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Thefast-movingconsumergoods(FMCG)sectorcontinuouslyseekscost-efficiencyopportunities,andthespotlightoftenlandsonanunexpected
contender:packagingexpenditure.
Forindustrieslikefoodandbeverages,
packagingisnotjustalogisticalnecessitybut
alsoasignificantexpense,oftenaccounting
forupto30%ofdirectcosts.Inlightofthese
substantialcosts,identifyingstrategiestoachievecostsavingsisacriticalpriorityforcompanies,
especiallygiventhevaryingglobaleconomicconditions.
Aseconomicheadwindspersistandthequestfor
savingsbecomesparamount,GEPoffersseven
actionablestrategiesforcontrollingpackagingcosts.
9GEP
ActionableStrategiesforPackagingCostOptimization
1.EmbraceLeanPackaging:
Delveintoyourpackagingprocesswithaleanmindset.Questionthenecessityandcustomervalueofeachelement.Overhaultheentire
packagingprocessbyeliminatingunnecessarycomponents,choosingsuitablematerialsto
preventoverpackaging,andreducingweight
andgauges,amongotheractions.Thisapproachhasconsistentlyledtosavingsof5to10%
forcorrugatedboxesand2to6%forflexible
packaging.Moreover,theshifttomoresustainableandcost-effectivematerialslikecartonsovertin
boxesisamovementworthjoining.
2.EngageUpstreamSuppliers:
Engagingwithtier2suppliersiscrucialbecauseof
thesignificantshareofrawmaterialcostsinthetotalcostofownership(TCO).For
instance,incorrugatedpackaging,papersheets
accountforabout50to60%ofTCO,whilein
flexiblepackagingit’sapproximately50%.Fosterrelationshipswithupstreamsupplierssuchas
papermillsforpaperboard,andfilmmanufacturersorresinproducersforflexiblepackaging.These
relationshipsprovideaccesstoindustrytrends
andcutting-edgetechnology.Directengagementensurestailoredrawmaterials,particularlyfor
primarypackaging,enhancingproduct
compatibilitywithcustomizedtextures.Moreover,thisapproachleadstomorecost-effectivepricing,strengtheningtheresilienceofthesupplychain.
3.OptimizeDemandManagement:
Setupcosts,particularlyprevalentinflexible
packaging,canconstituteupto20%ofproductionexpenses.Thesecostsariseduringthepreparationofproductionequipmentandprocesses,often
withoutyieldinganytangibleproducts.Toaddress
thisissue,itisessentialtoenhanceforecasting
SEVENEFFECTIVECOSTREDUCTIONSTRATEGIESFORFMCGPACKAGING
accuracyandoptimizeorderplanning.Improved
forecastingresultsinmorepredictableorders,
reducingtheneedforadhocordersandfacilitating
theestablishmentofbetterminimumorderquantities.Additionally,byproactivelysharingrollingforecasts
withsuppliers,theycanadjusttheirproduction
schedulesaccordingly.Thisproactiveapproachhelpssuppliersreserveinventorywithfewersetup
requirements,ultimatelyminimizingwaste.Asaresult,operationsrunmoresmoothlywithreducedcosts.
4.NegotiateLong-TermContracts:
Formostpackagingcommodities,it’sadvisabletoenterlong-termcontractsspanningtwotofour
years.ItprovidessupplierswithvisibilityforbetterplanningandhelpsthemefficientlyplanproductionwithenhancedqualityandROI.Fromthebuyer’sperspective,long-termcontractsboostnegotiatingleverage,facilitatingeconomiesofscaleforhighervolumes,andenablesupplierstoofferlower
contractprices.Thiscreatesamutuallybeneficial
scenarioforbothpartiesinvolved.Moreover,longercontractsfostermatureclient-supplierrelationships.Amajorityofbuyersfavorlong-termengagementstoensureconsistentsupply.
5.EstablishTransparentPricing:
Establishadetailedpricestructurethat
encompassesmaterial,laborandconversioncosts.Thisispivotalinidentifyingcostdriversandensuresfaircomparisonsamongsuppliers.It’scrucialto
pinpointthekeyfactorsdrivingcostincreases,and
tolinkpricestoatrustworthyindexandestablish
apre-definedreviewmechanism.Takecorrugated
boxesasanexample:bothmaterialcomponentslikepaperandnon-materialcomponents,includinglabor,ink,starch,gasandoverheadcosts,canbetiedto
benchmarkssuchasthepulpindexandthe
2
9GEP
SEVENEFFECTIVECOSTREDUCTIONSTRATEGIESFORFMCGPACKAGING
consumerpriceindex.Thisapproachallows
forpriceadjustmentsthroughpredetermined
mechanismsinreactiontoshiftsintheseindices,ensuringafairandtransparentpricingmodel.
