Chief procurement officers (CPOs) dealing with supply instability for packaging material should use three tactics to navigate rising costs, delayed deliveries and sustainability concerns, according to Gartner, Inc. They should centralize packaging specifications, collaborate with suppliers, and segment the different packaging types.
“Shortages of packaging materials such as pallets, plastics, corrugate, metal and glass are wreaking havoc across supply chains, and it remains unclear when – or if – these constraints will subside,” said John Blake, senior director analyst with the Gartner Supply Chain practice. “Packaging procurement is highly complex, as it requires coordinating many different suppliers. To further complicate matters, there has been a lack of investment in technology that would allow for seamless collaboration across the supply chain.”
To successfully navigate in this environment, CPOs must adopt new tactics that drive greater resilience, manage the rising costs of packaging, and improve packaging sustainability. The three actions for CPOs to reduce the impact of packaging supply constraints include:
Centralize Packaging Specifications
Packaging specifications are traditionally linked to a stock keeping unit (SKU) or bill of materials (BOM). However, this practice prevents CPOs from being aware of all the packaging specifications across the organization. A better way is to centralize all specifications across the organization. This allows CPOs better visibility and enables improvements, such as harmonizing similar materials, establishing more sustainable alternatives, and fluidly switching suppliers in the event of a shortage.
“Ultimately, procurement teams need to build a packaging supply ecosystem, but they must first obtain full transparency of packaging specifications across the enterprise. Currently, we still see very limited adoption of advanced SaaS applications that would enable such a step. This is a massive investment gap for CPOs to close,” Blake said.
Collaborate with Suppliers
As packaging suppliers operate at maximum capacity - either from demand or due to availability of raw materials - they are now in a position to select which customers and orders they choose to fulfil. CPOs must establish a close collaboration with suppliers and make it easy for them to fulfill orders.
Collaboration can take the form of agreeing on suitable material substitutions, alternative production facilities, incentives, or a streamlined supplier onboarding. “Suppliers with limited capacity will prioritize customers with the most favorable commercial conditions. CPOs must align the interests of the suppliers with the internal requirements of manufacturing and R&D to chart the best path forward,” Blake said.
When CPOs have a holistic view of all packaging requirements in the organization, they can use packaging segmentation to break down silos and identify the possible opportunities and risks that each segment presents.
For example, primary packaging is in direct contact with the product and must ensure quality over the product’s shelf-life and might require additional certification by the supplier. However, primary packaging carries a unique set of needs that can result in longer lead times or increased upfront effort to qualify alternative materials or suppliers. On the other hand, transport of packaging such as pallets, crates and stretch wrap is often standardized. A switch to reusable packaging could mitigate shortages.
“Each level of packaging has its own set of risks that CPOs must factor into strategies to mitigate supply shortages. Segmenting packaging across the organization provides a better base for decision-making,” Blake concluded.