europe.