Value EngineeringBetter Packaging Functionality for Fewer Resources

Packaged. The 6th Global Summit.

Vladimir Zernin June 19th & 20th, 2017

Agenda

1

1. Kraft Heinz Company (KHC) presentation

2. Value management program in KHC

3. Value engineering methodology

4. Global trends identified by KHC

5. Summary

Kraft Heinz Company

2

Kraft Heinz Brands overview

3

Packaging in Kraft Heinz company

4

Introduction

5

Vladimir ZerninValue Engineering Consultant and Procurement Expert

GLOBAL VALUE ENGINEERING LEAD Utrecht, NLDevelop and implement Value Management Program

FLEXIBLE EURO BUYER Utrecht, NLShape and lead EU strategy for flexible resin packaging

SENIOR PACKAGING BUYER Saint-Petersburg, RusLead packaging materials procurement process in Heinz Russia

PROCUREMENT MANAGER Saint-Petersburg, RusProcurement, projects management, supplier development

Value Management Process

• Value visibility (business case)

• Technical Visibility

• Operational Visibility

• Consumer visibility

• VE workshops• Supplier Base• Transformational

Workshops• Benchmarking

Peers• Internal Experts

Collect Ideas

Project Visibility

Business Case

Approval

Project management and technical approval

VE Committee

• Costs• Benefits• Consumer / Non

Consumer Impacts

Implementation

• Line Trails • Quality Test• Specification development • Supplier Negotiations • (whole process to be

defined)

• Contract management

• 1st production• Launch

30% of the time 70% of the time

Ideas and business cases Execution

VE Committee

Final approval

Global VE, Regional VE Leads and R&D Regional R&D (Cost out Teams)

Regional Ops and

FSQ

5

Value Engineering

7

• VE is a process to discover and eliminate all of the elements in a packaging that customers and/or consumers do not value but that cost Brand owner money

• VE can result in changes to various ingredients or packaging that saves Brand owner money while maintaining or even improving consumer satisfaction

Value engineering study boarders

8

Target:

• Increase competitiveness of KHC products, Optimizing a defined packaging functionality and cost

Tasks:

• Developed justified VE Ideas pipeline for short term and long term projects

• Find additional consumer values

Scope:

• Region and Selected item to be studied

Participants:

• KHC –Procurement, R&D team, Manufacturing, Marketing, Logistic (for secondary and tertiary packaging)

• Supplier – Commercial team, Technical experts, Innovation team, Manufacturing experts

Time:

• Min – 1 day; max – 5 days

Outside of the scope:

• Project implementation, other packaging (sales pitches)

Value Equation

Very much more satisfacation

Small increase in Resources

Value α α

Much more satisfacation

Same Resources

More satisfacation

Fewer ResourcesMuch Fewer Resources

Same satisfacationSlightly less satisfacation

Very much fewer resourcesMuch fewer resources

Ideas evaluation

10

Optimal amount of material

+ X %- X %

Packaging over specificationPackaging under specification

Product waste, inefficient

production, brand damage

Excess material, unoptimized

portfolio

*Source: Packforsk, Sweden, 2001; Plato product consultants

Amount of packaging material

Tota

l Cos

t of O

wne

rshi

p

Wrong Value Engineering

11

Searching for Functions

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1. Entire supply chain

2. Components and parts of the product:

3. Why Consumers are willing to pay for packed products?

Why FMCG companies use packaging?

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Brand owner/ Co-packer

Distribution Center

Retail store/ Point of

Contact with consumer

End consumer

Consumers’ requirements

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No. Customer demands Importance1 Packaging preserve product taste and texture 72 Packaging ensure long shelf life 43 Packaging keep product safe (no deterioration or contamination) 64 Packaging promote a brand 65 Packaging provide information (Nutrition, flavour, recipes) 4,56 Packaging is transparent 17 Packaging is reclosable 78 Packaging is easy to open 89 Packaging provide easy access to the product (easy pour, dispense, clean hands) 9

10 Packaging is safe to use (e.g. no cuts, anti choke) 7,511 Packaging is recyclable 012 Packaging is in the right size (one consumption, family pack) 613 Packaging can be reused 014 Packaging attracts attention (multicolour, shape) 6

Kano Model

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Identify functions – Ketchup example

