There’s never been a better time to “kick the tires” on your corrugated packaging spend. Prices are dropping for the first time in two years as global box demand finally weakens after the severe post-pandemic run-up. Corrugated packaging buyers that don’t have index-based pricing agreements with supplier have two options: hope their box suppliers provide some pricing relief or proactively seek options and negotiate pricing from a position of strength and knowledge.
Strategic sourcing is a proven approach for companies to improve costs of purchased materials and services while ensuring the important needs of the business are met. It’s a way to achieve quick savings while elevating supplier alignment to business needs by applying commodity leadership principles to sourcing events. It’s ideal for corrugated packaging – a category that is highly commoditized – but rarely applied because either packaging is not centrally managed or the spend has not been viewed as significant relative to other categories.
Conducting a traditional market test, the go-to approach for most buyers, can achieve some savings on corrugated packaging, but oftentimes savings are limited due to a lack of internal expertise and market knowledge. Suppliers have the upper hand in negotiations when they know more about the supply chain and cost drivers than buyers. There are three areas buyers typically need to work on reduce “knowledge gaps” to successfully run a strategic sourcing process for corrugated packaging.
1. Understand Your Organization’s Spend
Start with a basic spend analysis to understand the small number of SKUs make up the majority of your spend as well as the total universe of corrugated packaging that must be supported. You’ll want to go beyond the basics to identify the key physical attributes for each SKU (test, flute, dimensions, # walls) as well as additional attributes such as pallets, foam inserts, dividers, coatings, printing, etc.
In addition to understanding the items you buy, you’ll need to identify services that current suppliers are providing. Warehousing, delivery, design support, and performance testing are common, but also identify if your suppliers are providing stocking or consignment services, prototypes, fulfillment, order
expediting, VAVE support, or assistance with performance issues. It’s critical to know the specific services included in the prices you pay for a fair comparison later when you evaluate costs and services available from other suppliers.
2. Understand Stakeholder Needs and Pain Points
Stakeholders include users of the packaging (manufacturing and customers), as well as the logistics and materials teams, finance, engineering, and operations. It’s important to interview stakeholders to understand not only what they are currently relying on suppliers for, but also their pain points with current supplier and any wishes for the future.
Best practices for interviewing stakeholders include:
- Launch your strategic sourcing initiative as a formal project with a leadership sponsor identified and up-front communication to stakeholders on the scope and timing of the project as well as expected benefits to the company
- Develop an interview guide in advance so you can easily ask each stakeholder the relevant questions that pertain to each specific role
- Be sure to ask about the current state, their top pain points, and what they’d like to see in a future state for corrugated packaging, as well as any planned business changes that might affect the need for and use of corrugated packaging
3. Understand the Supply Market
Corrugated packaging is a tiered supply chain with mills providing liners and medium to corrugators, who produce sheets to provide to converters, who cut and print sheets to produce boxes. Typically, non-corrugated items such as pallets and foam inserts are purchased by converters and added post-process.
Further complicating matters, you can purchase corrugated packaging from four types of suppliers:
- Integrated supplier that own mills, corrugators, and converters
- Independents that own corrugators and converters but have to buy liners and medium from mills
- Converters that buy sheets from corrugators to make boxes
- Distributors that source corrugated packaging across a variety of suppliers and supplier types
This is just a starting point for understanding the corrugated packaging supply market. You’ll also need to do a deep dive to understand cost structures/cost drivers, industry practices, and current/future trends.
Launching a Corrugated Packaging Strategic Sourcing Initiative
Once you’ve addressed any knowledge gaps that you may have, there’s still the important steps of identifying and evaluating new suppliers, assembling an attractive market basket, conducting a market test, and negotiating agreements with current and/or new suppliers. You might want to get outside help to drive the project forward and tap into their expertise, there are two ways we’ve helped companies accomplish this:
- Engage a consultant to conduct the strategic sourcing initiative. Be sure to find a consultant who has experience with strategic sourcing and expertise in corrugated packaging.
- Put your team through a Strategic Sourcing Workshop where a consultant trains your team in the strategic sourcing methodology and guides them through a project to apply the principles to your corrugated packaging spend.
To hear lessons learned from a recently completed strategic sourcing project, watch the on-demand webinar below
Lean more about APD’s workshop approach for strategic sourcing of corrugated packaging: