“Pandemic-Proof” Contingency Planning for Packaging Procurement
The global pandemic has shown the importance of contingency plans for packaging procurement. Find out how to “pandemic-proof” packaging procurement.
This time last year, procurement professionals were beginning to contend with disruptions brought on by the COVID-19 pandemic. The global catastrophe would turn 2020 into a year plagued with uncertainty and delay. According to a recent survey, nearly 75% of companies report supply chain disruptions in some capacity due to coronavirus-related transportation restrictions.
The ripple effect of these disruptions left many organizations re-examining their expectations for the future in more ways than one. In the same survey, 16% of the companies reported downward adjustments to their revenue targets as a direct result of coronavirus disruptions一down about 5.6%, on average.
Despite a challenging year, many procurement managers are approaching the new year with optimism and a supply chain contingency plan to prepare for a post-pandemic future. The challenge is turning the lessons learned last year into a resilient and adaptable packaging procurement strategy for 2021 and beyond.
5 Steps to Pandemic-Proof Your Packaging Procurement
Step 1: Create Transparency for Your Supply Chain Contingency Plan
The key to creating a supply chain contingency plan is knowing where the risk exists. It’s impossible to spot vulnerabilities without a good understanding of what your entire packaging supplier network looks like. Chances are, your supplier network extends far beyond Tier 1.
Ultimately, this necessitates a readiness and risk assessment of your current packaging suppliers. Reliable quantitative and qualitative data from your Tier 1 suppliers will play a critical role in this risk assessment, so be prepared to ask direct questions about their supplier networks to identify possible vulnerabilities.
At this stage, you should be looking for:
- Packaging components or materials sourced from high-risk areas
- Any packaging component or materials that lack ready substitutes
- Tier 2 and Tier 3 suppliers that perform unique manufacturing tasks or produce specific materials that lack ready alternatives
- Add disaster recovery plan
Some of your Tier 1 packaging suppliers might be hesitant to share certain metrics or data in the interest of preserving confidentiality to maintain a competitive advantage (or to avoid revealing poor performance). In this case, you can estimate risk by assessing data from a variety of sources, including general industry, shipment, and export data across specific countries or regions.
Step 2: Estimate available inventory within your supply chain
In the years that follow the COVID-19 pandemic, disruptions within your supply chain will be inevitable. Your supply chains will need to be capable of operating despite the unexpected. In some cases, that means relying on packaging inventory along the value chain.
When gathering data at this stage, consider the following:
1. Materials or packaging in transit
Establish the process for accelerating the arrival of raw materials or finished packaging in transit, particularly those in customs or quarantine. Geographic considerations will be important here, as some countries will have more options for accelerated shipment than others.
2. Finished packaging held for sales, QA or testing
Map the process finished packaging will follow before reaching your distributors and customersーnamely testing, quality control, and warehousing processes. You’ll need to consider not only the average timeframes, but who is involved and where these tasks occur to accurately assess risk.
3. Stock with distributors and dealers
Supply with distributors or dealers should be a consideration at this stage of data-gatheringーparticularly if cross-delivery is a potential tactic to combat potentially catastrophic inventory stock-outs caused by supply chain disruptions.
Step 3: Assess realistic final-customer demand and adjust your packaging strategy accordingly
The COVID-19 pandemic was a jarring introduction to the bullwhip effect for many packaging stakeholders caught off guard by unexpected fluctuations in consumer demand. These fluctuations proved to be a massive challenge for packaging decision-makers, all of whom lacked historical data on which to base adjustments to their pandemic-era procurement strategy.
Navigating these new industry challenges requires a better understanding of what constitutes a true versus artificial shift in consumer demand in your organization, along with the metrics that are best equipped to help you analyze and develop strategy against it.
In the absence of a reliable demand signal, there are a variety of internal data sources that can help you assess future consumer demand, including (but not limited to):
1. Recent sales and shipment data
Though the only constant appeared to be change in 2020, fluctuations during this unprecedented time frame can prove a helpful tool for post-pandemic demand forecasting.
2. Direct-to-consumer communication channels
Marketing engagement data can supercharge a demand forecasting strategy, so don’t overlook potentially valuable insights from these datasets within your organisation.
3. Post-purchase and customer support data
A key aspect of accurate demand forecasting is understanding what happens after a customer purchases your product. For insights here, look to your customer support data, including anything related to returns. If product damage is a common denominator among product returns, your packaging could be a root cause.
The key to contingency planning for supply chain management during unprecedented demand fluctuations is to make a shift toward smaller, more frequent orders. In some scenarios, you may also be able to negotiate more flexible contract terms with your suppliers that ultimately benefit both parties.
What is crucial regardless of your approach is to establish a clear triaging process that prioritises packaging based on the products’ strategic importance, margin and revenue. This way, you stand a better chance of safeguarding the continuity of your most important commercial relationships.
Step 4: Optimise your production and distribution capacity to ensure employee safety
Optimising your packaging supply chain amid an ongoing pandemic begins with ensuring employee safety. In scenarios when working from home is not an option (as is the case with many essential warehousing roles) this might necessitate the supply of personal protective equipment (PPE) or enhanced disinfection processes to keep employees safe while at work on-site.
Ultimately, the goal of this step is to conduct scenario planning to project the financial and operational implications of a prolonged shutdown. At this stage you already have data that quantifies available inventory capacity within your supply chain. These data can help you establish realistic scenarios on which to base projections.
Step 5: Identify and secure logistics capacity and optimise your packaging strategy where possible
An erratic 2020 proved to be a stress test for logistics and supply chains alike, as unprecedented shifts in buying patterns gave rise to a proliferation of same-day delivery startups and added new layers of complexity (and competition) to shipping logistics.
For instance, shifting logistics challenges amid the COVID-19 pandemic have given rise to fluctuating freight shipping surcharges that drive up operational costs and eat up profits. Take Bed Bath & Beyond, where company leadership recently reported that FedEx’s surcharges increased their shipping costs by roughly 20% year over year in the final quarter of 2020ーapproximately 80 basis points from its margins.
Consider what this could mean for your packaging design and your ability to realise significant cost-savings through transport packaging innovation. Smarter design choices about package right-sizing and light-weighting can drastically reduce freight costs and better position your organisation to negotiate shipment priority with logistics providers.
If your product packaging is not designed to withstand new shipment methods or processes amid the pandemic, this could open you up to lost revenue by way of product damage. According to a 2017 white paper by the American Institute for Packaging and the Environment (Ameripen), replacing a damaged product can cost e-commerce vendors up to seventeen times more than the original cost to ship.
Optimise your Packaging Procurement with Managed Packaging Experts
Packaging procurement plays a crucial role in your organisation’s COVID-19 continuity plan. Your ability to adapt and respond to unexpected changes in your packaging supply chain could have a significant cost-saving impact on your company when it’s needed most. The cost of unoptimised packaging is profound, so consider how investing in your packaging procurement strategy now could position you for significant savings down the line. In addition to cost benefits, having a reliable partner with packaging expertise could streamline your organisation.
To unlock the true cost-saving potential of your packaging supply chain, contact the Managed Packaging experts at Billerud. We can help your team identify opportunities to optimise, innovate and transform your packaging strategy from the inside out.