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1 Protect product2 Keep freshness3 Prevent oxidation4 Stop UV 5 Preven leakage6 Keep integrety7 Preven damage8 Absord impact9 Convey information10 Inform Consumers11 Support printing12 Provide convinience13 Provide reclosability14 Fit refrigirator15 Control dispensing16 Use whole product17 Dose product18 Occupy less space19 Leave left overs on cap20 Facilitate opening21 Facilitate carrying22 Provide first opening evidence23 Withstand supply chain24 Ensure runability25 Save logistic cost26 Contain product27 Attract consumer28 Provide shape

Functional Tree

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Protect product Keep freshness prevent oxidationStop UV

Preven leakage keep integrety

Preven damage Absord impact

Inform Consumers Convey information Support printing

Provide convinience provide reclosabilityfit refrigiratorcontrol dispensinguse whole productdose productoccupy less spacemake messleave left overs on capfacilitate openingfacilitate carrying

Protect consumer (baby) provide first opening evidenceanti chokeNo cuts

Withstand supply chain ensure runabilityPrevent stillingease moving in the shopSave logistic costContain product

Attract consumer Stand up Pouchprovide shapesupport multi-colour printing

How? Why?

Functional Specification

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Packaging TypeQuantitative

Packaging Function Specification Soy Criteria Chili Criteria

Protecting Product Providing Clearance Dimension Width max. 1 mm variance. max. 1 mm variance.

Absorbing Impact Tensile Strength 77-83 N/mm >50 N/mm

Press Test 80 kg/direct 70 kg/direct

Stacking Test 0.023% max. leakage 0.023% max. leakage

Transportation Test 0.023% max. leakage 0.023% max. leakage

Facilitate Sealing Sealing Strength > 3000 kgf. > 3000 kgf.

Prevent Water Vapor WVTR/ MVTR < 7.9 g/m2/d < 0.1 g/m3/ d

Prevent Oxidation O2TR < 54.4 cm3/m2/bar/d < 0.5 cm3/m2.atm.d

Maintaing Freshness Shelf LifeProduct 26 months 14 months

Provide Convenience Facilitate Packing in Production COF 0,43 0.6-0.8

OEENo. of Joints 1 /1000 m roll length 1 / 750 m roll length

Functional cost

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Function carrier Cost Control

1 Pet (12+12) 6% 6,07 0,0 3,0 0,0 0,0 0,0 3,02 Ink 6% 6,28 0,0 1,3 0,0 0,0 0,0 5,03 Adhesive 14% 13,80 6,9 0,0 0,0 0,0 6,9 0,04 Alu 9 12% 11,52 8,1 0,0 0,0 0,0 3,5 0,05 PE (130) 31% 31,40 15,7 0,0 0,0 0,0 15,7 0,06 Spout 15% 15,00 1,5 0,0 6,0 6,0 1,5 0,07 Conversion cost 16% 16,00 4,8 2,4 1,6 1,6 4,8 0,8

% - Share of overall cost 36,9% 6,7% 7,6% 7,6% 32,3% 8,9%

Attract consumer

Withstand supply chainProtect product

Inform Consumers

Provide convinience

Protect consumer

Target functionality

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Packag

ing pr

eserve

prod

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Packa

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nsur

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lf life

Packa

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eep p

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Packa

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romote

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nd

Packa

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ovide

infor

mation

Packa

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s tran

spare

nt

Packa

ging i

s rec

losable

Packa

ging i

s easy

to op

en

Packa

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ase a

cces

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oduc

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Packa

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to us

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Packa

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Packa

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entio

n

Functions 7 4 6 6 5 1 7 8 9 8 6 6 Sum %Protect product 9 9 9 6 0 0 0 0 0 0 0 0 189 14%Inform Consumers 3 0 3 9 9 0 0 0 0 0 3 6 134 10%Provide convinience 0 0 0 6 6 0 9 9 9 6 6 6 324 23%Protect consumer 6 3 9 6 3 0 0 6 3 9 0 0 300 22%Withstand supply chain 3 9 3 0 3 0 0 0 0 0 3 0 89 6%Attract consumer 6 3 6 9 9 6 4,5 6 6 4,5 6 9 358 26%

0 = No influence at all3 = Low influence 6 = Medium influence 9 = High influence

0

5

10

15

20

25

30

35

40

Cost [%]

Functions

Target Functions Cost

Current Functions Cost

Functional Cost Comparison with Consumer needs

21

Functions Challanges

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Protect product Keep freshness prevent oxidationStop UV

Preven leakage keep integrety

Preven damage Absord impact

Inform Consumers Convey information Support printing

Provide convinience provide reclosabilityfit refrigiratorcontrol dispensinguse whole productdose productoccupy less spacemake messleave left overs on capfacilitate openingfacilitate carrying

Protect consumer (baby) provide first opening evidenceanti chokeNo cuts

Withstand supply chain ensure runabilityPrevent stillingease moving in the shopSave logistic costContain product

Attract consumer Stand up Pouchprovide shapesupport multi-colour printing

How? Why?

