Maryann Jashinske Package Engineering Solutions LLC

Dynamics of Packaging Sourcing

Agenda Introduction Recommended Steps in Bid Process Packaging’s Role in Bid Process Preliminary Strategies Data Gathering Selecting items to bid Developing details Select vendors to quote Evaluate responses Re-evaluate strategies Negotiation and selection Award business

Summary Questions

Recommended Steps in Bid Process 1. Conduct preliminary evaluation of purchasing strategies 2. Gather your purchasing data 3. Select items for the RFQ 4. Provide details for selected items 5. Identify vendors to quote 6. Review responses 7. Re-evaluate strategies 8. Negotiate 9. Award business

Intro When the purchasing department calls….

Ideal situation: all specs up to date and in place all packages consolidated, right-sized, properly specified purchasing can proceed with current info

Typical Situation: Specs not up to date; packages not right-sized Timing constraint Resource constraint

Packaging’s Role Help select the best option(s) for your business Work as a team Provide input up front and during negotiations Confirm need for special requirements Understand the alternatives Optimize the packaging where possible Confirm apples to apples comparisons Evaluate the whole packaging process Outline the cost differences and trade-offs Don’t forget the intangibles

Stay involved

Step 1: Preliminary Strategies

Direct vs indirect purchase Manufacturers typically lowest component cost Higher min runs Full lead time May not inventory

Distributors Reduced minimum run (tie-in) Reduced lead time Reduced working capital may offset higher part cost May provide value add

Distributor

Manufacturer

02

4

Minimum run

Lead time

ComponentCost

Step 1: Preliminary Strategies Secondary operations: Inventory, Kitting, Assembly, Decorating Vertical integration; In-house Capability

The longer you can delay differentiation… o the more flexible your production schedule o the fewer items you need to inventory

Production line down time may increase with this strategy

Direct Manufacturer capabilities (value add) Third party (value add) Additional handling, freight and lead time May inventory or pack and ship to order

Step 1: Preliminary Strategies Domestic sourcing vs import Lead times Back-up plan if quality or shipping issue

Single sourcing – or not Risk vs reward

Step 2: Data gathering What do we buy? How many? How often? Where does it ship to? Are there any special requirements? Are there “intangibles” desired?

Intangibles Customer service Quick turn-around Technical expertise Design capability New/different technology Systems integration

Develop a measuring tool for intangibles if possible

Step 3: Selecting items for RFQ Use 80/20 rule to select high volume items Add some low volume items for comparison Identify any special requirements Can we consolidate? Time constraint Help narrow down the list – ideally no more than 20 items points you in a direction… or two

Step 4: Gather details for bid Develop/review specifications

Quality requirements vs desires Regulatory requirements Does the item currently work with your equipment? Is the item over- or under-specified?

Include special requirements lead time/inventory/shipment needs Specify packing/shipping requirements Freight costs – who will pay?

Set material indices - Purchasing which ones? Select a date for comparison index

Provide Pictures

General cost factors to consider Up front – planning: Minimum run sizes “ganging” runs Ordering practices (can your company ID the opportunities?) Inventory control

Inventory costs – working capital Lead times Forecast changes Inbound freight costs Delivery; reliability

General cost factors to consider During production: Equipment Downtime Equipment changeover time Labor needed to run QC time – incoming and outgoing Scrap factors Inbound packaging needs – labor vs part price Contract packagers

General cost factors to consider After production: Shipping environment Special Handling requirements Shipping damage Returns/complaints related to packaging Leaks (clean-up cost) Customer disposal concerns

General cost factors • Can these items be assigned a dollar value? • Consider using a rating system

Packaging Cost Factors

Package Component Cost Factors - General Special colors or textures Special materials; recycled content Component weight Non-standard performance testing Tight dimensional tolerances (ID) Packaging equipment needs Exterior or interior treatment Number of shapes/sizes Custom vs stock – availability of tooling Cavitation of tooling – capital vs part price Equipment utilized for production of parts/capacity Decorating at manufacturer Packing requirements (tray vs box) Freight

Packaging Cost Factors by Type Bottles Window stripes Non-standard finish

Caps Lining materials Unscrewed vs stripped threads

Film/pouches Layout/scrap factor # of colors Print quality – gravure vs flexo Special fitments or laminations; barrier needs

Packaging Cost Factors by Type Blisters/thermoforms/vacuum packs Layout scrap factor Special design requirements (perfing, sealing)

Folding Carton/Corrugated Special board (ECT vs Mullen, Kemi vs mottled white, SBS vs clay) Recycled content Print quality needed, # of colors Package design -regular RSC vs diecut Special manufacturer’s joint

Packaging Cost Factors by Type Industrial Packaging Reconditioned vs new Special fitments and gaskets Special linings Decoration Packing Freight

Tertiary Package Component Cost Factors

Pallets Non-standard designs Material Scrap factors based on lumber sizes Reconditioned vs new Moisture content Treatment requirements Leasing options/returnables Customer requirements

Stretchwrap/strapping/blocking and bracing materials/Tape Yield (prestretch, gear settings) How much is needed to secure load? Regulatory requirements Customer requirements

Decorating Cost Factors Direct print to component at supplier – in-line Inventory all items

Decorate at package supplier - secondary operation double handling

Decorate at third party Multiple handling and freight Lead times

Decorate off-line, in-house Decorate on-line Delays differentiation, minimizes inventory Consider equipment downtime

Recommend separating on bid

Step 5: Select vendors to quote

Step 5: Select vendors to quote It’s not all about price – objective is to get all three Right, Quick and Cheap

Get technical and non-technical input Survey various departments

Identify types of suppliers/mfg processes Niche vendors (fast lead times, low min runs) Additional capabilities (decorating, assembly, technical, design,

innovation) Include distributors Stock items vs custom items

Choose a variety of suppliers for cost comparison Include current supplier

Step 6: Evaluate responses Provide adequate time for responses Make apples to apples comparisons Answer questions Re-advise all vendors of new/additional info

Some suppliers will quote only some items Compare high vs low volume costs Check capacity, ability to handle surges

Ask for more info, if needed Evaluate alternative offerings Include intangible ratings and general cost factors

Step 7: Re-evaluate strategies What is best for your company, for the majority of items? What works for you? May vary by item

Single sourcing vs multi-sourcing Outline the cost differences for special items; confirm need internal negotiation Alternate offerings

Assign value to intangibles if possible Adjust bid if necessary Look at the Total Cost Opportunity Does it change the original strategies?

Step 8: Negotiate Internal and external negotiations Exclusivity/ownership of tools Rebate/prebate opportunities Long term contract Volume

Credit incentives Capital Expense

Inventory Return of defective or used packaging prepurchase of pallets or boxes Partnering opportunities with major suppliers Other

Step 9: Award Business What is the implementation cost/timing to change suppliers? Are the right resources available?

Who owns the tooling? can it be moved?

will it work on other equipment?

Is there a capital expenditure to move?

What is the impact on the current business if not awarded to current supplier?

What about the other 80% of items? How do you maximize profit vs risk; cost vs value?

Summary Provide input up front and during negotiations Confirm need for special requirements Make apples to apples comparisons Review, revise, ask again Understand the alternatives Involve other departments for input Outline the cost differences and trade-offs for business Don’t forget the intangibles Select the best option for your business

Questions?

Contact Info

Maryann Jashinske, CPP Consulting Engineer 770-815-6221 Cell 770-544-7219 Office

Packaging and Supply Chain Optimization

maryann@packageengineeringsolutions.com