APD recently delivered a webinar on Reducing Corrugated Packaging Costs in which we discussed the current state of supply and demand dynamics and shared what companies can do to optimize costs in the current environment. This post highlights some of interesting information shared. You can download the on-demand webinar recording here.
Corrugated packaging costs have been steadily increasing since the beginning of 2021. Over the past 18 months, the corrugated paperboard index – the material that typically makes up 75-80% of packaging costs – have increased 38%. Packaging lead times have been terrible, and many suppliers have been selectively firing customers to ensure they can fulfill their most profitable orders.
Supply and demand dynamics appear to be changing quickly. A recent article quoted the investment bank Jefferies predicting a “massive inventory glut in cardboard” and manufacturers are “likely to slash prices in the fourth quarter” (read the article here). Recent discussion with manufacturing purchasing executives indicated that suppliers are quoting more aggressively and large integrated suppliers are pricing contracts below current costs.
We asked James Jones, President of JKT Packaging Solutions, to share his advice on conducting a market test of corrugated packaging. James has over two decades experience working in the packaging industry, first as an executive in manufacturers of corrugated packaging and corrugated sheet products, more recently leading JKT’s Corrugated Packaging Practice for the past decade. Some of the highlights include:
- Identify what your needs are, then select suppliers to market test that align with those needs. James shared that the four large integrated corrugated packaging suppliers have each optimized their business for different types of corrugated packaging, and consequently are more competitive in some types than others.
- Whenever possible, provide drawing with your market test (and not your suppliers’ drawings), don’t rely on samples. James advised that it’s best to conduct a market test without current suppliers knowing, and it’s likely that using their drawings or providing sample boxes would result in current suppliers finding out.
- Include the highest volume items in the market test, those that make up at least 40% of the corrugated packaging spend. James commented that 3-10 items will typically suffice.
- Provide order quantities as well as annual volumes for market testing, and request delivered prices. Order quantities can have a big impact on pricing and are often missing from market test packages.
APD shared the results of a corrugated packaging market test conducted by a client as a project in their Cost Management Certification training. APD provided support from purchasing consultants and cost engineers to accelerate the process. At the end of the first round, the client identified a $300k savings opportunity representing 15% of the $2M spend that was market tested. In addition, they will be able to avoid requested cost increases of 5-7% from their current suppliers.
APD is introducing a Strategic Sourcing Workshop for Corrugated Packaging that kicks off October 25, 2022. In this 4-month integrated training/project activity, teams will go through online training while market testing their corrugated packaging. Each team will be supported by private coaching from James Jones, Packaging Experts as well as APD’s experienced Consultants and Cost Engineers. Teams will deliver savings while aligning the supply base with the company’s goals and developing an action plan to deliver commodity objectives.