Hogan helps reduce waste, push vendor concentration at Nelipak

Of all the challenges a multi-national organization faces in terms of different languages, time zones and currency, it's the cultural nuances that Paul Hogan was uniquely qualified to bridge as chief financial officer for Nelipak Healthcare Packaging.

The Cranston, R.I.-based business has 600 employees at five manufacturing sites in four countries: Ireland, the Netherlands and Costa Rica in addition to the United States.

Hogan was hired in April 2014 along with CEO Michael Kelly to drive growth at the 60-year-old company, five months after it was purchased from Sealed Air Corp. by Mason Wells, a Milwaukee-based private equity firm.

“Sealed Air had operated it as a division so it really didn't have its own stand-alone management team,” Hogan said in a telephone interview. “Mike and I were charged with implementing that. It was a business where we all could see there was a huge amount of potential and we've been fortunate we've been able to tap into that in the first two years.”

Sales of thermoformed medical trays, pharmaceutical packaging and sealing machines are up to $130 million, reflecting top line growth of about 25 percent, Hogan said.

Some profits also were generated from a waste reduction initiative equivalent to more than 5 percent of earnings before interest, tax, depreciations and amortization (EBITDA), according to Kelly, who nominated Hogan for CFO of the Year. Also, he said spending is down $1 million from vendor consolidation and $3 million from labor efficiencies.

“Paul has flawlessly dealt with a lot of financial complexity in our business,” Kelly wrote.

He said he considers their best practice to date as staying focused on a cultural change initiative “to replace the silo approach from five sites to one Nelipak, where all sites work together toward a unified goal.” Kelly called Hogan “a great leader” whose peers come to him for support and coaching.

Cultural considerations

Born and raised in Dublin, Ireland, Hogan lived and worked there until 1993. When he was nudging 30, he relocated to the United States for a job with the international packaging firm Clondalkin Group, which is headquartered in Amsterdam. Hogan spent a lot of time in the Netherlands in his global role, working on mergers and acquisitions.

“I've gotten to know the culture pretty well and how to work with the people there,” he said. “It's very different from the U.S.-type firms, where you can implement change pretty quickly. It tends to be a much more drawn-out process. The Dutch are very fact-based. You need to explain the entire process to them and essentially get their buy in. You can't short circuit that. You can't force change.”

Hogan was CFO of North American operations for Clondalkin until 2014 and he took on development duties. During some acquisitions he met Christine Urdiales, whose ability to get deals through the due-diligence process in Puerto Rico impressed Hogan. Now she is Nelipak's director of sales for the Caribbean, Central and South America, and has been key in opening the door to a new geographic market and monetary growth, Kelly said.

There's a lot of good opportunity for Nelipak in both Costa Rica and Puerto Rico right now.

“They're both really important [medical] device and [pharmaceutical] hubs, so having a presence on the ground has really given us the ability to support our global customer base, many of who are well established in Puerto Rico,” he said.

As for Costa Rica, Hogan said there are a lot of multi-national, well-educated people there who are strongly influenced by the U.S. and tend to be flexible. The same goes for Ireland, he said, adding, “The Irish just have a way of getting along.”

Although the CFO position had cultural challenges, it didn't present a big learning curve for Hogan at Nelipak.

“I've helped my colleagues understand that change is going to be slow in some jurisdictions and we have to go through the right process,” he said.

Waste not

When it comes to processing plastics, Hogan said he is a firm believer in what gets measured, gets managed, which is particularly important in the thermoforming business, where there's a level of waste in the edge trim.

“There was a general acceptance that it's just waste and there's nothing we can do about it,” he said. “So early on we implemented a procedure where we could monitor our waste more carefully.”

Edge trim specifications have since been reduced from 1½ inches to about an inch.

“Even though half an inch doesn't sound like a lot, half an inch every linear foot adds up pretty fast,” he said. “Material is our biggest cost by far. Every percent we can manage on that has a disproportionate impact on the bottom line.”

About 10 waste reduction initiatives are underway. Another involves using larger diameter roll forms to cut down on the time and labor for changing rolls. Another involves using custom-made pressure boxes to house the tool during production in Europe.

“The size of the pressure box dictates the width of the roll stock required, so we would end up using material that was wider than the ideal,” Hogan explained. “By replacing the generic pressure box with a smaller custom box we can reduce the width of the material and thereby reduce the wasted material.”

Hogan said he recommends the controllers at all five Nelipak sites get into the plants to see what is going on and keep asking: Is that really the best we can do?

“Just by looking at stuff from a slightly different perspective, you can see obvious things that other people, who see it every day, just walk by,” Hogan said. “That's the catalyst for all of our waste initiatives.”

Vendor concentration

Nelipak has a limited number of vendors for materials, which generally falls into two groups; glycol-modified PET and high-impact polystyrene. The new management decided to change company spending habits to become a more attractive customer to its vendor base.

“The more volume you have, the better for the vendor,” Hogan said. “That's what we did. Rather than concentrate the number of vendors, we concentrated our spend.”

Nelipak established preferred-vendor programs to partner with key suppliers, he explained.

“They got increased volume and we got, not just better pricing, but terms, consignment and lead times,” Hogan said. “It's just about building a much closer cooperation with our vendor base.”

The vendor consolidation initiative that Hogan led saved Nelipak more than $1 million a year, Kelly said.

Other money matters

Hogan also was put in charge of information technology. He said finance is a natural home for IT because they are so closely related and detail oriented. The company is working on a single platform for U.S. operations, which are in Cranston and Phoenix, he said, as well as how IT can better support all sites.

“We're fortunate we have a very commercially focused IT group,” he said, adding that customers are relying on Nelipak more for IT functions.

“We have a lot of vendor-managed inventory where we have to respond to our customers,” Hogan said. “IT isn't a back-office function anymore. To a degree there's an element of customer interfacing with it as well.”

The two U.S. sites also had large numbers of temporary employees, which has been reduced with some being hired following a review by an efficiency consultant. The external consultant reviewed plant operations with the local managers and refreshed certain processes, Hogan said. New metrics to drive change and efficiencies in plant operations then were put in place.

The improved production efficiencies allowed Nelipak to reduce its number of temporary employees in the U.S. and Europe, saving about $3 million in labor costs.

“As our volumes were growing, the savings came through a combination of absolute headcount and increased output,” Hogan said.

The days when a CFO can be a single-discipline participant in a management team are gone, according to Hogan.

“You need at least a good understanding of each function in the business whether it's sales or operations or quality. You've got to understand the broader scheme,” he said. “In a way, the role is to communicate best practices across the sites and foster collaboration.”