contract packaging association 2010 annual meeting "riding out the

CONTRACT PACKAGING ASSOCIATION 2010 ANNUAL MEETING
"RIDING OUT THE STORM; LESSONS FROM SURVIVAL MASTERS"
The Economy is what it is!
This is the new “NORMAL”
SOURCE
• Frain and Plant Visits
– 4,800+ customer plant visits per year.
– 500+ Customer visit ,last two years.
NEW REALITIES
• Contract Packagers have greater risk.
– Less equipment cost sharing.
– Less take or pay agreements.
– More delivery requirements.
– More competition.
– More complex sales (mfg. Vs. Pkg.)
– More plan B (Big Box Stores)
POSTMORTEM
Lessons to be learned from Olmarc
A successful, 40 year old Contract Packager
2000 – Sales of $50 million.
Goal of $100 million in 5 years.
$ 0 Debt
2009 – Sales of $35 million.
$9 million debt.
Actual Sales vs. Goal
$120
$100
$80
Goal, $100
Goal, $100
Goal, $60
$60
$40
Actual, $60
Actual, $50
Actual, $35
$20
$0
2000
2005
2009
Debt in $ Millions
$9
$10
$8
$5
$6
$4
$2
$0
$0
2000
2005
2009
Value in $ Millions
$43
$50
$40
$34
$30
$20
$4
$10
$0
2000
2005
2009
$100 $100
$100
$80
$60
$60
$60
$50
$35
$40
$20
$0
$5
$12 $15
$9
$4
$0
Sales
Debt
2000
Sales Goal
2005
2009
Value
2000
$ 0 Debt
2009
$ 9 Million Debt
Two Key Paradigms
• High risk contacts (sales at any cost).
• Justifying Debt (purchase of new, high
speed machinery).
High risk contracts
(sales at any cost)
• Required Investment in high speed
machinery.
• Profit give away by sales.
• 80% of contracts deliver 50% of
projections.
• Winners are either taken in house or lost
to competitors.
FIXED COST
High Speed
Sophisticated
Expensive
Risky
Filling
The
Pipeline
First 12 months of Production
6 Million units
50%
of
Projection
Reorder
350000
300000
250000
200000
150000
100000
50000
0
1
2
3
4
5
6
7
8
9
10
11
12
Sales & Marketing never saw a job
that wasn’t going to be a winner.
Justifying Debt & Risk
• “We need high speeds”.
• “We will use the machine again for
another contract”.
• “We need this machine for new business”.
• “We need to take care of this customer”.
FIXED COST
VARIABLE
COST
Out of 376 Olmarc Machines
We have sold 23
Over 30,000 inquiries
Odds of Reusing a Machine
< 5%
Don’t worry,
its “TAKE or
PAY”.
The only good machine…
Is Running
CAPITAL INVESTMENTS
Parts
(fixed)
Facilities
(fixed)
Cash
Inventory
(fixed)
Machinery
Machinery
(fixed or variable)
RENTALS VS. SALES
Variable
Cost
Fixed
Cost
25000000
20000000
15000000
Rentals
10000000
5000000
Purchase
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
Buy
Critical
Time
Fixed Costs
Variable Costs
New Product Launches
IT IS ALL ABOUT RISK
Actual Sales vs. Goal ($Millions)
$200
$150
$100
Goal, $100
Goal, $100
Actual, $60
Actual, $35
Goal, $60
$50
Actual, $50
$0
2000
2005
2009