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Matt Alexander, Volm Companies

A Penny Saved is a Penny Earned

Managing Your Packaging Supply Chain

Two supply chains converge in potato packing facilities: a produce chain and a packaging chain. In general, packers are fantastic at managing their potato supply chains: since dollars follow the potatoes, packers invest time and effort perfecting movement metrics and operational techniques that optimize their potato handling. Unfortunately, the same can’t always be said about how packers manage their packaging supply chains.

Most packers see packaging as a cost and inconvenience rather than a savings opportunity. As such, they tend to manage their packaging by guesswork instead of with careful reporting and ongoing inventorying. Some days – maybe even most days – most packers feel they’re doing a pretty good job on the packaging front. But when their lax management catches up, it catches up in very costly, stressful ways.

Managing packaging inventory poorly is almost guaranteed to cause understocking or overstocking. Under-stocking is usually discovered just as the last boxes run out, resulting in harried phone calls to packaging suppliers; expensive, rush shipping; even delays on the packing line.

Since the penalty for running out of packaging is usually higher than the penalty of carrying too much, most packers stockpile. I work with packers every day who are skilled, efficient, competent business people. Yet, these same packers often carry half to a million dollars’ worth of packaging inventory onsite. That’s a lot of investment sitting, losing value; dollars that could be otherwise used to grow the company.

Yes, buying packaging in bulk can save dollars upfront. That said, that savings is only actually realised when the packaging is put to good use. Unlike wine, packaging doesn’t get better with age. When I meet with companies to talk about inventory management, the first thing we do is look at their existing inventory. Almost always, half or more of their stockpiled store is obsolete or damaged beyond use. Throwing away packaging is a waste of money, no matter how good a deal it was when you bought it.

Many packers tell me obsolescence and write-offs are necessary costs of doing business. I respectfully disagree. Today, software exists that interfaces between packers and packaging companies, tracking packaging usage in real-time and ordering what is necessary when it is necessary.

Investing in third-party management of one’s inventory might seem like a stretch to packers who are used to handling every aspect of their business in-house. But consider this: this kind of software reduces manpower required to manage packaging, allowing a company to focus on its potatoes. Further, it can reduce capital investment in packaging by as much as 25 per cent, can save between 5 and 15 per cent of total spending, and can improve one’s balance sheet by as much as 75 per cent over five years. Technology for the win!

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