Vendor management is the discipline through which companies seek optimal value from the combined total of their vendors. The management of packaging vendors, therefore, is a component of vendor management.
Since vendor management encompasses all of a company’s purchases, it’s helpful to recognize why packaging presents certain challenges. Packaging is performed at primary, secondary, and tertiary levels, and any given level can require multiple vendors. For example, the primary packaging for a beverage might consist of a bottle, label, and closure. Then there’s the likelihood that a company will have more than one vendor for a given packaging item. Complexities further increase in proportion to the number of different products a company has in-market. Even a small company can have a considerable number of packaging vendors.
The discipline most associated with vendor management is procurement, a role that acts as the liaison between the company’s purchasing needs and the vendors that fulfill them. Given the amount of communication that’s involved alone, vendor management needs to be supported by information technology (IT), specifically specialized software. Anything less lends itself to loss time and human error. Following is a discussion of some major aspects of vendor management and their relationships to packaging.
Supporting company’s mission and objectives: A company’s reason for existing is explained in its mission. A company’s objectives are the quantifiable means through which the mission is fulfilled. Since no company is completely self-sufficient, the goods (and services) supplied by vendors serve both supportive and enabling roles. When mission and objectives rely on mass manufacturing/production, mass marketing, and mass distribution, packaging can be a source of competitive advantage. Packaging vendors, therefore, can be strategic partners.
Vendor selection: A packaging vendor should be selected through a stepwise process. It starts with requirements, established by departmental stakeholders such as marketing, manufacturing, distribution, legal, etc. It’s the packaging department, in its interdisciplinary role, that must systematically reconcile the inherent conflicts and trade-offs.
Next comes the identification of prospective vendors. When packaging requirements are rendered in material specifications, the vying vendors will be members of the same industry segment. However, when the rendering is in performance specifications, vendors from competing segments can be considered.
Then there’s the development of the criteria by which prospective vendors will be evaluated. Size, financial strength, technology, service, and reputation are among the essentials. Even so, each individual criterion should be assigned weighted values, depending on what’s being purchased. Some procurement departments are large enough to have one or more purchasing agents who specialize in packaging, even down to specializing in a particular type. There is no degree of agent specialization, however, that can’t be bolstered by informed inputs from the packaging department.
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And there’s the necessity of letting vendors know that they are being sought. Requests of proposals are one way. Others include referrals, internet searches, and responses to previously sent sales/promotional literature.
At some juncture, dealings between the company and vendor finalist become more involved and personal. Mutual briefings on pertinent topics typically are done at this time, along with reciprocal facility visits.
Finally, based on all the aforementioned (and possibly more), a selection is made.
Managing risk: Every vendor relationship comes with risk. The type that might come most readily to mind is that of performance, or rather a lack thereof. As related to a packaging vendor, underperformance can be an inconvenience at best, and a disruption at worst.
Another type of risk relates to the information given to a packaging vendor. There’s a risk that the vendor makes unauthorized use of this information, and that risk becomes greater the more proprietary and sensitive the information is. The risk need not be totally about integrity. An unintentional breach can be as harmful as an intentional one. How secure a vendor’s computer network is against hacking is an important consideration.
Fostering win-win partnerships: Effective packaging vendor management builds on mutual interests. Although there are a variety of obstacles to that pursuit, a perennial challenge is pricing, since the vendor’s and the buyer’s preferences are natural opposites. A recommendable approach: the vendor decides its lowest acceptable price, the buyer decides its highest acceptable price, and the partners engage in good-faith efforts to reach a mutually acceptable price.
The odds for success are increased the more each partner understands the cost structure of the other. That way, either partner might be able to suggest to the other ways to restructure costs for mutual benefit. Thus avoided will be the penny-pinching, zero-sum belief that one partner’s gain is equivalent to the other partner’s loss.
As their very name implies, consumer packaged goods companies can’t exist without packaging. The same is true for a variety of non-retail categories (medical devices, for example). Broadened, any company that uses any packaging, whatsoever, can benefit from making the management of its packaging vendors a well-integrated component of a vendor management program.
Next month’s article: How to construct an Approved Vendors List for packaging.