Are you buying from the right supplier?

As a category strategy plan is being developed, the incumbent supplier is usually looked upon as the first and best option for business moving forward. In many cases, this is probably true. There is an established relationship and a level of intrinsic knowledge and trust between parties. Nevertheless, viewing your business objectives from a more holistic perspective can help you evaluate—objectively—if you are currently buying from the right supplier.

Supplier size: Bigger is always better, right? Not in all cases, but dealing with the largest supplier in a packaging category has some advantages. Bigger suppliers may have a more diverse stock offering of products and will have more leverage with upstream material suppliers. Smaller suppliers may offer other benefits, such as being more responsive. Mid-sized suppliers can sometimes offer the best of both worlds.

Demographics of a supplier's customer base: The old saying "better to be a big fish in a small pond" can sometimes be true. A supplier's culture can drive how well and how quickly customer service and sales people react when their help is required. If you account for a large portion of business, chances are you will be a higher priority when needs arise. Consider adding a stock-out clause to your supply agreements so that you can jump to the top of the production queue when needed.

Available capacity: How much idle/available manufacturing capacity do your suppliers have? Too much capacity could be an early warning sign of financial trouble to come (it could also mean they are in start-up mode or could be due to some other reasonable explanation so it should be fully evaluated). Too little availability and the supplier may not have enough flex-time for routine equipment maintenance, which could result in excessive, unplanned down-time and/or quality issues. If your business or a portion of your business is in a high-growth mode, you need suppliers to be able to respond quickly with increased production to keep fueling that growth.

Location, location, location: Are you jumping on the low-cost country sourcing (LCCS) trend? LCCS almost always offers a cost advantage at the piece-price level, but logistics costs can sometimes offset those savings. If your packaging components are large or heavy, logistics costs should be fully calculated into the piece-price to allow apples-to-apples comparison between suppliers. Close supplier proximity offers other cost benefits as well, particularly if you require technical support or need to visit their manufacturing location frequently (that is first press runs, audits, addressing any quality issues in person or other reasons).

Value-added services: Suppliers frequently like to point out capabilities outside of their core business of producing packaging. These value-added services may or not be of interest to your business. If you are in a fast-paced, ever-changing industry (that is consumer packaged goods) that requires supplier new product development support and/or package design, these capabilities can be essential or necessary for your business. Slower-paced, more mature industries (pharmaceuticals, for example) typically do not require these additional capabilities. The additional overhead of offering these services could be driving a price premium that you do not necessarily need.

Ever-changing financials: As the packaging industry changes with merger and acquisition (M&A) activity every year, supplier financial goals change as well. A small- to medium-sized company that once prided itself as being on the cutting edge of materials and conversion will most likely not continue to reinvest in R&D resources and equipment at the same level after being acquired by a larger company because of the focus on driving synergies and increased profits margins. A quick pulse-check on the financial status (and strategic goals) of your suppliers can also mitigate any potential supply issues and help uncover any looming bankruptcies.

Technology advancements: Technology is constantly advancing. If suppliers are not staying up-to-date on these technologies, they may not remain the cost-competitive supplier that they were three to five years ago.

David Moszak

Author David Moszak is a sourcing lead in the global packaging practice at Procurian (www.procurian.com), the leading specialist in comprehensive procurement solutions. The company's built-out Specialized Procurement Infrastructure integrates with businesses to optimize spending and deliver real savings that equal a margin point or more.

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