In the second edition of the private paper series, we entered the fast moving consumer goods (FMCG) space and interviewed a packaging buyer for a large multinational. Read the exclusive interview below.
I am a buyer for a large FMCG company, headquartered in Europe. I decide what products we stock, negotiate prices, set retail prices and deliver a profit and loss statement, which I need to deliver throughout the year.
In terms of procurement, I buy the product and the packaging it comes in and make sure it gets to the right place, at the right time.
Things have changed massively over last few years. The biggest change now centers around responding to inflation. It’s become a massive part of my role.
It has always played some part, but now it’s the dominant challenge. I am constantly having to try and understand what level of inflation is acceptable, and what is not. If the rises are unavoidable, I need to discover new ways to counter the costs so that I can limit the knock-on effect to the consumer.
Another new challenge relates to the customer and their buying behaviors. Some changes that happened during Covid-19 have remained. There were huge shifts that started in 2020 and although some have reverted, some have stuck.
For instance, many customers will really go for value offers but at the same time will also be strongly attracted towards premium ‘treats’ to compensate for a lack of eating in restaurants. The consumer is always balancing these things out, and then we must respond.
When you combine that with the consumer changes brought on by the cost-of-living crisis, you have a market that keeps surprising you.
Other challenges are to do with freight and shipping delays, plus global warming, which can have a huge impact at the product source.
That’s a good question and something we are always working on.
Working out how to minimize impact when you take on extra costs is an art form. There are many activities you can undertake to counteract it. One thing we explore is waste management.
Waste is a huge cost that doesn’t get spoken about enough. If you are really accurate with your ordering and send the right amount of packaged stock to the stores, then that can ultimately save you millions.
Cost of freight, for us, has gone up year on year and can have a huge impact on final costs. Any disruptions or threats to freight can be disastrous in my line of work because I must get the timings right or risk affecting the shelf life of products.
From my experience, freight hasn’t quite recovered since Covid-19 for some reason.
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It’s core to the business and we have bold targets around packaging reduction, which everyone has signed up to. The target is in front of us and all of us have to work out how to get to it.
In terms of reaching those goals, I think it’s all about who you work with and choosing the right partners. Make sure they are aligned with your goals and factor that into your plans.
We have looked into using different packaging types, be that: moving away from plastic, or closing the loop and going for recyclable materials. There are also various advisory consultants who will talk to you about best practices.
The challenge with chasing sustainability goals is cost. There are lots of options available to us, such as using different biodegradable materials and close-the-loop services, but there is always a trade-off with cost.
Also, the cost-of-living crisis continues to affect a large number of people, so spending more on a product because it’s in sustainable packaging becomes less of a priority.
It’s hard to say where things are going to fall with customer priorities in the near future. Cheaper packaging is often the less sustainable packaging.
The best procurement and supplier relationships are those that are as aligned and transparent as possible. I find it’s most productive when both parties can openly talk about the options that are out there.
Relationships can become challenging and fraught when a supplier simply writes out a number and tells you that you have to deal with it. Collaboration and understanding are always better than just passing on a cost without any negotiation or support.
No one can put their fingers in their ears and pretend that inflation isn’t a problem. If suppliers raise prices too much they can be affected too as people won’t buy from them in volume.
This relationship is a two-way street and there must be a balance. To take advantage of this situation, from a supplier perspective, is short-sighted as the market might not always be on their side.
In the next couple of years, the energy crisis might start to die down, so the shoe could be on the other foot to some degree. It’s a short-term view if they over-inflate.
A good supplier of packaging will always have the same goals as you. There should be a balance of input from them.
Interested in more insights from buyers in the FMCG space? Head to our dedicated FMCG hub to learn more about how we can help you overcome the business risks associated with volatile raw materials markets.
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.