Daring to Diversify

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Daring to Diversify

October 31, 2000 - 20:00

TEDDY BEARS AND childrens' books aren't typically things one would expect to see at a corrugated box plant. But that's what can be found at Archbold Container Corp. (ACC).

Archbold Container Corp.'s fulfillment business has "gone through the roof," says Mike Sikora, sales and marketing manager. In a tight labor market, the company employs retirees and temps to staff the department.
Archbold Container Corp.'s fulfillment business has "gone through the roof," says Mike Sikora, sales and marketing manager. In a tight labor market, the company employs retirees and temps to staff the department.

The Archbold, Ohio-based sheet plant recently received an order from a book publishing company which requires that 52,000 teddy bears and 52,000 books be packaged in point-of-purchase (POP) displays. By packing these items in the corrugated trays, which ACC will produce, the company has turned a $15,000 order into a $53,000 order.

ACC's fulfillment business has gone through the roof, according to the company's sales and marketing manager Mike Sikora. To accommodate the expanding business, ACC has added another building; is in the process of hiring a full-time supervisor; and is considering permanent staffing for a department that typically uses temporary workers and retirees.

The customer, a Grand Rapids, Mich.-based publisher, was not interested in packing out the order in-house. So it shipped its books to ACC; the teddy bears came from China.

"When the order leaves your facility, it can go to our end customer's three regional warehouses and we don't have to touch it," the customer told Sikora. "You have the production facilities, the assembly facilities, the packing facilities, and the shipping wherewithal to get the order out."

Companies Deliver More Than Boxes
Companies Deliver More Than Boxes

The value of the trays by themselves was only a fraction of the overall order value, Sikora says. "This seems to be a pretty good example of what is available out there on the fulfillment side."

Fulfillment - in which a plant makes the container or display, packs the customer's product, and ships it to a retailer or distribution facility - is a growing source of revenue for box plants. Of the 560 member companies of the Association of Independent Corrugated Converters (AICC), 160 offer fulfillment, also called contract packaging.

As companies recognize that they may need to provide more than boxes to be competitive, diversifying their businesses by offering fulfillment and ancillary products is becoming a growing trend.

"If you're just going to be selling boxes, then you're limiting yourself," says Steve Young, executive vice president of the AICC. "Many box plants are becoming diversified to add more value for the customer. It is a natural result of members thinking more of themselves as packaging solutions providers rather than just box companies."

A Competitive Edge

Fulfillment, though growing in popularity, is not new.

Landaal Packaging Systems, Flint, Mich., has been in this business since the 1960s. The sheet plant packaged vehicle parts for General Motors (GM), which were sent to Vietnam. Then after the war, Landaal developed a relationship with GM's Service Parts Division and grew the fulfillment department throughout the 1970s.

"We make boxes and internal packaging partitions out of corrugated, so (fulfillment) was a perfect extension of our business," says Steve Landaal, executive vice president. "There were many competitors at the time who didn't have sheet plants, so we were at a competitive advantage."

Another company that has been in fulfillment for years is Louisville, Ky.-based Packaging Unlimited, which has provided contract packaging since the day it opened in 1975, says founder and Chief Executive Officer Bob Hanekamp. The company's product mix is half corrugated boxes and half contract packaging, he says.

Packaging Unlimited is not really a box company, Hanekamp explains. It provides much more. Its five locations offer fulfillment, but additional services at one or more of the facilities include a printing die business, a cutting die business, package manufacturing, trade bindery, corrugated and wooden boxes, foam fabrication, and thermo-forming plastic such as blister packs and clamshells.

"We sell to a lot of people inside and outside of the corrugated box industry," says Hanekamp. "We're kind of like a one-stop shop."

Changing with the Times

"It's very important for our industry to understand that our customers' needs go beyond us just supplying them boxes," says Jim McDonald, owner of McDonald Packaging, Santa Ana, Calif. "The old days of selling boxes is not the case anymore. Customers need so much more than that."

