TETRA PAK

Tetra Pak: A persistent desire to digitize their supply chain

Tetra Pak has made numerous strategic changes to its business model over the past years to address changing market conditions and therefore maintain its ability to add value. This case study describes how a mere idea of making sausages helped Tetra Pak become a world leader. With persistent innovation and digitization, it attained its place in the world of packaging. The technology landscape has been extremely dynamic over this period and companies that have not adapted rapidly have faced extinction. Moreover, the article also highlights some of the challenges Tetra Pak faced, how they expanded their capabilities and what their future roadmap looks like.

A GLOBAL PIONEER IN PACKAGING TECHNOLOGY

Since the beginning Tetra Pak was committed to excellence and innovation. Within the early 1990s, they came up with a Total Predictive Maintenance (TPM) — a program of a program of relentless, data driven reduction and elimination of productivity. Exhibit 1 shows the innovative first packaging by Dr. Rausing — Tetra Pak — an oxygen free, aseptic, stackable, and easy to use package which replaced glass packaging that had issues of stack ability and was breakable. By 2017, the firm was able to come up with twelve different kinds of packaging. In later years, The Total Productive Maintenance program by the firm specifically aimed at enhancing performance and reducing losses using digital insights. This program was extremely successful that its continuous implementation gave Tetra Pak its first “Japan Institute of plant Maintenance Global Leaders Award”.

Tetra Pak’s vision has always been focused on making packages save more than it costs.

A STRATEGIC APPROACH OF DIGITIZATION

Tetra Pak after identifying its strategy of digitization established three key business priorities across its operations namely

· Improving the quality and performance

· Offer outcome-based service contracts

· Re-inventing the package

Under the leadership of Erik Winberg, the objective was to provide leadership in all digital supply chain management. The problem Eric faced was to convince the company’s leadership to develop the digital program office outside the company’s existing IT organization. It was indeed the tough decision as the company heavily was based on SAP. The leadership irrespective of their trivial approach, agreed Eric’s proposition. Digital technologies helped Tetra Pak get access to more sophisticated automation, higher resolution data, and greater depth of insight/analytics into quality and efficiency losses while maintain its core business strategy of saving costs and providing value. Data centers were created to provide a centralized capability for identifying and securing the sources of all data needed for selection of the projects. This concept aimed to overcome the limitations of SAP. Since the technology was new for many functional teams , Eric suggested that data science CoE should always be the starting point. They were able to achieve this milestone by Connected Workforce and Advanced Analytics. Along with the above-mentioned efforts, the firm invested internally on sensors to monitor every step in the manufacture of its packaging materials to fully capture all the potential areas of production disruption and areas of quality improvement. However, the amount of data staggered and then the firm had to invest in automation of all movements via RFID sensors and Automated Guided Vehicles. Using this sensor technology the amount of data that they were collecting was staggering and over 20000 different pieces of equipment were connected and compiled data through a cloud platform. Not restricting itself, Tetra Pak would then use advanced analytics and machine learning algorithms to identify problems in folds on customer filling lines. Tetra Pak was able to identify the quality incidents and product recalls to meet ever more stringent requirements by having a connected package which enables its customers more granularity in product traceability.

SWOT Analysis

Strength:

Being a market leader in full-fat, skimmed and semi-skimmed milk it had extensive distribution throughout the nation. Due to investments in technology and digitizing its product, it diversified its product portfolio. Additionally, it had strong relationship with leading packaging industry in the market. Tetra Pak has first mover advantage in number of segments. It has experimented in various areas Customers, Market research, Supply chain. The Sales & Marketing solutions & strategies have helped Tetra Pak in coming up with unique solution to tap the un-catered markets.

Weakness:

Tetra Pak’s business model can be easily replicated even with the number of patents and copyrights the company possess. The intellectual property rights are very difficult to implement in the industry that Tetra Pak operates in. Also, Tetra Pak is not diverse enough given that most of its growth so far is in its domestic market which can easily reduce its potential of success in the international market. Even though Tetra Pak has integrated technology in the backend processes it has still not able to harness the power of technology in the front-end processes. Although the demand for products have not gone down but there is a simmering sense of dissatisfaction among the customers of Tetra Pak. It should focus on areas where it can improve the customer purchase and post purchase experience.

Opportunities

Tetra Pak can use developments in artificial intelligence to better predict consumer demand, cater to niche segments, and make better recommendation engines. E-commerce business model can help Tetra Pak to tie up with local suppliers and logistics provider in international market. Social media growth can help Tetra Pak to reduce the cost of entering new market and reaching to customers at a significantly lower marketing budget. It can also lead to crowd sourcing various services and consumer-oriented marketing based on the data and purchase behavior. Tetra Pak can leverage its increasing standardization trend to reduce the number of offerings in the market and focus on the marketing efforts on only the most successful products.

Threats

Tetra Pak has focused on China for its next phase of growth. But there is growing tension between US China trade relations, and it can lead to protectionism, more friction into international trade, rising costs both in terms of labor cost and cost of doing business. As Tetra Pak can leverage low cost of reaching customers using social media and e-commerce, so can the competitors — both local and international competitors. The growing inequality is one of the biggest threats to not only globalization but also to capitalism. Tetra Pak first hand witnessed the impact of it where it has seen lower demand of its products from middle class customers in US and EU market.

CONCLUSION

Tetra Pak, should be more efficient and more sustainable in food packaging and should replace aluminum in its aseptic cartons with materials that reduce carbon footprint and improve recyclability, all without jeopardizing food safety. It should invest more in the development of packages made with a simplified material structure and increased renewable content. I believe in the Tetra Pak threat of new entrants is very low as it has advanced so much in its business and had invested heavily in research and development that its unmatchable for the new entrants.