Meeting Packaging & Labeling Industry Challenges Head-On

How packaging and labeling manufacturers can use automation and technology to streamline their operations, gain efficiencies, and reduce their reliance on a shrinking labor pool.

As they continue to navigate the global pandemic, a shortage of skilled labor, and the persistent need to do more with less, packaging and labeling companies are increasingly turning to technology and automation for help. And while this approach requires upfront capital investment, in many cases, the payoffs can be significant for the manufacturers that use these tools to streamline their operations and improve efficiencies.

“Shifting consumer shopping habits during the COVID-19 pandemic drove changes all up and down the supply chain — including in the way goods are packaged,” Supply Chain Dive reports. “Warehouse and fulfillment center operators also had to cope with a labor scarcity, which has led to much more automation.”

Critical Links in the Supply Chain

As essential players in the global supply chains, packaging and labeling manufacturers supply the equipment and materials that manufacturers, distributors, wholesalers, and retailers use to identify their shipments. Over the last decade or so, the equipment and materials used to accomplish this have advanced along with the technology itself. Smart labels, for example, incorporate sensors, radio frequency identification (RFID), and quick response (QR) codes that enable interaction between the label and a mobile device.

According to Chris Hannon, Senior Vice President at Old National Bank, these and other trends are pushing packaging and labeling companies to invest in more automation. Packaging companies impacted by government shutdowns, port congestion, the labor shortage, and the persistent supply chain delays seen during the pandemic, for example, are working to replace manual-intensive processes with those supported by technology.

“This shift is causing some growing pains for manufacturers,” Hannon observes. “You can’t just flip a switch and be automated. It takes time for new systems to begin producing high-quality goods at the desired throughput.”

Open Lines of Communication

For one Chicago-based packaging company and Old National Bank customer, maintaining strong customer relationships has been a key challenge during the COVID-19 pandemic, which interrupted supply chains and strained supplier-customer bonds. With the latter anxiously awaiting their orders and the former hard-pressed to get the raw materials needed to fulfill those commitments, good communication has become table stakes for companies in the packaging and labeling sector.

“Communication, communication, communication; that’s the only way that we’re able to maintain our relationships,” the company told Hannon. “On the profitability side, we knew that supply chain issues would negatively impact margins this year, so we tasked our operations manager with reducing overtime and overall hours within our plant. The plan worked in that the decreased labor costs became critical to our overall performance.”

Meeting Changing Customer Expectations

As they continue to grapple with supply chain disruptions and a scarcity of raw materials like steel, resin, cardboard, and textiles—plus price hikes on these and other products—packaging and labeling makers are using creative ways to endure through this challenging period. Some are establishing longer lead times in an effort to better manage customer demands, for instance, while others are more carefully assessing their cost structures and margins.

“For our key clients, we maintain a very active dialogue to try to stay ahead of changing needs,” one company told Hannon. “As those needs arise, we work together to develop options that will suit our clients’ needs.” 

One new opportunity that manufacturers have explored is moving to remote work and the increased demand for packages at a very individual level. In other words, rather than shipping a pallet of office supplies to a large company headquarters, both e-tailer and brick-and-mortar suppliers are sending smaller packages to hundreds of different recipients (many of whom are still working from home). With companies like Ford telling many of their associates that they can “work from home forever” [bm1] if they want to, this trend will likely continue even in the post-COVID world.

Driven largely by consumers who went online to shop due to lockdowns, restrictions, and safety concerns, the e-commerce boom has also put more business in front of the average packaging or labeling manufacturer. Consumers spent $861.12 billion online with U.S. merchants in 2020, up 44% compared to 2019, according to Digital Commerce 360. That’s the highest annual U.S. e-commerce growth in at least two decades and roughly three times the 15.1% increase that the sector experienced in 2019.

From the packaging and labeling perspective, more individual customers ordering from home equates to a higher volume of packages being shipped to those destinations. “The combined e-commerce boom and remote work trends have created new opportunities for packaging and labeling companies that are in the right niche and ready to take on more business,” says Hannon, who sees automation playing an increased role in those manufacturers’ operations, and particularly due to the ongoing labor availability issues. 

“As consumer demands continue to evolve,” Hannon adds, “the companies that have put modern, agile infrastructures in place will be best positioned to thrive.”

Grab the Opportunity Now

With no end in sight to the labor shortage and supply chain delays—and with the remote work and e-commerce trends moving full steam ahead—makers of packaging and labeling equipment may see expanded market opportunities soon. As Hannon mentioned, those who take the time now to automate as many repetitive, manual processes as possible and modernize their facilities to take on new work as it presents itself may gain market share. “Some companies will be able to take advantage of tremendous growth potential,” Hannon predicts, “while others may experience declining revenues over time as they struggle to make their operations more efficient.”

By investing in automation, manufacturers can not only reduce their dependency on labor, but they can also free up their associates to work on more core tasks (versus repetitive tasks like assembly, packing, and so forth).

“In our market, good labor is hard to come by, so we have to automate in order to make ourselves less dependent on low-wage earners,” one company points out. “The key is to continue focusing on automation in order to increase efficiencies and make yourself less reliant on the shrinking labor pool.”

The Old National Commercial Lending Team's bankers are actively involved in the packaging industry and our industry knowledge will guide you in growing your business. Talk with Chris Hannon to discuss financing options for your business at Chris.Hannon@oldnational.com.