If you can’t get the goods, you can’t build the box. It’s really that simple when it comes to understanding supply-chain issues in the packaging industry.
But in recent weeks the game has gotten even more complicated, so it’s time for some perspective.
During my 30+ years in the packaging and merchandising sector, I’ve had the opportunity to work for both integrated and non-integrated companies: that is, packaging firms who either owned paper mills (and thus bought stock from themselves) as well as those who bought their supplies on the open market.
For 22 years I worked with integrated companies whose senior leaders touted the value of having their own mills. Their message to the world: “We have the paper you need at our fingertips!”
For the past decade or so, I’ve worked with non-integrated companies who instead work through an active network of supply partners, and I have to tell you, it’s a great relief.
Why the integrated model doesn’t work anymore
You see, being integrated isn’t the advantage it once was. In fact, some integrated companies are finding that having their own mills can be like dragging a big boat anchor that threatens to sink their operations.
An integrated packaging company must buy from itself and only itself — barring it from taking advantage of all the options offered through the global supply chain.
This often leads to moves that don’t necessarily benefit clients. For example, there’s a strong incentive to pressure clients into switching stocks in order to absorb goods on hand.
Once that switch is made, clients who want to return to the original stock get pushback. Why? Because integrated suppliers profit on the mill side and the conversion side of the deal. If clients want to switch to a different stock, the supplier loses margin.
This scenario robs packaged-goods companies of options they should feel free to consider. And, as you might guess, it doesn’t always lead to cost-effective results.
Non-integrated companies, on the other hand, must find the best stock on global market, partnering with suppliers whose capacity and pricing they trust. This is how we work at American Litho. And the way we see it, we have but one choice: to work faster and harder than our competitors to get all aspects of the job done right for you the first time.
Growth by merger – and how it may affect you
In recent times many integrated companies have adopted a strategy of growth based on acquisition. The thinking is: “If I can’t beat you, I will buy you.”
The January merger of Rock Tenn and MeadWestvaco is the latest example of expansion by acquisition, and frankly, it makes me nervous.
These companies were picked in 2014 by RISI analysts to merge, mainly due to issues with pension plans. However, equally important for both parties was the need to find the right means of assuring consistent demand for their products.
These same analysts believe the merger will lead to yet another larger merger, thus complicating supply-chain issues even more.
Ultimately, these events will tamper with supply-and-demand rules, which may drive stock pricing upward. This in turn may increase project lead times and result in diminished supply to many packaging companies.
Right now, we feel the analysts are about half right with their predictions. But if you’re a leading brand, should you wait to see if they’ll be 100% correct?
We wouldn’t recommend it. Instead, we suggest you ask yourself these 3 crucial questions:
- How secure is my supply chain right now?
- How secure is my supplier’s supply chain?
- What is my supplier doing to deal with the challenges ahead?
At American Litho we’ve been aware of the potential supply-chain threats for awhile now. Over the past six months we’ve worked diligently to assure our partnerships on the global supply market are in ideal shape. We’ve done this not just for our own company’s health, but because we know that supply-chain disruptions represent a significant threat to our packaging clients.
Simply put, the brands that rely on us to create beautiful, secure, cost-effective packaging for their products expect us to have the goods to get the job done. Therefore, it’s also our job to work within the global supply chain to make that happen.
If you aren’t sure of your supply-chain future, give us a call.
Ask a question or share a few details about an upcoming project.
Dwayne Martinez is American Litho’s packaging and merchandising guru, offering insights and expertise gained through 30+ years in the business. Dwayne works hand-in-hand with the full ALitho team to create exciting, cost-effective packaging and merchandising solutions for both leading and emerging brands.