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Covid-19 disrupted every link in our supply chain. We had no choice but to get more tactical and short term.
Strategic procurement planning never became any less important; we just didn’t have the time. We were firefighting for two years. We still are. You put out one fire – a paper supplier cutting us off – and up pops another – no trucks to get the paper from a mill to a production site.
Covid-19 led to price volatility like I’ve never seen in my twenty years in the business. Every time a price changes, I have to make sure everyone – production, my management, sales and marketing – is made aware of it. And update the multiple spreadsheets where we track price history.
Keeping on top of all this change is like running to stand still.
Procurement people are natural problem-solvers, so we made it work, but you can’t work at this pace indefinitely.
For buyers, it’s a much more challenging market than it used to be.
Everyone is on allocation – it doesn’t matter how big you are.
Prices have increased across the board several times since 2020. And, for the most part, we’ve had to accept those price increases, because we have so little leverage right now. It’s take it or leave it.
That’s true even for companies with massive buying power.
It would be a mistake to go into a negotiation and say, “we’re a big, global firm”, try to throw your weight around. You might just find yourself being let go. With demand so high and capacity so tight, suppliers are looking for customers to cut from their roster.
So, I spend a lot more time on supplier relationship management – we call it SRM.
I used to talk to key suppliers just once or twice a month in normal times. Now, I’m meeting suppliers once or twice a week, with daily contact by phone and email. Communication is key. I want to make sure their inventory levels and production plans are in line with ours, especially where it’s a managed inventory arrangement and they’re keeping minimum and maximum levels on allocation in their warehouses.
Several times, because of production downtime and logistics disruptions, inventory levels have fallen below the required levels – when that happens, I want to know as soon as possible, so I can find alternative suppliers.
Top-to-top meetings – where one of our VPs will meet with a VP on the supplier’s side – are more critical and more frequent than they’ve ever been. Good rapport between executives is the closest thing to leverage that we have right now. It’s all about creating high-level communication and partnership. It also helps keep the channels of communication open, so I’ll be more likely to find out if disruption is heading our way.
Single sourcing, without a doubt, is the riskiest. Having multiple suppliers used to provide some leverage in negotiations. That’s no longer the case, and yet it’s more important than ever for risk mitigation.
When Covid-19 was at its peak, mills would cancel shifts because of a lack of workers – or there would be a disruption further up the supply chain, meaning my suppliers couldn’t get their raw materials. My mill runs would get moved around a lot, and, as a result of all the disruptions, my safety stock would be consumed much faster than usual. We’ve been living hand-to-mouth for the last two years and it doesn’t seem to be improving this year.
Now, I’ll test and qualify alternative suppliers in February just to get on their waiting list, knowing they can’t get me in until July or August. I have my core suppliers, of course, but I’ve also got up to five additional suppliers with smaller volumes on allocation, which gives me the flexibility to add a truck or two when needed.
Transportation risk is up near the top of the list, too. Sometimes I’ll have paper sitting at the mill, and the truck just doesn’t show up. There isn’t enough slack in the logistics system right now, not enough drivers, so any disruption is more acute.
Like I said, I don’t have a lot of leverage in price negotiations right now. My internal stakeholders understand that; they see rocketing commodity prices in the news just like I do. The pressure comes in the form of additional reporting up to management, especially forecasting. Management wants to understand the impact of price hikes on margins. And, of course, they want to know when prices will “get back to normal” or at least stabilize.
With things the way they are, I can’t predict where things are going out to 2024 or 2025. Instead, I’m providing forecasts on a six-to-12-month time horizon. Beyond that, who knows.
My relationship with the production planning department has changed, too. I’m communicating with them regularly about delays and outages to make sure we don’t end up with a backlog of work in WIP needing paper we don’t have.
The industry has been in a swirl of activity. Our suppliers are being bought and sold by their competitors, by hedge funds and private equity firms. Every merger or acquisition is a potential supply risk. If there are changes to management or to processes as a result of an acquisition, I need to step in, rebuild rapport with key contacts over there, re-establish ways of working.
Never be surprised by a price increase. If I’m taken by surprise, I’m not doing my job right. That’s why I work so hard to stay on top of industry news. That’s why I’m talking to my suppliers more regularly than ever during this period of price volatility, and updating my forecasts more frequently.
When you see it coming, you’ve got time to prepare a response. You also get the chance to forewarn management – you don’t want your boss to be surprised by a price increase either!
If I’ve seen the signs in the market, if the index is heading up, or if my supplier has dropped hints that a price increase is on the way, I’ll be ready to explore options. For example, I might discuss in our weekly call if there’s a way to spread the increase over a longer period of time instead of taking it all at once.
We’ve been working to become more sustainable for many years, but our customers’ fast-growing commitment to sustainability has moved it up the corporate agenda in recent years.
The sustainability agenda is also driven by retailers. When the world’s largest retailer set the goal in 2020 to become a regenerative company, that was a real wake-up call for the industry to get its act together.
Since 2020, I’ve seen a more holistic, all-in approach in my organization. And procurement has become like an extension of the sustainability department. The sustainability folks are asking a lot of us. They want to know how much we bought of each grade, from which suppliers. They’re looking at greenhouse gas emissions along the supply chain, and the FSC chain of custody. They’re also asking for input from our suppliers. It’s part of a trend I’m seeing up and down the supply chain – everyone is asking everyone else for information on sustainability, and that’s driving it forward.
Take a look at the second article of our series with a FMCG company here.
Take part in the Private Papers seriesWe’re looking for paper and packaging procurement professionals to share their insights into how they’re coping with volatility and adapting to a changing market. To take part, contact annie.su@fastmarkets.com.
Learn how to monitor packaging prices using cost and price indices and understand the underlying cost drivers, from material cost to labor, energy and more. Examples include cartonboard, liquid container and paper bag.