Dairy double act

When Arla Foods won two Food Manufacture​ Excellence Awards last November, including Food Manufacturer of the Year, the sheer scale of its logistical operations and its impressive reductions in packaging volumes were two elements singled out by the judges.

In fact, in the case of Arla's Stourton dairy in Leeds, the supply chain link between pack supplier and customer is particularly strong - but also remarkably short. Logoplaste UK supplies the dairy with all its bottles from a separate operation on the same site, a so-called hole-in-the-wall (HITW) facility.

The rationale behind producing polybottles and other types of plastics packaging on-site is not difficult to grasp. Arla's head of purchasing Jonathan Adlington spells it out: "The supply chain is greatly streamlined, eliminating the distribution costs and improving the associated environmental impact of having to transport empty bottles." Since bottles are effectively delivered on-demand, warehousing space and costs are far less.

"Waste is also reduced as a result of the in-plant operation, because the biggest source of damaged bottles - transit damage during delivery and handling - is eliminated," he adds.

Taking this to its logical extreme, some other brand owners and filling operations have chosen to produce their own plastic containers in their own factory. So why outsource the converting process at all?

"This way, Arla has the best of both worlds," Adlington explains. "Logoplaste effectively operates as an extension of our own dairy, while also allowing each business to concentrate on its own expertise. And it allows Arla to draw on Logoplaste's wider resources within the polybottle area."

Stephen Mancey, md of Logoplaste UK, unravels some of the thinking behind HITW from a supplier perspective. "There's a natural time lag in most supply systems. There is typically a lead-time for call-in from stock or manufacture, and this is often greater than 24 hours, or longer if the supplier is required to manufacture. In HITW, the supply is instantaneous and relationships 24/7."

Adlington expands on this idea: "The flow of communication at all levels of the business probably brings about the biggest operational benefit. This means that everything from top-level strategies down to daily production adjustments are in tune with each other."

To many more conventional plastics suppliers, Logoplaste's business model might appear to be a tough one. To start with, the company's investment on the Leeds site is today in excess of £25M, says Mancey. There is the fact that, for instance, the plant carries a full complement of spare parts on-site.

According to this model, the supplier has just the one customer and the customer only has the one packaging supplier. Contracts tend to be for between seven and 10 years, says Logoplaste. "Payback is not in year two or year three," says Mancey. "It is likely to be in year five, six or seven."

Those contracts tend to be comprehensive, and yet at the same time in a state of continual evolution. "Product and tooling design, and R&D input are all part of the package," says Mancey. "And our business model doesn't stop at the factory wall. The customer only pays for what goes through the filler. Any losses before that are our problem."

The policy of keeping complete spare parts on-site, together with a rigorously-enforced preventative maintenance régime, is not something that Logoplaste invented for the sheer hell of it. "We are on three-minute penalties," Mancey explains. "Which means that if our lines are down for more than three minutes, we pay for it." No penalty has been paid for the last two years or so, he adds.

Adlington says: "Arla and Logoplaste operate an open costing model, which enables quality improvements and cost-savings to be targeted and monitored extremely accurately."

Recycled HDPE bottles

Some cost savings have come from materials reductions. According to Steve West, factory manager at Logoplaste's Leeds site, the Logoplaste-designed bottles are on a programme of continual development, and the bottles today are the lightest in the industry. Innovation has also arrived in the shape of recycled high density polyethylene (HDPE), currently being trialled in the plant. The target is to achieve 10% recycled content by the end of 2008, with an ultimate target of 30%.

Logoplaste's first operation on the Stourton dairy site, called Miplaste, was set up in 2004. A year later, Pureplaste was created on the same site to supply a different range of bottles for Arla's Cravendale brand. The two Logoplaste operations run in parallel, but are treated as separate business units, explains business development manager David Batey.

Uniloy blow-moulding machines are used to produce one-, two-, four- and six-pint HDPE bottles for fresh milk, most of them ending up as retailer own-label products. There are eight machines in all, producing up to 250M bottles a year. White bottles in two-litre and 284ml (half pint) sizes are also produced for Cravendale.

Immediately after blowing, every bottle is put through a Delta leak-tester. Those destined for Arla's fresh milk then go to perhaps the most intelligent section of the Logoplaste plant: a holding system produced by German supplier Autefa.

As West explains, bottle stocks are amassed in the Autefa system while Arla's lines are not running. Overnight, capacity for up to 24h filling can be accumulated. Then, any shortfall during dairy production runs is supplemented from the same supply. Automatically, gantry robots either pick rows of bottles of specific sizes off the line and place them on automated multilayer pallets, or vice versa, as required.

So, based on the sophisticated equipment and strategy operated by Arla and Logoplaste, is HITW a model that can work for every type of filling operation?

Mancey believes that most food and drink categories could benefit from this approach, which can meet far more complex packaging needs than those dictated by Arla. One site, for instance, produces packs in 57 different colours. "An operation can comfortably handle up to 50 SKUs," he says.

He doubts that the system would make sense for certain sectors of the food and drink industry where companies make changes to existing packs every year, which would demand unsustainable levels of flexibility.

Economics of hole-in-the-wall

But few if any of the larger dairies would fail to benefit from this type of arrangement, Mancey argues. And there are categories such as soups, he claims, which could make huge savings from a switch to barrier plastics and, more specifically, to barrier plastics produced in an HITW facility. "This could result in large savings on their packaging costs, allow brand owners to present a new pack, and maybe never look at a can again," he contests.

The output of a given filling operation can be a good indicator of whether HITW would make sound business sense or not. "If you are filling between 10M and 100M bottles a year, you can probably justify it," Mancey says. "But a better measurement would be a £2M-plus bottle spend, which is more-or-less the break-even point for HITW to work."

As manufacturers become more aware of the food miles they rack up and their overall carbon footprint, the logistics implications of having an in-plant operation are also likely to loom ever larger. Mancey estimates that just meeting the volumes currently produced by Miplaste would necessitate some 2,500 lorry movements.

Reducing road transport on that scale is the sort of thing company directors love to see in their corporate social responsibility reports, and marketing departments increasingly like to build into their consumer advertising campaigns. FM