Feb. 14, 2013
ADAM BURKE AND PBM PLASTICS: MESSAGE IN A BOTTLE1
Between his responsibilities at his new job and trips to his old company, Adam Burke, former president of PBM Plastics, was scrambling. Only four months after selling his disposable preformed baby bottle liner business in August 2005, the buyers were unable to meet orders. Ordinarily, that might not be a former owner’s problem—but his current company, PBM Products, had a supplier exclusivity contract with his former firm, which was now part of a company called SparPack. Within weeks, PBM Products needed to ship SparPack product to retailers or default and incur hundreds of thousands of dollars in fines—not to mention let customers down. On top of that, pulling the contract from his former company could put the SparPack division out of business and all his former employees out of work. Given the scarcity of liner suppliers, Burke was in a bind—there was no one else who could meet the obligation. Was there something he could do to get his former company back on track in time? What should he do next?
Disposable Baby Bottles The traditional baby feeding bottle was made of reusable glass or plastic and required sterilization. In the 1980s, Playtex introduced the disposable bottle liner and eliminated the need for bottle sterilization; the new system also reduced the amount of air a baby ingested during feeding. Bottle liners became an industry standard, putting the Playtex brand left, right, and center in the baby product space. In the system first introduced by Playtex, a flat plastic liner was stretched over the lip of a bottle cylinder and filled with milk. As the baby drank, the flat liner collapsed around the remaining milk until it had collapsed into a vacuum, preventing the intake of air through the
Some names, dates, financial data, and examples are disguised, and some material is fictionalized for pedagogical reasons.
This field-based case was prepared by Gerry Yemen, Senior Researcher, and Elliott Weiss, Ethyl Corporation Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2013 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to email@example.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. ◊
nipple. The only downside to the system was that as the liner was filled, the weight of the milk could pull the liner off the bottle rim, spilling its contents. Playtex responded by developing a preformed, three-dimensional liner with a rim that functioned as a gasket, making its use easier and more secure. With every good idea comes a competitor. PBM Products Company (PBM Products), a manufacturer of infant formula in Gordonsville, Virginia, noticed that no one was making a private-label preformed liner to compete with Playtex. It didn’t want to enter the market, but it did want to get word of its brand to infant formula customers and figured distributing formula coupons through liner packaging (Figure 1) would serve as an effective marketing vehicle. So it contacted Adam Burke, an executive trained as an engineer who had worked at Procter & Gamble and GE in baby products and plastics, with an offer: PBM Products would be the main investor and make him an equity partner and president in the preformed liner business if he agreed to a distribution arrangement. For Burke, it would be an opportunity to own and run his own business. Figure 1. Baby formula coupon.
Source: Adam Burke. Used with permission.
With seed money ready to go by 2000, Burke set out to produce