• Substitute• Combine• Adjust• Modify• Put to other use• Eliminate• Rearrange

Function carrier Cost Control

Pet (12+12) 6% 6,07 0,0 3,0 0,0 0,0 0,0 3,0Ink 6% 6,28 0,0 1,3 0,0 0,0 0,0 5,0Adhesive 14% 13,80 6,9 0,0 0,0 0,0 6,9 0,0Alu 9 12% 11,52 8,1 0,0 0,0 0,0 3,5 0,0PE (130) 31% 31,40 15,7 0,0 0,0 0,0 15,7 0,0Spout 15% 15,00 1,5 0,0 6,0 6,0 1,5 0,0Conversion cost 16% 16,00 4,8 2,4 1,6 1,6 4,8 0,8% - Share of overall cost 36,9% 6,7% 7,6% 7,6% 32,3% 8,9%

Attract consumer

Withstand supply chainProtect product

Inform Consumers

Provide convinience

Protect consumer

Ideas Evaluation

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Option 1

Option 2

Option 3

Current packaging

Option 4

Option 5

0.00

20.00

40.00

60.00

80.00

100.00

120.00

100 150 200 250 300 350 400 450 500 550

Pric

e [€

]

Performance

Price-Performance-Portfolio

Developing new products with Value Engineering

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In July 2016 in Heinz Innovation Center Nijmegen, NL

Objectives of the workshop:• Identify Global trends for food packaging• Evaluate options and perspectives• Ideate and roadmap Business Cases

Participants: 20 people from Marketing, R&D, Procurement, Manufacturing

Outcome: ~50 ideas => 8 Business Cases

Upcoming Trends in Food industry (1)

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Smart packaging

• Internet of the things and Smart packaging is “unavoidable future”

Way of Delivery

• Develop multi-channels to reach consumers

• Chef Food delivered at home – accessible experience

• Will we need retail stores in 5 years?

Flavor

• Bio mimicry – Cope nature

• Tailor made products

• Nutrition only

Upcoming Trends in Food industry (2)

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Way of Cooking• Enhance cooking – 5 minutes any meal• Full meal solution• 3D food printing

Portion sizes• Bulk solutions• Capsuled food

Sustainability• Bio degradable / edible packaging• Refill – 0 waste• Industry associations• Guilt free packaging

Conclusions

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• Today FMCG companies expect better packaging functionality for

fewer resources

• In the future Packaging should comply with the new demands

• Value Engineering as an approach can help to:

1. Clarify Brand owners targets and strategies;

2. Get alignment among all engaged stakeholders;

3. Correlate consumer insight with the packaging

4. Optimize current packaging functionality/cost ratio

5. Encourage new product development

Vladimir Zernin

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Global VE Lead for PackagingKraft Heinz Company

Vladimir.zernin@nl.hjheinz.comZernin@inbox.ru

Cell: +31612212704

Implemented VE ideas for Flexible packaging

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• Decrease sealing layer thickness

• Alternative barrier layer

• Decrease barrier layer thickness

• Alternative barrier layer

• Fewer adhesives for lamination

• Alternative adhesives for lamination

• Simplify structure (4 layers ->3 layers)

• Process change (3 layers at 1 go)

• Use coextrusion process to reduce conversion

• Decrease sealing area

• Reduce shelf life for end product

• Spout and cap lightweight

• Use coating as a barrier

• Reel supply instead of premade pouches

• Deliver only full tracks

• Simplify secondary packaging for delivering to KHC

• increase orders MOQ's

• Longer forecast with KhC commitment

• Shorter rail holder on the spout

• Optimize printing (fewer colours)

• Optimize sizes (fewer formats)

• switch to Flexo (start with sachets)

• Optimise palletization for delivery to KHC

• No print on the sachet back (no masterbatch, no ink)

• Reduce stock

Value management

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When to start?

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