Discussion Highlights: Optimizing Packaging Costs

September 9, 2022 Executive Roundtable

The roundtable theme was securing the lowest cardboard packaging pricing and locking in savings for the long term. Highlights of the roundtable discussion are summarized below.

  • Chief Procurement Office of a contract plastics manufacturer shared that they have been able to delay packaging cost increases by bringing up feedstock costs, sometimes preventing price increases altogether when they are able to commit to purchasing larger quantities. They commented that the Deloitte CPO survey did not have Cost Reduction as #1 for the first time (continuity of supply and digitalization were rated higher). They shared that customers are seeing some commodity prices appear to have peeked and are starting to demand cost reductions, so everything, including packaging, needs to be vigilantly reviewed. They feel that packaging suppliers seem to be getting hungrier, and shared the following:
    • Suppliers are now listening more rather than dictating price increases without justification
    • Cardboard packaging lead times are decreasing
    • Suppliers who don’t currently have the business are quoting more aggressively
  • Global Director of Strategic Sourcing for a plumbing supplies manufacturer shared that they have strategic relationships with their cardboard packaging suppliers – they are often their suppliers’ largest customer and corrugate manufacturing facilities are nearby. They have not been challenged by supply or cost and been focusing on taking costs out and reducing environmental footprint through packaging redesign (example, redesigned a 2-piece package to a 1-piece design and reduced corrugate by 45%, resulting in a 7-figure annual savings). They shared that they like to use index-based pricing agreements so they can focus on reducing controllable costs.
  • Director of Sourcing for a packaging distributor shared that they see that demand for cardboard packaging is softening. They recommended working with regional suppliers located within 100 miles. They gave the following advice when working with large integrated packaging suppliers:
    • Write tight contracts with pricing determined by published pulp & paper indexes
    • Approach them about supply availability first, and focus on costs second
    • Work with them on redesigning boxes to reduce the amount of pulp
  • Sr. Director of Procurement Operations at a consumer products manufacturer shared that they saw peak corrugate pricing in 2021 Q4 and 2022 Q2, and a billion tons of manufacturing capacity are coming online in the next year. They purchase corrugate exclusively from large integrated manufacturers. One of their success stories for reducing packaging costs was getting plants to consolidate orders to achieve more economical order quantities. They also shared that customers are demanding price decreases, so they are presenting much more detailed cost data (include supply contract timing) to manager customer expectations. One issue they are seeing is quality problems in die cutting, where suppliers are sharing that they are suffering from a lack of skilled labor.
  • Director of Corporate Procurement for a manufacturer of disposable tableware shared that they successfully ran a market test of cardboard packaging in January of 2021 and achieved reduced costs. They moved away from large integrated manufacturers and were able to get commitments to cost reduction in addition to lower initial costs. They commented that they didn’t have to take as large price increases as other packaging customers, and believes that the supply limitations have given smaller companies an opportunity to shine. They have seen lower lead times with smaller suppliers – at one point were getting 4 weeks when large integrated manufacturers were quoting 8 weeks.