How to Perform a Readiness/Risk Assessment of Packaging Suppliers
The global pandemic of 2020 caught many organisations off guard. How can supply chain professionals prepare for future risks?
For decades, packaging procurement managers could rely on traditional risk assessment models to help them prepare for and adapt to unexpected disruptions in their supply chains. From natural disasters to forecasting errors, business leaders had a wealth of historical data they could use to identify and assess risks within their supplier network.
Then the COVID-19 pandemic upended the global economy and sent shockwaves through global supply chains. Virtually overnight, traditional risk assessment models were rendered obsolete as social distancing shutdowns ground factories and businesses to a halt. Even today, procurement managers continue to navigate an unprecedented onslaught of supply chain disruptions with little to no historical data to turn to for guidance.
So how can packaging professionals prepare for the ripple effect? The strategic path forward in a post-COVID world is to put your packaging supply chain under the microscope now. This starts with data-driven risk assessments of your packaging suppliers to understand the risks (and costs) hidden in your supplier network.
Step 1: Gather Data That Quantifies Supply Chain Risks and Opportunities
To accurately assess risk in your supply chain, you need to start with data. As you prepare to perform a risk assessment on your packaging suppliers, gather as much information as you can about the following:
- Your current packaging
- Supply chain routes and costs
- Quantities of items, orders, and returns
- The transaction process for your product vendors
- Stakeholder comments about current packaging and future goals
- Locations of product factories
- Annual and monthly volume
- Numbers of SKUs and styles
- Cost targets
- Second- and third-tier suppliers
- Packaging capabilities (people, processes, equipment, etc.)
- Details about materials used
- Financial stability of your packaging supplier
Some of this information should be readily available to you within your own organisation, but details about second- and third-tier suppliers, manufacturing capabilities and materials should come from your suppliers.
Though packaging vendors and suppliers are a critical source of information as it pertains to packaging spend, some packaging suppliers might be hesitant to share certain metrics or data in the interest of preserving confidentiality to maintain a competitive advantage (or to avoid revealing poor performance).
You will need to be strategic with your production partners if you want to get accurate numbers, so don’t tip your hand by explaining that you are in the process of reevaluating your packaging program.
Step 2: Map the Supply Chain to Illuminate Vulnerabilities
Once you’ve gathered data about your entire supplier network, your next step is to map the supply chain from origin to destination. To do it, you will need to understand and document all of the touchpoints and distribution channels within your packaging supply chain.
You will need to apply metrics such as the impact on revenues if a certain source is lost, the time it would take a particular supplier’s factory to recover from a disruption, and the availability of alternate sources. This is where detailed information about your Tier 2 and Tier 3 suppliers is crucial - and why reliable data is key to accurately assessing potential costs of supply chain disruption.
Ultimately, the process of drawing insights from this information is made easier with the help of digital technologies designed to consolidate and analyse complex supply chain data. Working with a Managed Packaging partner can streamline this considerably as they will have access to the tools and expertise to do this quickly and accurately.
Step 3: Look for Hidden Vulnerabilities in Your Supply Chain
Your next step is to categorise each of your packaging suppliers as either low-, medium- or high-risk. You will need to consider both the revenue metrics you documented in the previous step as well as qualitative insights about each of your suppliers’ ability to reliably fulfill packaging orders.
Consider the raw materials, components and technologies used to produce your packaging. If your packaging is particularly complex or relies on unique materials or processes to produce, it can be challenging for a single firm to possess the breadth of capabilities necessary to produce everything by itself. It’s likely that these firms rely on a wider network of Tier 2 and Tier 3 suppliers to fulfill packaging orders.
If you do not have a good understanding of how your deeper supplier network operates, you cannot reliably determine risk within it. You are left vulnerable when you depend on a single supplier somewhere deep in your network for a crucial component or material. If that supplier produces items in only one factory or one location, your risks of disruption are even higher.
To accurately categorise each of your suppliers’ risk, you’ll need to work with them to understand the following:
- How many touchpoints will a packaging product need in order to be produced?
- Do they have established alternatives for specific aspects of your packaging, or are certain tasks centralised into just one factory or supplier?
- Are their Tier 2 and Tier 3 suppliers concentrated into a single geographical area, or are there alternatives in other locations or countries?
This information will help you determine the likelihood of disruption throughout your packaging supply chain and better understand which suppliers are least exposed.
Step 4: Look for Opportunities to Innovate
The process of mapping and analysing risk in your packaging supply chain puts you in a unique position to identify opportunities for cost-saving innovation. If you aren’t sure what to look for, start with some common areas of packaging supply chain inefficiency:
- Packaging damage: Look for high rates of packaging damage - these inefficiencies are more costly than you think. According to a 2017 white paper by the American Institute for Packaging and the Environment (Ameripen), replacing a damaged product can cost e-commerce vendors up to seventeen times more than the original cost to ship.
- Packaging right-sizing: Is your packaging designed to eliminate dead space and optimise shipment? A key benefit of right-sizing is improved volumetric efficiency inside trailers and/or shipping containers, meaning you can effectively ship more products without incurring additional transportation costs.
- Packaging materials: Not only can sustainable packaging save costs considerably, but taking a closer look at your packaging materials can impact your brand perception. A 2017 study found 33% of consumers choose to buy from brands they believe are doing environmental good.
Connect with a Packaging Expert
Performing accurate and valuable risk assessments of your packaging suppliers can be a tedious and time-consuming process but the potential cost-saving benefits are more than enough reason to embark on the process of understanding and optimising your packaging supply chain. It’s just one crucial step in taking your strategic packaging development to the next level.
For more strategic insights on managing the packaging development process, download our free guide, “From Concepts to Reality: 5 Critical Steps in the Strategic Packaging Development Process.”