Cost Reductions - The Pressure Sensitive Way

With energy costs soaring, CPCs may be looking for additional ways to attract consumers' diminished spending power.

AS IF BUSINESS wasn't tough enough already, the drastic rise in oil prices over the last several months will test the fabric of people and companies throughout every stage of the supply chain. The pain will be felt everywhere, starting at the end of the supply chain—the consumer—who supports the flow of money throughout the long, complicated supply-chain trail.

The typical consumer is going to have noticeably less hard cash left in his or her pocket after putting gas in the car and staying warm this winter. This will translate to less available money for discretionary items, and the companies that make these types of products will be doing whatever they need to do to move their products off the store shelves.

There will obviously be some rough roads ahead for the foreseeable future, but events such as these also present opportunities up and down the supply chain. In many cases, companies will be looking to industry suppliers for new ways to reduce costs or for ways to entice consumers to purchase their products and boost sluggish sales.

Pressure-sensitive (p-s) substrates are a mainstay in the labeling industry. Although competitive labeling methods such as shrink sleeves and in-mold labeling are biting at its heels, p-s labeling maintains a significant share of the market and has long been instrumental in both cost savings initiatives and in helping consumer products companies (CPCs) move product off the shelf.

Today's environment is not new territory for p-s material suppliers and they are well prepared to work with their customers in cost savings initiatives and other programs to help CPCs sell product.

General cost savings

Shawn Easter, marketing manager for Acucote, knows that material suppliers and label printers alike have long been evaluating and re-evaluating their costs and manufacturing processes to be as effective as possible, without compromising the quality of the finished product. However, he notes, recent economic challenges will again push all areas of the supply chain to seek new ways of conserving capital.

"Raw material costs are the highest percentage of expense that both label stock suppliers and converters must face when manufacturing finished goods," says Easter. "Their volatility in the marketplace causes ramifications through each link in the supply chain as prices continue to increase."

Although he knows that most manufacturing operations are lean and continually monitored for problems and opportunities, he notes the importance of staying abreast of materials options. "Frequently re-evaluating materials to make certain that the best solution is being provided to end-users is critical."

Some of these re-evaluations lead towards lower cost films, thinner gauges, and lower performance, says Rick Nieman, marketing director, IP&S Division of Avery Dennison, Fasson Roll North America. Recent trends in these types of activities could be tied to the increasing cost of oil, along with the fact that "some customers are opting for paper instead of films for the same reason," he notes.

MACtac Printing Products' Product Manager Allie Hazel, definitely sees more willingness on the part of customers to make material substitutions during periods of volatile materials costs such as we are seeing now. "There is a better acceptance to qualify alternate cost-effective components such as hot melt adhesive vs. acrylic emulsion; semi-gloss facestock vs. high-gloss; non-top coated direct thermal vs. top coated; and lower basis weight liners," she reports.

Rick Harris, market product manager, product branding business team for FLEXcon, has yet to see any clear trends as the result of energy sticker shock, but he knows that everyone will be carefully monitoring any raw material cost increases and the effect on their products. "Most components, whether ink, plates, film adhesives, or liners, are petroleum-based and can be affected by energy costs. This could influence the end user's decision on a chosen decoration method. If one decoration methods stays constant in price and the others see significant increases, we may see a trend toward the more cost-effective method. At this time, we have yet to see that shift or to know which method the shift might eventually go to."

Erin Linville, marketing manager, wine and pharmaceutical, at Avery Dennison, Fasson Roll North America, says that they are also seeing more converters "looking at environmentally friendly, alternative products vs. tree-based papers or petrochemical and cellulose-based plastic films. This can result in cost stability, while demonstrating the forethought to safeguard the environment and eliminate harmful waste. … From wines, to natural and organic foods, to personal care items, more of these earth-friendly applications are desiring labels as eco-friendly as the packaged product," says Linville.

Along with options for changing materials and/or decoration methods, suppliers are gearing up existing programs to assist their customers with cost reduction activities. Ryan White, director of marketing services for Avery Dennison, Fasson Roll North America, reports that many of its converter customers are using Fasson's Advantage™ services such as Fasson EXACT™ and Splice-Free programs to reduce costs and complexity. These services help converters reduce scrap, run at higher speeds, and simplify changeovers, while lowering inventory levels. "We are in the process of expanding our product offering on these types of services to support customers' needs to reduce additional cost and complexity."

Moving product

In addition to addressing skyrocketing energy-related costs, many CPCs may be faced with a need to further entice consumers to buy their products, especially those products that are more discretionary in nature. In these cases, Easter says a totally different approach may be in order.

"While looking at thinner gauge or lighter basis weight face material and different adhesive formulations is a common practice, the answer may involve actually moving to a higher cost stock if it will perform the labels' marketable duty better," he notes. "For instance, retail statistics demonstrate that if a consumer picks up a product off the store shelf they are far more likely to purchase that product. A label with a higher grade face sheet and detailed graphics will always be chosen by shoppers before a commodity label due to its greater eye appeal and the perception of higher quality. … Often, the duty of the label stock supplier and the label converter is to supply the best solution—priced cost efficiently—that will promote the end-user's product more effectively and lead to greater sales of the finished goods."

Pressure-sensitive substrates have a long history in brand promotion and creating a brand image that promotes product value, says Harris. "It also offers the opportunity to carry the look of the brand name across all SKUs. Brand recognition is key to moving products, and the high-quality, consistent graphics achieved with p-s films will keep the product's 'grab factor' and the brand at the forefront."

One common method that CPCs use to move product in the short term is couponing, and especially, instantly redeemable coupons. Easter reports that Acucote's line of coupon materials has been in high demand of late.

"Acucote offers Diamond-Cote EZ coupon base for converters to manufacture instant redeemable coupons in-line, on press," he says. "Diamond-Cote EZ's universal lift pattern allows for any diecut shape or size coupon to remove easily with a consistent, smooth release and leave no adhesive residue. As consumers have less and less discretionary income, brand owners are using coupons to motivate retail shoppers to buy their specific products."

Minimizing orders

The need for converters to order smaller quantities of materials is being driven by two trends, one market driven and one cost driven. On the market side, CPCs continue to do more and more regional and targeted promotions that result in shorter press runs. On the cost side, converters are looking at every means possible to reduce the costs associated with working capital, money that is tied up either in incoming materials or finished goods inventories.

Suppliers are responding to these efforts with programs that are tailored to support low order quantities. Easter points to Acucote's Easy Access Films Program that allows converters to purchase specialty films in low minimum order quantities so that short-run label orders can be produced efficiently.

"Converters are able to respond to the end-users' demands of quick turnaround for smaller quantity orders, yet the finished product is still a high-quality film grade," he states. This program has been very active in the last several weeks, reports Easter, "as brand owners demand detailed, high-quality graphics on specialty films but are reluctant to place long run manufacturing orders."

FLEXcon is also geared up to support customers' needs for cost reduction and inventory management. Harris points to FLEXcon's varied product line that can help printers meet price-sensitive needs. "I also recommend using our Quick-Ship capabilities for fast turnaround time, which helps our customers maintain lower inventories in-house," he says.

by Tom Polischuk

Editor-In-Chief