Over the past several days, many suppliers within the packaging industry have announced implementation of structured supply allocations.
Three drivers affect the supply chain: 1) immediate demand for hand sanitizer and surface cleaners. 2) A shift from wholesale (restaurants) to retail packaging. 3) the ripple effect of the long lead-times causing companies to increase inventories based on the unknown future. Allocation is a secondary result of these areas, especially the hand sanitizer packaging surge that started in March and has continued now into the summer.
As we reported before, the packaging industry was not prepared to take on that amount of new demand in such a short period of time and any and all available latent capacity was consumed. Manufacturers were also forced to navigate shifting from one manufacturing platform to another (small versus big bottles) to accommodate specific market needs. Most domestic suppliers went into an oversold state with extremely long leads times and in some cases outright refusal to accept new customers and new orders.
The hand sanitizer market now seems to have stabilized, but what is left in its wake is a supply chain that is crippled and broken. As suppliers seek to normalize their business and maintain market positioning, they are finding themselves in the very uncomfortable position of not being able to meet their normal demand and to service all of their customers’ needs. Many suppliers find themselves unable to react to both increased and shifting demand given that many run close to 90% machine utilization in normal market conditions. Adding capacity is costly and must be calculated around whether the demand will continue into the future.
Suppliers by and large never like to move to an allocation supply model; it creates significant stress for both the supplier and their customers and brings a tremendous amount of tension into the relationship. Customers that could depend on supply are finding themselves in very uncomfortable and precarious positions with suppliers being forced to choose one customer over another—this leaves future prospects challenging and uncertain.
The rules of allocation vary from one organization to the next, but they typically follow normal business practice with supply agreements, profitability and the strategic importance of the account used to make allocation decisions. Direct customers and large consumer packaged goods companies typically get the majority of the supply with large resellers and distributors next on the list. Subsequent secondary allocation that follows utilizes similar considerations. Many professional supply chain managers overlook this fact, instead trying to consolidate their supply chain to drive price. When markets change, many have found out how big of a mistake consolidation is.
If you have a supply agreement in place, consider yourself fortunate and smart. Hopefully the contract contains provisions for allocation that are manageable and you’re given enough notification to seek secondary supply options—just make sure to read the small print.
In the event you do not have a supply agreement, you may be in for some significant challenges. Decisions will be made as to how to handle all business; today these decisions are made in the board room and rarely with the super salesman you have the relationship with at ground level. Understand that in most instances all contracts must be satisfied before non-contract business can be serviced. In the event there is non-contract supply available, expect your business to be measured on its profitability and overall strategic importance. Now is not the time to be the lowest cost buyer. While you shouldn’t be asked or expected to pay a premium, suppliers are under no obligation to maintain low margin transactional business and often use times like this to top grade portfolios .
In the event you find yourself in an allocation situation, you need to have a solid back-up plan, and ideally a secondary source of supply. Spreading your business across multiple suppliers can be challenging to manage, but having at least two qualified, regular suppliers for your most critical items is a sound business practice. Having a partner that values you and your business and has the depth and knowledge to help you navigate these turbulent times is critical. Now is not the time to take chances with your business as it will be survival of the fittest.
For any questions related to supply allocation, our knowledgeable team at Dempsey International Packaging is available as a resource to you. Simply email email@example.com to get in touch.
Todd’s exceptional, proven background in the packaging industry has given him in-depth insight to the packaging world, setting him apart as a thought leader and packaging expert. As VP of Business Development he handles sales and market development for the West Coast and Northwest regions of the United States.
Extensive Range of Pipette Droppers Available on the Raptor Marketplace from FH Packaging
FH Packaging understands the stress of finding reliable vendors for your brand’s packaging needs. This is why the company has joined the Raptor Packaging Marketplace as a vendor initially offering an extensive range of droppers uniquely suited for cannabis and CBD products, pharmaceuticals, beauty, and more.
New Products in the Raptor Marketplace: Amcor now selling bottles, packers, and more
The Raptor Marketplace continues to expand its product offerings with their newest member. Amcor has joined the Raptor Packaging Marketplace as a vendor initially offering bottles, packers, and other containers with applications in a wide range of industries.
Raptor Packaging - Transforming the Rigid Packaging Industry
The Raptor Marketplace is like nothing else in the packaging industry. We speak with George Dempsey, CEO of Raptor Packaging, who has used his decades of experience in the industry to create the marketplace to transform the packaging industry.
