Spend Matters welcomes another guest post from Anshu Vazirani of GEP.
There is widespread acknowledgement in the procurement industry of the importance of collaborating with suppliers and service providers to achieve non-zero sum results. However, the challenge boils down to identifying practical opportunities that allow both parties to benefit while ensuring buy-in from all stakeholders impacted by the identified areas of improvement. The procurement of corrugated packaging presents significant opportunities for achieving positive results from such collaboration.
An assessment of the end-to-end process of manufacturing and distribution of corrugated boxes is the recommended starting point. This should be spearheaded by the supplier. Most suppliers offer this assessment at no extra fee at the onset of the engagement or every 2-3 years. It is crucial to engage the right stakeholders from the Supply Chain and Research and Development (R&D) departments from the beginning of the assessment exercise, in order to obtain their feedback and to get buy-in. If the improvements in consideration impact the customer in any way, then the appropriate customer-facing department should be engaged as well.
Some of the key methods for achieving cost efficiencies in the process are noted below.
- Board dimensions: A common perception is that the raw material costs of corrugated boxes cannot be influenced. To the extent that these are governed by paper and pulp indices, this is true. However, it is very much possible to reduce material consumption by altering the dimensions (length, width, height) of the box while keeping the volume unchanged. Obviously this not possible if there is no air space in the boxes in the first place, but that is very rarely the case.
- Board strength: Assess the top-to-bottom compression strength of the boxes. For instance, in working with a retail manufacturing and distribution company, two brands with very similar product composition and weight were using boxes with different board strengths. Brand A was using what is known as ECT 28, and brand B was using ECT 32 boxes (a higher broad strength). The use of ECT 28 boxes for brand B was first tested by the supplier and the R&D department. Customer Service then shipped these boxes to customers and followed up with surveys, which showed no change in customer experience or perception of the brand.
- SKU rationalization and improved order forecasting: The greater the number of SKUs, the more batches the converter must run—hence higher conversion costs. Using fewer SKUs means that some boxes will be oversized, but the workaround is to fill the spaces with crushed paper so the product does not shift during transportation. Similarly, improved order forecasting helps reduce conversion costs by enabling the corrugator to run larger batches on the converter.
- Warehousing and transportation costs: Due to lack of space and short lead times, suppliers are typically required to warehouse some inventory. Providing suppliers the visibility into order patterns and forecasted requirements helps reduce warehousing costs. For large clients, suppliers are sometimes willing to obtain warehouse space close to the client’s facility, which reduces transportation costs and lead times. Similarly, enabling suppliers to deliver full truckloads as opposed to partial truckloads helps them reduce logistics costs.
- Raw material costs: Explore the use of recycled paper. Several organizations are trying to move towards the use of 100% recycled paper, therefore significantly reducing the supplier’s raw material costs. Additionally, the sale of corrugated waste to the supplier should be explored as both parties benefit from it.
Once these changes are tested and approved, the supplier and procurement teams should estimate the resulting cost efficiencies and discuss how these will be shared between the supplier and the client. Then they should make an implementation plan in order to realize savings. Such assessment exercises typically result in 10-15% savings. Whether the organization is in the infant or the mature stages of using supplier collaboration as a tool for driving savings and innovation, corrugated packaging is an ideal category to demonstrate concrete results.
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