Litehouse Foods: The glass dilemma

Submitted by: Group 3

S Jayalakshmi (16F132)
Joveena Abreo (16F133)
Pooja Banerjee (16F144)
Harshal Kale (16F223)
Moinak Banerjee (16F238)
COMPANY BACKGROUND

Originated out as a family business, Ed Hawkins along with his wife started a restaurant named
Litehouse in early 1960s. They started selling their popular creamy bleu cheese salad dressing in
1963. In the 1970s the family acquired a plant in Sandpoint, Idaho to solely dedicate it to the
production of the dressing business. Their products boast about premium taste and are made of rich
natural ingredients. They even went ahead with in house production of bleu cheese and by 2001
they were the largest suppliers in U.S for the same.

Initially they sold only refrigerated salad dressings in glass bottles and a 10 year old market research
suggested that customers identified them with glass bottles. However a recent research conducted
in 2005 showed that Customers no longer had this perception and associated Litehouse products
with premium taste.

CURRENT SCENARIO

At present, the senior business development manager Doug Hawkins Jr, is in a dilemma about
switching to plastic packaging from glass. This uncertainty arose as he was worried that the brand
image would be affected by this change. However a change was required as competitors in the
market were able to achieve a 15% price advantage by switching to plastic bottles.

RECOMMENDATION

As Doug Hawkins Jr, we would suggest the Litehouse team to switch to plastic packaging.

FACTORS AFFECTING THE PACKAGING DECISION

IMPACT ON
OPERATIONS

IMPACT IN
FINANCIAL
QUALITY
IMPACT
ASSURANCE

FACTORS

IMPACT AT IMPACT ON
RETAIL LOGISTICS
IMPACT ON OPERATIONS

1. Breakage due to use of glass can be avoided While the breakage was limited to 0.25
percent of production , clearing the shards of glass from the site and disposing the affected
product and nearby resources was a tedious task.
2. Inventory can be recorded more accurately The broken jars were not taken into account
properly and hence inventory records were not accurate.
3. Reduce in production time Glass bottles had to be placed manually in the line unlike plastic
which could be dumped into a descrambler and aligned in position for filling. Thus this could
reduce the down time.
4. More robust packaging Sealing glass bottles took more time and effort and led to
temporary stoppage in productions. On the other hand plastic bottles could be sealed more
easily.
5. Savings on quantity By switching to 12 Oz plastic bottles from 13 Oz glass bottles, they
would save $1.5 million per year.

CONCERNS -

Plastic bottles could be stacked only up to three layers unlike glass bottles that could be
stacked up to 5 layers. Hence to make adequate use of the limited warehouse space,
additional shelves were required.
Induction sealing systems and descramblers were required to be installed.
These changes would lead to a total cost of 750,000$.Additionally one time transition cost of
100,000$ would be incurred.

IMPACT ON QUALITY ASSURANCE

1. Elimination of hazard - Plastic packaging will ease the process as removal of broken glass
shards was very difficult task. Glass was prone to breakage not just at the site of production
but at the point of sale as well.

CONCERNS -

Glass bottles were considered to be safer to contain food.

Glass is better at retarding oxygen permeation and hence prevents oxidation of product.
This directly impacts quality of the product.

However by refrigerating the product, oxidation could be prevented. Also FDA standards could be
relied on for choosing the correct food grade plastic.
IMPACT ON INBOUBD AND OUTBOUND LOGISTICS

1. Full utilization of the Volume capacity of the truck-Three Additional pallets could be
accommodated in the truck when the bottles were loaded with dressings. The entire volume
of the truck could be utilized for empty bottles unlike in the case of glass bottles.
2. Reduction In fuel prices - Also glass owing to its weight, results in larger fuel consumption.

By using plastic $500,000 could be saved per year, 80% of which was savings on fuel.

3. Suppliers for glass jars were not located regionally Due to lack of suppliers in U.S,
Litehouse sourced glass jars from Taiwan. However for plastic, they had found a source in
U.S who had facilities located near Litehouses production sites as well. There would be an
upfront cost of $100,000 involved in production of moulds for the new jars.

