Relationships, Aggregation, and Sustainability in the Packaging Category

August 6, 2013

Relationships, Aggregation, and Sustainability in the Packaging Category Omnia inter se conexa - Everything is interconnected -- Cicero When we think about complex categories as Procurement professionals, it is natural to think about the size and scale of a project. The number of data points increases quickly when multiplied across items, specifications, suppliers and bids. But large does not necessarily mean complex. Dictionary.com offers a definition of complex that indicates something is composed of many interconnected parts. In such a case, complexity may be dictated by the interconnectedness of design and cost elements rather than the size of the project. CombineNet, a solution provider well known for their ability to accommodate the many aspect of complexity, recently published a whitepaper that demonstrates their ability to handle interconnectedness regardless of scale in the packaging category. With many different types of packaging categories such as bottles, closures, cans, foils, films, corrugate, etc. and with packaging materials serving many functions relative to a brand and its products, there is no surprise that this is one of the more complex areas of spend for a Procurement team (p. 1). Brett Cornell, CombineNets SVP of Strategic Sourcing and the author of the paper, is a practitioner-turned advisor with over 20 years experience in packaging and procurement at Johnson & Johnson. Buyers Meeting Point recently had the opportunity to ask him some questions about the intricacies of this category of spend, including how Procurement professionals can best leverage process and technology to address several forms of complexity. In many cases, packaging is the last sales advocate in the supply chain, coming into direct contact with the consumer at the moment of purchase when nothing else is present to influence their decision. Packaging provides a key opportunity to differentiate a product over multiple tiers of alternative products. The packaging of private label products has improved significantly, increasing competition for the consumers attention even further. Like many other industries, packaging is influenced by global as well as local markets. "As disposable incomes continue to rise in emerging markets, increased sales of products in these markets will bring growth opportunities to the packaging industries." Other forward-looking trends in the category include flexible packaging, for example using plant-based materials in bottles, and 3D printing, which will someday allow a supplier to scan an existing package and print a new one. Any solution used to manage packaging spend has to be able to address all of the inherent complexities, including size and cost but also relationships, aggregation and sustainability. Relationship Complexity Managing the packaging category requires Procurement to work with a number of different internal stakeholder groups, each of which has their own priorities and perspectives. Depending on the package being sourced, one or all may be involved in the project. R&D may be focused on product design while Engineering will emphasize the material inside the package and any barrier/environmental constraints. Marketing will be concerned with the message or story being communicated to the marketplace and Legal will want to ensure that the right warnings and safety closures are incorporated. Manufacturing, an internal group that is not usually consulted until after requirements are defined, wants the selected materials to run efficiently on their line. The input of these groups is important in the building of packaging RFPs and in reviewing supplier pricing and alternate proposals. Procurement has their own interests in the information collected, working to get

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maximum granularity into supplier costs and efficiencies, including processes and services as well as materials. Aggregation Complexity Despite the fact that each package has its own structural requirements and design elements, Procurement will naturally attempt to aggregate spend in order to consolidate their volume and improve pricing and contract terms. Opportunities exist to roll up spend so that it combines spend across manufacturing/production plants, business units/divisions, brands, and geographical locations. CombineNets ASAP solution allows Procurement and category managers to compare local, regional, and global demand and award strategies. In most cases, a hybrid approach is probably the best answer, but getting to the specific details of the right combination requires a tool fit for the job. Scenario Builder allows project teams to challenge traditional assumptions and make decisions based on data rather than habit. Items are defined with a combination of specification and use location, allowing volume discounts without any one stakeholder losing visibility into their own cost changes. This approach also allows for unique delivered costs and purchase quantities. Aggregating volume while also gaining the confidence of participating stakeholders during the sourcing process improves project effectiveness and, hopefully, post-award compliance. Sustainability Complexity Since the package a product comes in is eventually disposed of, reducing the waste stream is a key objective for companies and their consumers. Finding ways to lightweight existing products by reducing grammage or finding alternative materials such as packing peanuts that dissolve in water become key differentiators for suppliers and innovation opportunities for companies. Allowing suppliers to submit alternative designs or materials during the bid process, such as is supported by Expressive Bidding within CombineNet ASAP, creates the opportunity for value creation. Many consumers purchase habits are swayed by the cost to dispose of a product or package. There are many levels of packaging including primary (touching the product), secondary (a box that contains a tube of product) and tertiary (a corrugated box containing tubes of product in individual boxes) all of which provide opportunities to reduce waste as well as cost. For more information on how to better manage your packaging category spend: Download the Whitepaper, Packaging Procurement: 3 Key Considerations to Advance Your Packaging Sourcing Strategy http://www.combinenet.com/resource-center/whitepapers/packaging-procurement.php View CombineNets eSourcing Solutions page on Packaging Procurement http://www.combinenet.com/solutions/packaging-sourcing/ About CombineNet CombineNet, Inc. delivers award-winning best-in-class e-sourcing software solutions through its products CombineNet ASAP for advanced e-sourcing, CombineNet Spend Analysis, and CombineNet Contract Management. Using these Software-as-aService (SaaS)-based sourcing products, CombineNet customers can rapidly adopt proven solutions for increasing spend under management, improving enterprise spend insights, and supporting their Procurement Transformation efforts. Now in its twelfth year in business, CombineNet is known for its track record in driving significant bottom-line and productivity savings for its clientele which includes: General Mills, Hersheys, Heinz, Procter & Gamble, Sears, Johnson & Johnson, A.P. Moller-Maersk,

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Bayer, Coca-Cola, PepsiCo, Reckitt Benckiser, and many more Global 2000 firms. Visit www.combinenet.com for more information.

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About Buyers Meeting Point Buyers Meeting Point is an online knowledge and professional development resource for procurement and supply management professionals. Our mission is to support overburdened professionals by making information accessible by centralizing access to resources on our site, by digesting content and evaluating sources looking for the highest quality information, and by making sure all our coverage is done clearly and simply with no presupposition of pre-existing knowledge or experience. There is a world of information available to you and our site and resources provide an avenue for you to gain market knowledge and expertise from others and to apply them where appropriate for your business. Watch our news articles and blog postings for information on webinars, solutions, research reports, publications and whitepapers being discussed by your colleagues. Make sure you get a well-rounded perspective on procurement by reading our Flip Side content featuring "The Sales Guy". We are convinced you will find something among our resources to assist you with your current challenges. For more information, please visit www.buyersmeetingpoint.com or email management@buyersmeetingpoint.com

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8/6/2013