Next time you get a home delivery, besides sympathising with the time-pressed driver, spare a minute to think about those who made the cardboard box, because manufacturers of corrugated cardboard and other types of packaging are currently having a bit of a roller-coaster ride. On the upside, the growth in home deliveries means the industry is enjoying something of a boom with UK online sales growing 74% year-on-year in January 2021. Many sectors would give their high teeth for opportunities like that. However, it’s not all plain sailing.
the fallout after brexit
In addition to the additional paperwork, processes and cost involved in trading with businesses in the European Union, the UK’s withdrawal from the Single Market has split the previously unified territory for packaging materials, creating a significant amount of waste for manufacturers who had stockpiled EU compliant packaging at the end of 2020, due to the uncertainty about a deal, only to find themselves faced with decreasing demand for it as UK exports fell away.
shortages in the supply chain
The increase in home deliveries has led to some of the bigger online retailers that make their own packaging buying up cardboard on a mammoth scale. This has led to increasing lead times for inbound supplies and is driving up prices as demand for corrugated cardboard surpasses the capacity of paper mills. Within the industry sourcing has been called ‘the hunt for beige gold’ with a month-on-month increase in paper costs throughout the first half of 2021.
Another challenge facing the packaging industry is the continuing shortage in timber for pallets with the Timber Packaging and Pallet Confederation warning that raw material price rises and lack of availability will affect the packaging and pallet market for the foreseeable future. And if you thought adhesive packing tape would be spared from these challenges, you would be wrong, as there are now unprecedented price increases in raw material for oil-derived products, due to the severe shortage of availability right across the globe. Add to this the fact that rising energy prices are also driving up costs for the energy-intensive papermaking industry and the shortage of HGV drivers for deliveries and you have problems aplenty.
uncertainty on the demand side
While demand for packaging from online retailers may be booming, there is considerable uncertainty in more traditional markets. The effect of Covid-19 pandemic, which led to world trade slowing, stopping, and then restarting, has now caused widespread disruption to usual trade movements which has exacerbated the usual imbalance in global trade flows leaving a deficit of shipping containers in the Far East. As a result shipping costs have increased by over 400% in the last 18 months, generating considerable uncertainty for importers who are major buyers of packaging.
Then there was the uncertainty of how rapidly retail spending would recover once lock-down restrictions were lifted, leaving manufacturers in all sectors reluctant to commit to future orders for packaging, until they had more confidence in their own sales pipelines.
how the packaging industry is rising to the challenge
In an industry used to manufacturing and finishing packaging to the exacting specifications of its demanding clients with short-lead times, weathering these disruptions and uncertainties is proving a perfect storm. Thankfully most packaging manufacturers have built strong and longstanding relationships with both their suppliers and their customers. But such loyalty will only endure if manufacturers are able to have transparent and informed conversations with upstream suppliers and downstream customers to help them mitigate the current supply problems and sustain their own operations.
Obviously time is of the essence, as both those inside the business and customers and partners outside the business, expect immediate answers to potential problems in the supply chain. What’s more, packaging manufacturers need a better understanding of how rapidly fluctuating input costs impact future prices, if they want to fill up their sales pipeline with orders that give them an acceptable profit.
connected planning in the packaging industry
The one certainty is that none of this agility or insight will be delivered if packaging manufactures continue to stick with a plethora of spreadsheets or stand-alone legacy tools for planning and cost management, as they cannot deliver the rapid response to the myriad of ‘what-if?’ questions the business will want to answer every day.
To weather such troubled times, planning in supply, demand, and sales and operations need to be ‘connected’ and done in real-time, so changes to plans in any one domain rapidly flow across the business, right through to the financials and cost and product profitability projections for future periods.
It’s not a vision. It is something the team here at Profit& has successfully delivered using Anaplan’s cloud-based ‘connected planning’ platform, which can be rapidly implemented without any need for upfront capital expenditure. To learn how, why not join our upcoming webinar!
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