6.PromoteLifecycleManagement:
Encouragingrecyclingacrosstheentirepackaginglifecycleishighlyadvisable.Forexample,work-in-processcorrugatedboxes,whichserveasstorageforgoodsintransitbetweenmanufacturingand
co-packinglocations,canoftenbereusedfourtofivetimes.Inasimilarvein,cartonboxescanbetransportedinplastictoteswhenmoving
betweensuppliersandproductionfacilities.Thispracticeresultsinsubstantialcostsavingsandsignificantlyreduceswaste.
7.LeverageeAuctions:
eAuctionsareapotentmechanismtoleverage
marketdemandandexploitcompetitivedynamics
effectively.Thedeploymentofbiddingvia
auctionsnecessitatesaseriesofcrucialsteps.
Initially,duringthesetupphase,itisimperative
toformulateacomprehensiveeAuctionbidding
strategythatincludesconsiderationsforlot
strategy,auctiontypes,andtheestablishmentofoptimalauctionrules.Progressingtoexecution,itisvitaltofostercollaborationwithsuppliers
throughtrainingandmock-upevents.Thisis
followedbytheorchestrationofliveeventsandthe
provisionofstrategicrecommendationsforvariousdecision-makingscenarios.DrawingfromGEP’s
experiences,usingEnglish-languageauctionsinacompetitivemarketplaceoftenresultsinsavingsof5to20%,whichisparticularlybeneficial
fornewcomerstotheprocess.Nonetheless,theimportanceofenlistinganexperiencedand
proficientteamtocrafttheauctionstrategyand
managetheworkflowcannotbeoverstated,astheabsenceofsuchexpertisecouldleadtooutcomesthatfallshortofexpectations.
Conclusion:
ThepathtoreducingpackagingexpenditureintheFMCGsectorisfraughtwithchallengesbutripewithopportunities.Byadoptingthesesevenstrategies,
companiescannotonlynavigatethecomplexitiesofcostreductionbutalsoenhancetheiroperationalefficiency
andsustainabilityfootprint.Whetherit’sthrough
adoptingleanpackagingprinciples,fosteringlong-termsupplierrelationships,orleveragingtechnologythrougheAuctions,thepotentialforsavingsisimmense.
AsdemonstratedbyGEP’ssuccesses,thesestrategiesarenotmeretheoriesbutactionablestepsthathave
ledtosubstantialcostsavingsacrosstheboard.It’s
timeforFMCGcompaniestoreassesstheirpackagingstrategies,alignthemwiththeseprovenpracticesandunlockthedoortooptimizedpackagingexpenditures.
3
9GEP
SEVENEFFECTIVECOSTREDUCTIONSTRATEGIESFORFMCGPACKAGING
Turnideasintoaction.TalktoGEP.
GEPhelpsenterpriseprocurementandsupplychainteamsathundredsofFortune500andGlobal2000companiesrapidlyachievemoreefficient,moreeffectiveoperations,withgreaterreach,improvedperformance,andincreasedimpact.Tolearnmoreabouthowwecanhelpyou,contactustoday.
MichaelSeitz
VicePresident,Consulting,GEP
Michaelisresponsibleforbusinessdevelopmentandcustomerdelightin
China.Withmorethan15yearsofexperienceinprocurementadvisoryand
supplymanagement,hegrowsandguidesourChinateam.Hehasastrong
backgroundincostoptimization,procurementtransformation,procurement
systemimplementationandsupplychainstrategy.HehasspentoveradecadeworkinginShanghai.
LET’SCONNECT
4
DRIVES
NNOVATION
GEP?iNTEiGENCE
AUTHOR
JamieHao
connectwithGEP
GEP?deliversAI-poweredprocurementandsupplychainsolutionsthathelpglobalenterprisesbecomemoreagileandresilient,operatemoreefficientlyandeffectively,gaincompetitiveadvantage,boostprofitabilityandincreaseshareholdervalue.
Freshthinking,innovativeproducts,unrivaleddomainexpertise,smart,
passionatepeople—thisishowGEPSOFTWARE?,GEPSTRATEGY?andGEPMANAGEDSERVICES?togetherdeliverprocurementandsupplychainsolutionsofunprecedentedscale,powerandeffectiveness.Ourcustomersaretheworld’sbestcompanies,includingmorethan550Fortune500andGlobal2000industryleaderswhorelyonGEPtomeetambitiousstrategic,financial
andoperationalgoals.
AleaderinmultipleGartnerMagicQuadrants,GEP’scloud-nativesoftwareanddigitalbusinessplatformsconsistentlywinawardsandrecognition
fromindustryanalysts,researchfirmsandmediaoutlets,includingGartner,Forrester,IDC,ISG,andSpendMatters.
GEPisalsoregularlyrankedatopprocurementandsupplychainconsulting
andstrategyfirm,andaleadingmanagedservicesproviderbyALM,Everest
Group,NelsonHall,IDC,ISGandHFS,amongothers.HeadquarteredinClark,·NewJersey,GEPhasofficesandoperationscentersacrossEurope,Asia,
AfricaandtheAmericas.Tolearnmore,visit.
GEPSMARTisanAI-powered,cloud-nativesoftwarefordirectandindirectprocurementthatofferscomprehensivesource-
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