IMPACT ON RETAIL

Retailers were more inclined towards profitability they could seek from the product and stock
clearance instead of packaging.

CONCERNS-

Since the change in packaging might result in the product being considered as a new SKU,
Litehouse would have to either pay stocking fees or hand out free samples.

However, Doug on analysis learnt that few retailers may pardon this fee.

Marketing efforts would be needed to help maintain consumers perception about the new
packaging of the product.

The fee and marketing efforts would add up to a total one time additional cost of $450,000.
FINANCIAL IMPACT

Onetime COSTS
Operations Cost 7,50,000
Transitions Cost 1,00,000
Marketing Costs 2,50,000
Stocking fee 2,00,000
Total 13,00,000

Yearly SAVINGS
Savings on Logistics 5,00,000
Savings on quantity 1500000
Total 20,00,000

Though switching to plastic would need an upfront investment of $ 1.3 million, it would lead to
long term savings of $2 million annually. Hence Litehouse should follow its competitors and switch
to plastic packaging.

RECOMMENDATIONS FOR TRANSITION

The transition process should be supported taking into account the impact it creates across the
organisation and functions. The focus should be on minimizing the cost of transition -

1. Organisational transition
Financial Although the investment required does not give short term benefit,
however, the savings per year build to achieve long term profitability. A benefit
analysis presented to the executive team highlighting the long term impact would
help in supporting the transition.
Employee Aligning employees with the changes through effective internal
communication with focus on the strategic implications is necessary. This will help to
gain their trust in the organizations strategic goals and thus direct their efforts in
making the transition smooth.
Quality Certification To ensure the organizational principle of accountability is
adhered, quality certifications should be put in place post thorough testing.
2. Operational transition
Manufacturing process Considering the advantages of shifting to plastic bottles,
the transition has to be well planned and executed. The bottle should be carefully
designed keeping in mind the customer usage convenience, production defect
minimization, packaging and storing and transportation. Improving operational
efficiency by implementation of the kaizen and installation of processes that reduce
the overall lead time is the key to excellence reduction of time to move pallets.
Inventory Management The suppliers of the plastic bottles, seals, labels etc. should
be taken on board with the delivery timelines clearly communicated. The production
capacity will be fully utilized if these delivery timelines are met.
Warehouse management Additional warehouse shelving requirement should be
addressed before the production starts in order to facilitate the smooth flow of the
supply chain process.
Safety Stock Accurate forecasting of demand for the time till the new product hits
the market will help in ensuring two concerns product is always available in the
market and the inventory of glass bottles are converted to sale with least scrapping.

3. Marketing transition
Retailers The retailers should be intimated with the packaging change well ahead so
that a collaborative effort is made to make the product available to the customers.
This effort would require a focus on ensuring the glass bottles are stocked as per
estimated demand and the plan of change to plastic bottles is executed well. No
overlap in stocking of both the bottles will help in eliminating the chances of customer
confusion.
Customers A marketing communication plan should be implemented before the
product hits the market in order to set the expectations right. A promotional effort at
the retail outlet will help in better and effective communication of the convenience
the product packaging provides to its customers. A perception change will be required
towards plastic bottles through delivering the message of safety and quality
maintained by the packaging as well as the environmental impact.
ADDRESSING ENVIRONMENTAL CONCERNS

1. As per the study conducted by National Association for PET Container Resources (NAPCOR)
1993, it was found that PET containers consumed about 45% less energy and generated 35%
less solid waste than glass
2. Glass containers were found to generate 3X atmospheric waste & about 70% more
waterborne emissions by weight than PET bottles
3. Energy consumed in the conveying a 20 oz. PET bottle and a 8 oz. glass bottle size carrying
100,000 ounces of soft drink comparison as below:

Environment impact PET Bottle (20 oz.) Glass Bottle (8 oz.) Effect Comparison
Energy consumed (Btu) 11 million 26.6 million 1.5X
Greenhouse gases 1125 lbs 4848 lbs 3.3X
Solid waste 0.67 2.14 2.19X