How P&G buys packaging
by Paul E. Teague -- Purchasing, 9/8/2008 9:43:00 AM
P&G’s Global Purchases group controls a packaging spend of approximately $4.2 billion annually. In the following interview, Vice President of Global Purchases Richard A. Hughes tells how his staff manages that spend:
Q: What packaging products does P&G buy?
A: We have about 15,000 product codes around the world that we buy and we group them into sub categories. Plastic bottles, closures, aluminum cans, labels, cartons, corrugated, laminate or foil tubes, glass, among other items. Almost any packaging you can imagine, with the exception of flexible films, like outer wrap for some products like Bounty and Charmin. We source globally and the purchase of the packaging films is done by those who are also buying product films.
Q: What percentage of the packaging spend is contract versus spot?
A: The contract portion is $4 billion. The remainder is not spot, but in-between contracts. Most of our packaging is custom.
Q: What’s the organizational structure?
A: In all, there are about 200 people worldwide involved in packaging purchasing. Sixty-percent of them are managers and 40% are administrative and technical. Khalid Hajji is the top person. He is in Geneva and he reports to me. He has a plastics worldwide leader located in Cincinnati and a fiber-based or paper-board-based packaging leader in Geneva. We also have people in the different regions buying plastic and fiber-based products and they report up centrally to the individual leaders.
Q: What are your current cost-saving goals?
A: For packaging, our goal is to save or take waste out of $1 billion over three years. We are in the second year of the three-year plan. We were ahead of schedule after the first year.
We also have value-contribution (savings and/or cost avoidance) and innovation goals. P&G prides itself on innovation. We want to make sure that the consumer-product packaging is friendly, usable and sustainable. Our innovation goals are joint goals with the packaging R&D department, and we are very connected. Among past innovations: Foil-fiber-can packaging for our former product Crisco during World War II when the country needed steel. We wanted t free up steel. We extended the foil fiber concept to Pringles using the same concept, but different size and shape. In the 1980s, we introduced a self-draining closure for liquid laundry detergent that was a joint effort with R&D, Purchases and the supplier. Today, as part of our sustainability efforts, we are working to reduce usage of thermoplastic resins.
Q: What metrics do you use to monitor supplier performance?
A: Generally, they are the same as the metrics we use to monitor suppliers of other commodities. Specifically for packaging, we measure commercialization time for packages, starting from the time we approve the mold. Does mold come up on time? We measure commercialization time from the time we say begin the mold process. We use a CQV (certification, qualification, verification) process rigorously in packaging. It maps out time from mold.
Q: How do you control inventory?
A: First, we ask what the cause of the inventory is rather than asking if we can shift inventory to supplier or reduce safety stock. With packaging, the cause could be that we customized too early in the process. Often, bottles in a certain shape or color or design can be used only for certain products. To avoid customizing too early, we do late-stage customization. In blades and razors, for example, we produce blades and ship to pack centers where they package them in sets of five or 15. The pack centers are responsible for late-stage customization. That helps eliminate or reduce inventory of blades and razors. Our goal is to cut material inventory in customized packaging over three years by 30%. We also investigate the best time to put labels on bottles. The later we put the labels on in the process, the less the labels and bottles in the system. This is our second year on that three-year plan and we are on track to hit our time and inventory savings.
Q: Do you benchmark?
A: We benchmark our costs on a per-weight, per-use, per-square-meter basis. We think that sometimes it’s worth paying a little more to get the right “pop” in the packaging on the shelf for the consumer. Packaging is a marketing tool, so we are cautious about driving everything to its lowest cost level. Packaging is important to the consumer, and sometimes it makes more sense to use a higher quality material to make the customer connection.
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