'Cut those packaging costs'
By Staff -- Purchasing, 3/13/2008 2:00:00 AM EDT
Purchasing's smartest negotiators move from conflict to collaboration fast. Match your wits against these pros. Guess their strategy. Then, read what they really did atpurchasing.com/negotiations.
Possible Solutions: Find other items to cut costs; change the container material; pass costs onto the consumer.
As a strategic sourcing manager for a division of Limited Brands, a retailer of beauty products, Melissa Hussenet (now a director with an IT software management company) had to find a way to decrease plastic-container packaging costs. At the time, the volatile resin market was driving resin costs upward of 3–5¢/lb. per month, causing container pricing increases of an estimated 5–15% quarterly. Hussenet called the manufacturers of the resin to purchase it direct, but because her company's annual volume was smaller than the container manufacturer's, the cost turned out to be higher. She then considered issuing large blanket orders for the resin and/or containers to hedge against the oil costs that were pushing up the resin prices. But, both the container manufacturer and resin vendors claimed force majeure would prevail and goods would not be shipped unless the purchase order price equaled the current market pricing.
Problem: The resin traditionally fluctuated in cost, which caused the container manufacturer to pass the cost increases (and decreases) through to customers like Limited Brands quarterly. The customers could place large orders and take advantage of downsides in the marketplace when resin costs were low. With the current state of economics, that business model was no longer viable. See purchasing.com/negotiations for the solution.
Solution: Hussenet took the entire container line out to bid, requiring pricing per each gram of plastic content (gram weight). She also worked with engineering to reduce the material content (gram weight) of the containers. Hussenet negotiated the lowest market value for the containers and bi -annual pricing reviews verses automatic quarterly adjustments. That ment the manufactures took on responsibilities for resin volatility, a risk which was previously only being mitigated by the customer. The work with engineering reduced the plastic content in many of the containers, not only saving the company money but providing a sustainable ‘green' solution. The Result: The cost per container was reduced by 5%-15%, Resulting in millions of dollars and Thousands of Resin Pounds saved annually.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it topteague@reedbusiness.com.
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