Procurement and sourcing professionals know that strong category knowledge is critical to a successful RFP. That’s why we want to shine a light on best practices for sourcing a category that often gets overlooked: packaging.
What is a Packaging RFP, and Why is it More Important Than Ever?
Before delving into the common mistakes (and tips for how to avoid them), let’s nail down what a packaging RFP really means.
Any company involved in managing a physical supply chain needs to get its products from point A to point B. Products must be properly packaged to ensure they arrive at point B intact. The packaging needs to be appropriate for the product. It might be a corrugated cardboard box, a pallet, or a steel drum. Packaging needs to be safe, secure, compliant, durable, and resistant to temperature, moisture, and even air pressure changes.
For any customer-facing products, you also want to be sure that the packaging will make a good impression on the customer. Packaging is often a “first impression” for your brand’s service experience, even for industrial suppliers. That means making sure it’s branded with the correct inks, finished with the appropriate level of sheen, supported with sturdy resins, films and glue joints and sealed for shipping with the best adhesives.
Packaging RFPs were already an essential part of the supply chain, but since the pandemic began they have become a critical focus area for procurement operations teams. Why? The pandemic triggered an explosion in online shopping and food delivery, as well as the temporary or permanent closure of in-person retail locations. A recent study by CoStar Group showed that over 12,200 retail stores shut down permanently during the pandemic, more than 2x that number for 2019. At the same time, e-commerce had a banner year of growth. That means that companies reliant on common packaging types like corrugated have been racing to keep up.
Companies that produced corrugated boxes ramped up production and the variety of boxes in response, but the massive spike in demand has raised costs by an estimated 3-12.5% according to Industrial Packaging Magazine. That’s where procurement teams come in. By using a packaging RFP as part of their sourcing process, sourcing teams can ensure they have the proper packaging, ensure an adequate supply and even minimize costs.
However, in order to manage your packaging spend through RFPs, it’s critical to avoid the three most common mistakes made by experienced sourcing teams who are unfamiliar with this category:
Common Packaging RFP Mistake Number 1: Items vs. Units
Items and units may sound like the same thing, but when it comes to a packaging RFP, items and units are two very different things. Confusing them can be a common and costly mistake.
Packaging material is produced as individual items, such as a cardboard box. However, the packaging is often priced and sold as units—for example, a pallet of cardboard boxes. (The reason that this may be confusing is that the packaging itself has packaging, e.g. a box of boxes). So, you might end up with one unit of cardboard boxes, which comprises ten cardboard boxes, which are in turn packaged and shipped within a box.Confused yet? It gets worse.
In a packaging RFP, some suppliers may quote item prices, and some may quote unit prices. It’s up to the sourcing team to catch those differences and do the unit conversion math necessary to ensure they are comparing apples to apples across different quotes. Why? Because in a tight market, suppliers are less likely to modify the format of their quotes, since they have more leverage and overall less time to serve the increased demand for packaging. That’s why it’s often on the sourcing team to validate and tabulate the quotes by line item to ensure that the business is paying the correct price. Confusing units for items and vice versa is an easy mistake to make, but it’s avoidable if you simply use an exception manager or outlier detector.
Common Packaging RFP Mistake Number 2: Alternative SKUs Storage Requirements
According to a Mordor Intelligence report, the packaging industry is expected to grow at a rate of 3.5% over the next five years, with beverage companies leading the charge.
That’s where innovative alternatives are playing a role, with sourcing actually driving innovation. During times of price volatility, manufacturers might be able to offer an alternative SKU that satisfies most requirements. Maybe they have excess inventory, or perhaps they have an option made from a different material than requested on the RFP.
Having an alternative SKU as part of the packaging RFP bidding means you might be able to save money or get the packaging you need more quickly. But, it’s easy to make the mistake of confusing alternate SKUs with those that meet all the requirements specified on the RFP.
You could end up accidentally paying too much or choosing an alternative SKU based on price without realizing it doesn’t meet operational requirements, especially balancing storage and sustainability requirements. With increasing ESG requirements becoming the norm, you may be required to use 50% recycled plastic, like the models Pepsi and Coca-Cola are moving towards. If that were the case, requirements become a big deal, and alternative SKUs need to be considered carefully.
Common Packaging RFP Mistake Number 3: Capture the Lead Time
Suppliers all have a general lead time that they need to produce an order. Most suppliers also have more specific (and different) lead times for other production lines—and the two don’t always match.
For example, a cardboard manufacturer may have a target lead time of two weeks on orders for boxes. However, specialized packaging such as a cardboard box with inserts may have a lead time of four weeks. They may be made in different facilities and shipped by the same supplier.
It’s common for the procurement team to mistake the supplier’s lead time for the line lead time, with potentially disastrous results.
Strategies for Avoiding These Common Packaging RFP Mistakes
There are multiple individual strategies for dealing with these three common packaging RFP mistakes. However, there is one big move a procurement team can make that eliminates all of these and more. Choosing the right sourcing software is the key.
Arkestro is a Predictive Procurement Orchestration Platform designed specifically for procurement and other crucial business funtions. It offers features like automatically running unit conversions. It has the capability to automatically calculate the price of alternative SKUs versus the original spec across all suppliers. It will take different lead times into account as potential constraints when you award contracts. By leveraging the advanced capabilities of machine learning and AI, Arkestro will spot outliers among bids to identify quotes that may be problematic.
In addition, Arkestro includes pre-built templates to make the entire packaging RFP process as quick and painless as possible.
Take the Next Step
If packaging RFPs are something your procurement team has to deal with, now is the time to experience the advantages of AI-powered, predictive sourcing software. Save time, money, and improve your procurement processes for your next packaging RFP. Click the button at the bottom of this blog, and someone from Arkestro’s Team will be in touch. We’re happy to get you set up for your next packaging RFP template at no cost to you.
Get started with a free RFP template for your next packaging RFP here.