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Strategic logistics partnerships a key to profitability June 15, 2014 | Outsourcing SA

Envelope specialists Merpak are thriving in a so-called ‘dying’ industry – thanks to a partnership with CargoSolutions

In 2010, the envelope business was seen as “a dying industry”, according to Merpak Envelopes CEO Dion Joubert. “With electronic communication becoming the standard, the demand for envelopes had dropped substantially,” he says. “In addition, the envelope manufacturing industry had become overpopulated, resulting in low margins that placed immense pressure on profitability. Manufacturers faced pricing pressures from the cost of raw materials and utilities, inflation, labour demands and the growing threat of cheap, available imports. The result of all of these factors was a deterioration of stock-holding (availability) and on-time deliveries (reliability) in the market – price became the only differentiator in purchasing decisions.”

In-depth analysis of the envelope industry in SA led Merpak to implement a programme aimed at securing a Decisive Competitive Edge (DCE). In consultation with service providers PVE and CargoSolutions (the outsourced-logistics division of Cargo Carriers), Merpak embarked on process to deliver both availability (never “out of stock”) and reliability (excellent due-date performance).

Merpak’s business is divided almost equally between plain envelopes (“made to stock” or MTS) and customised envelopes (“made-to-order” or MTO) – the strategy involved being able to supply MTS orders on demand, and MTO orders with the shortest possible lead time.

Integrated logistics solutions
The key driver in this strategy was Symphony, CargoSolutions’ supply-chain IT system. By monitoring progress via Symphony along the supply chain in real time, from ordering of raw materials to dispatch of the finished product, Merpak was able to apply “theory of constraints” (TOC) principles to every aspect of the manufacturing process. “They were able to establish strategic buffers, based on order fulfilment strategies,” says Dawid Janse van Rensburg, Divisional Director IT & Supply Chain. “By immediately replenishing these buffers upon consumption, and being able to monitor load capacity and production bottlenecks, they were able to ensure constant availability of MTS stock and much faster delivery of MTO orders. Instead of one particular order receiving priority and perhaps delaying others, they have one overarching system that establishes priority between MTS and MTO processes on the shop floor.”

By 2013, when CargoSolutions’ involvement ended and the system was handed over to Merpak to run on its own, lead times had been reduced by more than 20%, availability of MTS stock had risen from 70% to 97% and due-date performance rose from 60% to 80% or better. “We also lowered our initially high stock-holding,” adds Joubert. “By optimising stock-holding on both raw materials and finished goods, we improved both our sales-to-inventory ratio and our finished-goods inventory. Lead times had dropped from 22 days to 10 days for stock items, with MTO delivery rates dropping to five days for special orders and three days for bespoke items. Our growth in this section, especially, has proven that customers are prepared to pay premium rates for fast, reliable service. And because certain MTO envelopes are odd shapes and sizes, they cannot be made on machines – this has allowed us to support micro-enterprises, specially contracted to hand-make these items.”

Increased productivity and profitability, in one strategy
The remarkable success Merpak achieved in just two years is an indication that even in a “dying” industry, outsourced supply-chain solutions can make a difference to productivity and profitability. “Within a year of implementing the new system, we saw two of our competitors disappear,” Joubert says.
“By 2013, Merpak was selling over one billion envelopes annually, with a turnover of R150-million – and we’ve also been able to expand our ranges into fancy packaging and different forms of printing. We’ve done so well in the marketplace because our objectives were reached – and that was a result of finding the right logistics partner with the right IT system.” ~ Alyn Adams

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