Priority Plastics Now Sold on the Raptor Marketplace
The Raptor Marketplace continues to grow and now offers brands even more packaging solutions. They are pleased to announce that Priority Plastics Inc. has joined the Raptor Packaging Marketplace as a vendor initially offering industrial Tight Heads, FortPacks, and various PET bottles and jars.
Coca-Cola, Goodyear, Jell-O, Tide, Gillette, Kellogg’s—what do these brands have in common? High brand equity. Each of these brands has a widely known reputation for a certain type of product with an expected level of consistent quality that has lent itself to consumer confidence. We buy these brands because we know and trust them; this level of familiarity and confidence amongst consumers is powerful. How do we achieve the same for our own brands?
Customer satisfaction, future business, and the reputation of your company all hinge upon how efficient and reliable your logistics partner is and how well they can respond to the inevitable unexpected problems that arise. Since choosing the right logistics partner can be difficult, here are 5 things to consider when choosing your next logistics partner:
Although it can be difficult and challenging to accept new meeting requests and sales inquiries, the investment made can and does pay dividends long term to your business. To rely solely on your known existing supplier base for your procurement needs is a huge and unnecessary risk in today’s marketplace. Here’s three reasons why you should consider having additional sources of supply for your most critical purchase components.
5 Reasons Compression Blow Forming Packers Outperform Traditional IBM Packers
The introduction of the Sacmi Compression Blow Forming technology (CBF) is a game changer for HDPE packers. The process by nature makes a better bottle, more consistently, with better manufacturing economics. Sacmi’s recent innovations and entrance into the North American market are providing marketers of Healthcare, Nutraceutical, and other products with new innovative options to improve supply chain efficiencies and reduce overall costs.
The Wipes Market and What to Look Out For
As we enter month seven of the current pandemic the sanitizer gels and liquids seem to be leveling off and with it some of the hysteria. With that, the packaging, fillers, and distribution channels have also settled down to some sense of normalcy. The emerging need that has hit today’s consumer and thus all of us in the supply chain is the national shortage of wipes. Like many other products in the market, all wipes are not created equally. What the ingredients are, what claims are made on the label, and how the wipe is being marketed will determine which regulatory arm of the government is involved and what approvals are required.
Why Are Ocean Freight Rates So High?
The trans-pacific trade (TPEB) market, especially Asia to the United States is in a state of complete chaos. Between rates, space, equipment, weather, and tariffs, there is quite a bit to discuss. Many of you have wondered, “Why are rates so high now?” The answer is complicated; here’s a few of the many pieces that will help paint a picture and understand the situation.
PET: It's Not Just Another Bottle
When selecting PET (polyethylene terephthalate) as a bottle material you will rely on your supplier to choose a 1-stage or 2-stage manufacturing process. Each will produce high quality bottles but each also have advantages and disadvantages that you should understand.
Ensuring Proper Packaging Is Critical with the FDA Guidelines for Compounding of Certain Alcohol-Based Sanitizers
With the surge in demand for hand sanitizers, we’ve seen an equal surge in the production of alcohol-based hand sanitizers. We applaud the countless businesses who have converted their production facilities over to produce sanitizing products, ensuring more essential cleaning supplies make it to the shelves and into the hands of consumers.
COVID-19 and Key Industry Dynamics
As a result of the COVID-19 crisis, we have seen unprecedented disruption of the packaging supply chain, the result of which has made it very tough, and in some cases, impossible to meet customer demand. Some of the industry dynamics have resulted in under capacity and under supply. I will explain a few of the key dynamics happening.
5 Things to Look for in a Packaging Supplier
One of the most critical attributes that you can look for in a supplier (manufacturer or distributor) is the ability to provide accurate and dependable technical support. Most anyone can sell a product but few provide the technical expertise that comes with being a qualified supplier. Here are a few key attributes to look for when selecting what distributor to buy from.
5 Things to Consider when Importing Packaging
As you look near and far for your next generation of packaging, carefully consider the challenges before you decide to import. In many cases, customers overlook the soft costs associated with managing a supply chain that spans great distances and cultures. Whether you have a Packaging Distributor involved or if you are managing the process yourself, there are many things to consider: quality, logistics, price, inventory and expertise. Setting your company and team up for success means making sure you have transparency into how things will be managed.
5 Things to Know About Glass Quality
Glass quality can vary greatly from process to process — what appears simple on the outside is much more dynamic and complex on the inside. Understanding some of these key elements and how they affect quality and consistency can make a big difference for you and your business.
- Nate Calvert
- Company News
- Created 08 Sep 2020
- Modified 12 Jan 2021
- Hits 155