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CPGs to OEMs: HELP | Economist: Demand and Unfulfilled Machinery Orders to Abate

At PMMI’s Executive Leadership Conference in April, a panel of CPGs told OEMs about the challenges they face and how machine builders can help. Meanwhile, an economist says one challenge—long lead times—should work itself out.

Quick hits:

  • CPGs who committed to sustainability goals need OEMs to understand the pressure’s they are under to meet “highly quantifiable” benchmarks.
  • OEMs need their CPG customers to bring them into their sustainability innovation discussions earlier to make sure equipment is capable of running what the brands come up with.
  • Lead times for new packaging equipment continue to be an issue for CPGs, but an economist from ITR says that a ‘soft landing’ of a market, with improving supply chains and lesser demand, should help. 

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Read article   Read the transcript below:

Hello, I’m Matt Reynolds, editor of Packaging World, back with another edition of Take Five with Packaging World.

Just a few weeks back, I was at PMMI’s Executive Leadership Conference, an event that’s largely attended by a contingent of OEMs and packaging machinery builders, with a few controls and automation folks mixed in. A lot of the socializing and networking is done on that specific rung of the ladder.

But when it comes to panel discussions and presentations and speakers and the like, the content is quite relevant to the entire supply chain, including CPGs and brand owners. In fact, some of the content IS CPGs and brand owners.

My colleague Stephanie Neil, editor of OEM magazine, led a panel of execs from big brands like PepsiCo, ACH Food Companies, and Colgate-Palmolive. The big picture takeaway was that these brands are going whole hog on sustainability measures, and if the OEMs aim to keep selling them equipment, then they have to realize it’s a priority, not a nice-to-have. These companies have very publicly committed to certain goals, and they plan to achieve them one way or another.

A recently retired exec at Colgate-Palmolive, Tom Heaslip summarized it this way. These sustainability goals and benchmarks are highly quantifiable. A goal of 100% recyclable packaging by 2030 means just that, 100%. There’s no room for fudging of numbers or “close but no cigar.” OEMs need to understand what pressures their brand owner customers are under.

With that in mind, panelists from these brands challenged the machine builders in the room to be especially aware of the changing material landscape, and to keep in mind that a machine may be designed to run for 20 years, but it may have to accommodate a lot of different material specs as new, different, and possibly more difficult to handle materials evolve. Consider compostable films for instance. All in all, machines of the future will need to run a larger spec range, a larger range of weights or gauges or flutes, because all these things are changing now, and will continue to change.

But this is a two-way street. The brands and CPGs on stage recognized that they need to make sure these OEMs are partners, not just vendors, and knew they needed to get them involved in packaging design innovation as soon as possible. Too often a brand makes some sort of packaging shift, and doesn’t take its existing packaging equipment into account, or gets the machine builders involved too late.

In a lot of ways, OEMs and machine builders are arbiters of what’s physically possible, and how changing to a thinner gauge material for bottles, for instance, might affect the bottom line by slowing throughput by 20%, or increasing scrap due to punctures by 10%. These brands can’t have their cake and eat it too. And the one thing that might take a back seat to sustainability is profitability.

Outside of the sustainability topic, the panel discussed long-and-getting-longer lead times for packaging equipment. This is real sore spot. It has been since even before the pandemic, and since COVID, lead times have gotten even more protracted.

But according to another presentation, this one by an economist Alan Beaulieu from ITR economics, this problem might be solving itself before too long, and lead time relief might be coming.

Picking up where we left off, the economist’s report is always a highlight of PMMI’s ELC, and this one didn’t disappoint.

Beaulieu forecasted a slowing pace of growth now that the government stimulus era of pandemic relief appears to be over, and what he described as a ‘soft landing’ for the economy at the end of 2022 and in early 2023.

He predicted easing of demand overall, starting with consumers and then working its way upstream, though retail and CPGs/brands, right up to OEM machine builders who’s lead times are so long right now. Meanwhile, he said that the supply chain issues that are plaguing our industry will be resolved by this time next year, and will only be “a nightmare of the past” as he described it.

Those two factors combine to indicate that we are at or near the peak of unfulfilled machinery orders. As blue line of demand for this equipment is expected to abate over the coming months, expect lead times to contract as over-worked OEMs catch up on their unfulfilled orders, and maybe finally take a breath.

There were lots of other interesting takeaways from the economist’s presentation. Read all about them in the link you see below. The bad news is some current problems, like a tight labor market, higher prices, and soon-to-be increasing interest rates, are likely to remain issues. And the conflict in Ukraine makes things like gas and grain prices unpredictable.

But the American consumer is fairly well-off financially, so expect consumer spending to remain high. The most important thing, according to Beaulieu, is that he doesn’t expect a recession in the near-term. Expect a brief softening, the ‘soft landing’ we mentioned, followed by another busy period.

All in all, the 2020s will end up looking a lot like the ‘Roaring 20s’ from a century ago, at least economically speaking. This decade won’t be without its problems, but he expects a lot of people to do very well in the near- to medium-term. 2030 and beyond is another matter, and a subject for another time.

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