This week was the first of the two 4 day weeks that are Easter. The usual pattern is to cope with an expectation by customers that we can produce in four days what we normally do in five. To an extent this has continued despite the pandemic but at least the pressure is now focused on the agricultural sector because the lock-down has closed the garden centres. We are still very busy. We are still “social distancing”. The Prime Minister is just out of hospital, the NHS is short of PPE, over 10,000 have died and many are afraid.
The forward view of sales is causing me concern because the orders for the oil suspension product show a reduction of 100,000 litres for the first six months compared with the last two years and the customer for the seaweed retail sector is cutting his forecasts to delete the April and May sales. On the other hand the parallel trade repacking and labelling work is up and we have some surprisingly large and unexpected enquiries from new customers and old for agchem work. Maybe these will compensate. Certainly the recently acquired repacking into pulpable bags is looking to be a growth area and the resumption of production with a new hot-melt glue gun is a technical achievement that I am proud of thanks to our electrical genius.
Apart from trying to adapt to new ways of working under the pandemic conditions this week has demanded a great deal of attention on a particular couple of parallel trade jobs. These came to us from a customer that swore they would never deal with us again some five years previously. The reasons behind such a declaration are bound up in the nature of the parallel trade, its time pressures and of course, the personalities involved. The pandemic had changed perspectives and time had passed. Maybe!
The two jobs that occupied my attention involved us in undertaking similar, but not identical processes, to those in jobs that we had done previously and in jobs that we are doing for other clients. Repacking from one container to another and re-labelling a container as a different brand. This is the essence of the parallel trade but of course, it is more complicated than that because there are legal restrictions and commercial considerations in what is also known as the “grey market”, as opposed to the “black market” which would obviously be a bad thing!
We have been doing this sort of work for twenty years and although it represents a small part of our turnover and is not particularly profitable it is all “grist to the mill” and helps to keep a team employed and available for the more profitable work. It also keeps some skills honed, removing labels, applying labels by hand, organising the job efficiently. It is part of what we do and it has taken me a while to learn how to do it without getting my fingers burned. This week I got too close to the fire.
First a lesson in economics. The “grey market” exists because someone can buy premium branded product cheaply enough that they can sell it again at a profit so that the farmer can buy it at a lower price than the premium branded product. In the process the product is changed from the premium brand to the parallel brand which involves someone like us making the re-labelling and re-packing changes necessary and doing so efficiently enough that there is enough margin left for the parallel trader to sell to the farmer at a profit. Obviously the price that is paid for the premium branded product is key to this working and there are several reasons why this branded product is available so cheaply: currency exchange rates, overstocking in a market, stock nearing its expiry date, adverse weather in a particular region leaving product unsold. One common factor to all of these reasons is time. Time is of the essence, so the parallel trader often knows who he will be selling to before he buys and the he expects the contractor like us to convert the goods as quickly as possible so that they can be applied to the farmer’s crop before the weather changes or the crop passes a critical stage.
Second a lesson in ethics. The owners of the premium brand take a dim view of the “grey market” because they don’t control it, because someone else is making money from the product that they have made, because their reputation might be damaged by the way their product is used in the field. The transition from premium brand to parallel brand could be an opportunity to infiltrate unregulated product into the field, to change the expiry date of a regulated product, to change the instructions for use so that it could be applied to a different crop or pest for which there has been no testing. At the same time, the premium brand owners are also the people who might benefit most from last year’s overstock being sold off to ensure that this year’s sales are maximised. Regulators in European and UK markets attempt to control some of these issues by requiring parallel traders to licence their parallel brands and link them to a specific premium brand citing the same crops and instructions for use and requiring that the labelling specifically uses the original product batch number and date of manufacture. The use of a similar chemical compound imported from China without any of the controls applied to the original premium brand is not permitted. These Regulations concerning the labelling were updated in 2015 and some parallel traders have expressed concerns that the obligation to use the original batch numbers enables the premium brander owners to track the route in the supply chain whereby the parallel trader came by the goods and so to control the supply.
After the Regulations were updated we wrote to our parallel trade clients making it clear that we would assist them in compliance with the Regulations by adopting policies on coding re-labelled and re-packed product that reflected the Regulations.
The policies have been in operation since that time and we have not experienced any difficulties apart from the inconvenience of ensuring that we change the batch numbers and dates of manufacture as the input batches change.
We had started on the first of these new jobs when I realised that the client had specifically asked for a different coding policy and I had taken the job without challenging the matter. At the same time I also realised that the work content of the specific re-packing job was significantly greater and hence the job was slower than I had estimated. We were going to lose money and it was my fault for rushing the estimation step. We were also not doing what the client wanted and might not pay us at all! What to do?
The second job, which had not yet started, had a similar coding issue but also needed an additional blank label to be cut to size and applied over the residue of the original branded label before applying the parallel label (we can’t always remove a label entirely at an economic rate so a cover-up label is used). This had not been part of the original enquiry but the extra cost still needed to be recovered.
With the client asking urgently for progress on the re-packing and re-labelling and I was unwilling to contravene the Regulations lest I become vicariously liable for the breach. This was an interesting test of my negotiation ability and a lesson to be learned when taking on a new client in partially familiar but simultaneously high pressure rapid-response circumstances. Time will tell.
The following is an extract of my thinking earlier concerning the first of the jobs as I prepared the paperwork. I am eating some Cadbury’s Roses left over from Christmas. They are a technical marvel. Nine different chocolates each individually and perfectly shrouded in a flow-wrapped foil, every one precisely positioned in the foil and sealed with an easy to open tear point and perfectly sealed and then collected together in a beautiful and well-sealed pouch with the batch code and “best before date” printed with perfect clarity right in the middle of the white rectangle on the foil pouch. The simplicity and minimal packaging waste while maintaining the product security is a joy to behold and something to aspire to. How I would love to be able to produce such a product!
The contrast in my mind is with the 80g pots of ***** that we are filling for ***** from the sophisticated 3 year old packs of **** that are soluble 20g sachets which are themselves packed in 4’s or 7’s in resealable foil pouches packed into cartons or cases. We are required to desecrate such sophistication to open and empty the soluble sachets through a worm-hole in the space-time continuum of 20 years earlier into plastic jars sealed with IHS caps with a self-adhesive label that leaves little or no room for the application of a batch and date code before being layered into a brown corrugated shipping carton. Only for us to grapple with the disposal of sachets, pouches and cartons left unwanted in the current century. Such is the daily compromise that we make as we mix and pack stuff in an effort to serve customers and grow the business. It is sometimes hard to keep the beautiful image of the Cadbury Roses in focus!
There are also strategic issues here: we should be looking for productivity improvements by use of cobots in this situation and also actions to manage the packaging waste better. Can we do it better? Will there be regulatory pressures to minimise the waste? Can and should we seek to influence the Authorities in changing the rules on parallel registrations to prohibit the repacking of product out of non-recyclable packaging? How would that work with the example above?