McDonald Packaging is a sheet plant whose core business is in manufacturing large boxes.

"We've found that our customers' needs involve just-in-time delivery, combined units, and deliveries of exact quantities," McDonald says. "But a lot of them also have requirements for fabricated foam and wood crating. So we've gone beyond being a big-box plant and we have a complete division that is devoted to wood crating."

The wood crating division was started in 1995 in order to broaden the company's product line. McDonald Packaging makes the crates, and packs the product either at its own facility or at the customer's. McDonald Packaging also will build and ship the crates, sub-assembled, to the customer, who then completes the packing process.

In addition to added revenue, McDonald says customers who were previously buying only corrugated now turn to his company for allied products as well. "That includes peripheral items such as tapes, bubble pack, stretch wrap, and a variety of other things," he says.

Landaal Packaging Systems' Commercial Division supplies ancillary products as well to small and medium sized companies. "A lot of packaging suppliers will sell only in big quantities," says Landaal. "We fill a niche for those companies that don't want to buy pallet loads or even case loads. Some companies just don't need that much. We'll sell them a roll of tape.

"Our company's theme is 'Design to Delivery,' which means we want to offer the customer a full range of packaging services, products and supplies," he adds.

That means not always dealing in corrugated board. "We also do plastic corrugated and plastic returnables," Landaal says. "We've developed relationships with companies that produce these products. We determine what's the best packaging for the customer. It depends on what's best for his distribution system."

One-third of Landaal's customers take advantage of these extra services.

The Foam Factor

Romanow Container, a sheet plant in Westwood, Mass., which produces mainly one- and two-color printed boxes, got into the foam business nearly three years ago when it purchased Perry Packaging in Maynard, Mass.

"Getting into the foam business has been a big diversification for us," says Ted Romanow, president. "Perry did three things that we did not do: foam fabrication; converted triplewall boxes; and large boxes, which we did not have equipment to do before. We'll manufacture the corrugated box, set it up, insert the foam, and ship it to the customer. So it's a real value-added service that a lot of hi-tech and telecommunications companies are looking for."

Of the 560 AICC member companies, 103 offer foam polystyrene.

Foam fabrication is not a business that ACC has promoted, however, its eight-year-old department has grown tremendously, thanks to the World Wide Web.

"I think the exciting thing is that people are finding us through our web page," says Sikora. "Half of the inquiries we're getting from the web site are for foam."

They are not only corrugated box buyers, either. They are people looking for large sheets of foam to be used for insulating mobile homes, and molded foam pieces used for baby car seats, for example. Another customer - a food company - orders up to 900,000 foam coolers.

The foam business started out of necessity. ACC's largest customer, Sauder Woodworking, a manufacturer of ready-to-assemble furniture, needed foam to fill the voids within its boxes so the product didn't slide around. "They may have already been using foam, but (as owner of ACC) they decided we would begin making it here," Sikora says.

From there, ACC began slicing and dicing it into geometrical shapes and contours to be sold to various industries.

"There are a limited number of people who do their own block and shape molding of foam, much less within a corrugated company," Sikora says. "The foam business is definitely a very integral, vibrant part of this company.

"I wish I could tell you that we made this big strategic decision (to grow the foam business)," Sikora says. "We didn't do that; it just kind of evolved."

ACC's foam sales account for 20 percent of its overall business. The division has had a 20 to 25 percent growth this year.

The Cost of Diversity

Depending on the degree of diversification a box company wants to make, the monetary investment could range from insignificant to tremendous.

According to Landaal, the investment in diversifying the product mix could take less than $50,000. "You need conveyors, work tables, staple guns, glue guns. That's about it."

For ACC, on the other hand, its foam business required a tremendous monetary investment for equipment. Even for fulfillment, the company had to buy conveyors, stitching and gluing machines, a shrink wrapper, and banders.

Depending on the cost involved, for some companies, extending their product lines won't make sense.

"Like anything," says Landaal, "you have to put a business plan together to see if it makes sense in your marketplace."