14 Feb Packaging supplier consolidation – 11 crucial considerations
Could too many packaging suppliers be causing you problems?
You have a problem with your packaging.
You’ve identified the issues it is causing your business. Whether that is too high a volume of product returns through transit damage, inefficient packaging processes or overall poor quality.
Maybe the cost is the main issue – you are just paying too much.
So you know what you need to do, but where to start? These questions can be particularly challenging when the issues of your packaging are spread across multiple suppliers.
By purchasing different materials, packaging products and sundries from a number of sources, any changes you want to implement to resolve your difficulties struggle to gain traction. Nothing seems to make that much difference.
This could be a sign that you need to look at supplier consolidation – or single sourcing – for your packaging supply.
Why is this a problem?
Purchasing packaging products from a wide range of different suppliers is actually a very common scenario.
Then you need handling supplies. Maybe Correx totes or moulded plastic containers. These come from another source.
Let’s say you start producing a new line with sophisticated electronics in, so require some static protection. International sales mean exporting via sea freight – so now you have a need for VCI rust inhibitors.
Plus you still need all of your packaging sundries – tapes, labels, void fill etc.
Without realising it, you have set up a fairly complicated supply chain.
So what is supplier consolidation?
In essence, the process of supplier consolidation is to streamline your procurement processes, enabling more efficient buying and cost advantages.
Instead of sourcing related products from a wide range of sources, your business uses only a few – or ideally a single source – supplier.
Consolidation of your supplier base in this manner can prove to have a number of significant benefits for your business.
It is easy to forget that developing supplier partnerships can be costly and distracting and that they can take time away from focusing on the core elements of your business.
So, by taking the time initially to get supplier consolidation right, it can have an ongoing, positive effect on your business.
The 11 advantages & considerations when looking at single source supply
There are numerous potential benefits of moving to a single source supply agreement. Saying that, there are some common pitfalls that need to be identified and considered, in order to make sure you get the most out of any consolidation process.
As such, the main advantages and considerations of a consolidated packaging supply are as follows:
Continue reading below to see how this could impact your business.
Perhaps the most obvious benefit of consolidating suppliers, particularly for packaging, is that of reduced costs.
By dealing with less or even a single supplier, the billing process is clearer, purchasing control and visibility is improved and even order tracking is simplified.
This means that, by using a single source packaging supplier, you can reduce costs through economies of scale. In essence, by purchasing more from a single supplier, you can realise volume discounts and often see preferential rates too.
Soft as well as hard costs
As mentioned above, you can often see the direct costs to your business falling through a stronger negotiating position, better relationship and simply by ordering higher volumes.
However, the more intangible costs must also be considered too.
A consolidated supply base allows for reduced administration, fewer POs and enables you or your buying team to focus on other aspects of the business.
In fact, the Chartered Institute of Procurement and Supply (CIPS) calculated that the average cost of submitting a Purchase Order is £50. Each time! This took into account the management of orders, invoices, utility and staff costs.
Control / visibility
Similarly to the soft costs associated with managing multiple packaging suppliers, one way in which inefficiencies can manifest themselves in your supply chain is through lack of visibility and control.
This is particularly true of your costs when trying to monitor expenditure to multiple suppliers.
A single source packaging supplier should be able to help monitor these costs, product usage, and how to manage this across your entire business.
Just doing this can quickly highlight wasted spend and inefficient processes.
By using a single packaging supplier, it is likely that you will be able to drive an improvement in packaging quality too.
The most common way this is achieved is the compatibility between differing items.
By manufacturing all items together, it allows for perfectly tailored items that work seamlessly with each other. This, in turn, enhances the overall quality of your packaging.
Increased service / support
If you are using multiple packaging suppliers, it can sometimes seem you are spreading yourself too thinly.
You have less well-developed relationships with each supplier, and the incentive or motivation to improve this is less due to the smaller value of orders being placed with each.
The opposite is true of a consolidated supplier.
You will find the relationship is easier to develop, and that your chosen supplier is likely to be more responsive as they will likely view your account as more strategic to them.
Either way, this is a win-win situation.
Holistic view of processes
Another benefit of a single source supplier (and this can be particularly true if they have been selected from outside your previous supply base), is that it is easier for them to take a step back and review your entire packaging setup, products and processes.
This may, for example, highlight that the cheap boxes you have purchased previously take so long to assemble they are negatively impacting labour costs.
It may allow them to rationalise your inventory and combine lines to further increase the benefits of economies of scale.
It may even see them conduct a full audit of your packaging.
Having this holistic view not only highlights cost savings but, also allows any identified improvements to be implemented much more quickly and effectively.
Forecasting and stock management
Similarly, a single supplier of your packaging will have a much better grasp on the challenges your company faces.
It will allow analysis of usage patterns, allowing peaks and troughs in demand to be managed more effectively, and prevent scenarios where shortages of packaging are affecting orders or production schedules.
It can also enable you to take advantage of more cost-effective manufacturing schedules, and even use a Just in Time supply arrangement, saving you warehouse storage space and the associated costs.
One often cited pitfall of single source supply is that of putting all your eggs in one basket.
What happens if your chosen supplier goes bust or has financial difficulties?
Whilst this is obviously an issue, it is easily mitigated with a bit of background research on the packaging company you choose to partner with.
Most successful packaging companies would be happy to share information regarding turnover, how long they have been trading, historical performance and even future investment plans. This is something that should be revealed in a packaging tender process if you are switching suppliers.
This can reassure you when undertaking any supplier consolidation programme.
Another criticism is that companies that can supply all of the products and services you need tend to be larger organisations.
Whilst this is not always true (many smaller companies offer a consolidation opportunity), larger companies do tend to be more inflexible. You can also lose that “personal touch” and relationships you may have had with smaller suppliers.
As such, it is important to look at your chosen suppliers culture, customer service levels and organisational structure to ensure any potential issues here are mitigated.
Vendor lock in
A term that is more commonly associated with software companies, vendor lock-in means a company making it very difficult – or expensive – to move away if you are unhappy.
Surprisingly, this can happen with packaging companies too.
For example, if you do not own the tooling for your packaging, moving to another supplier could see you incurring these costs again. This could also apply to specific drawings, a stock holding or supporting services that have been set up for.
The easiest way to eliminate this problem?
A detailed (and fair) contract and well-maintained service level agreement (SLA).
The final point to consider is your chosen supplier’s product capability.
If for example, they are not a specialist in a particular area, you may actually see quality drop. If they are buying in certain products to satisfy your requirements – and adding a markup – you may not actually be achieving the cost savings that prompted you to move to a consolidated packaging supply.
Basically, ensure the supplier you chose has the requisite knowledge in each of the service or product areas important to you.
Single source packaging supply can have a positive impact on your business and bottom line.
It can reduce your purchasing costs. Cut down admin. Build stronger relationships. See improved product quality and ultimately drive efficiency and cost savings throughout your business.
If chosen carefully, a consolidated packaging supplier can be a huge asset to your business.
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