Are Suppliers Ready to Compete for Your Business?

Is it time for North American purchasing teams to refocus on strategic sourcing? After staggering material shortages and unheard of ocean freight costs, purchasing teams are seeing glimmers of light that suppliers might be ready to compete for business once again.

There’s a lot of evidence that supply markets for many commodities are beginning to turn to the buyer’s advantage after a dreadful couple of years. For example, Ryerson reports that hot-rolled and cold-rolled sheet steel prices have improved and will continue to move lower in the second half of 2022 (Ryerson.com, 9/28/22). We’ve found similar trends in resins – prices have decreased in the last three months for four of eight common resins (see chart, after all eight have seen substantial price increases over the past three years. It appears that commodity resin prices are dropping in North America as well as some engineering resins (Plasticsnews.com, 10/14/22).

This trend continues in corrugated packaging, with the corrugated paperboard price index flattening in the third quarter after a 38% increase over the prior 18 months (fred.stlouisfed.org). More broadly, SMI reports that “month-over-month supplier delivery performance was the best since December 2019” (September 2022 Manufacturing ISM® Report on Business®). This appears to be related to moves by Amazon and other consumer goods suppliers to increase usage of non-corrugates shipping containers such as poly mailers.

Unfortunately, supply is not stable for all commodities. Electronics continues to be an all-hands-on-deck challenge with 80% of chip lead times longer than 52 weeks. Some resins are still in short supply. And the ongoing war in Ukraine has created a terrible energy environment for manufacturers throughout Europe.

Our discussions with manufacturing purchasing leaders point to opportunities to drive substantial cost reductions for the first time in nearly two years. For example, one project this summer found substantial savings opportunities from consolidating suppliers of coiled metals. Another example comes from a recent market test of corrugated packaging that identified a 15% savings opportunity on $2M annual spend.

It does appear that the time is right to re-examine supply base competitiveness. In many cases, well-constructed sourcing events helping companies make the turn from fending off price increases to getting suppliers quote competitively to win the business.

Similar Posts