In fact, two of the major feature articles detail how Owens-Corning and Simmons use Internet service companies to identify and locate bidders for what’s called a reverse auction of their packaging materials.
The Internet service company provides two separate functions: conducting the auction event and locating potential suppliers to bid on the business. As important as the “auction event” is, the early users of this purchasing method are most impressed by the number of suppliers that the service identifies as bidders. Not only does the Internet service company assemble the group, it appears to develop many more companies than the buyer knows.
And, in an auction-type setting, obviously more bidders should mean a better price on the packaging products. Currently, the process doesn’t truly end there. Once bidder or bidders are selected, the purchasing staff at the buying company has a period of time to investigate the winners to ensure that the company wants to do business with them. Over time—and as more companies become known to the packaging buyers—this “qualification step” is likely to become less burdensome.
To look at this process in another way, the manufacturer essentially turns over to the Internet company some responsibilities of its purchasing department (i.e., identifying potential suppliers and conducting the negotiations). This sounds like a ready-made answer to one of the complaints we received from packaging purchasing people that participated in our salary survey (see p. 60). By being able to outsource these functions, buyers will be better able to perform their other responsibilities.
As these articles were being produced, I had a conversation with Andy Kerr of Eastman Kodak. Kerr is involved with Kodak’s national purchases of corrugated materials, and he says his company is taking another tack. Kodak is one of many larger companies that have focused on consolidating its purchases with fewer and fewer vendors. Its corrugated suppliers now number two. That, he says, is in keeping with the aggressive merger mania sweeping through the paper and paperboard segments of packaging.
And although Kerr didn’t use the “P” word (partnering), it’s obvious that Kodak’s arrangements with these two large vendors encompass most of the elements of a true partnership. Not only does the agreement ensure the level of service that Kodak demands, but it also helps protect them on price. The purchasing agreements, Kerr states, include limited exposure to increasing prices.
Kodak is by no means alone in trying to pare down its roster of suppliers. Many other large manufacturers are moving in the same direction. However, the motivation may be strikingly different from that of Owens-Corning and Simmons. Although price is a factor (and always will be), the larger companies that are reducing their supplier bases often rank speed and service ahead of price on their list of priorities.
As much as company size, perhaps the real difference in the approaches is the product being purchased. Andy Kerr works continually at upgrading and improving his company’s packaging specifications, and not just to cut costs but to improve performance and appearance. That’s why speed and supplier service are so important to him. By contrast, the companies that have begun to outsource package purchasing to Internet companies seem to rate cost ahead of service or speed.
Although neither process has to be mutually exclusive, we may be looking at the difference in buying the brown box vs buying the box that sells your product’s brand.
