3 Steps to Reduce Packaging Costs & Ride Out a Recession

By Matthew Wright

3 Steps to Reduce Packaging Costs & Ride Out a Recession

Posted on June 14, 2022
  • June 14, 2022

3 Steps to Reduce Packaging Costs & Ride Out a Recession

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Specright Founder & CEO Matthew Wright

Having spent over 20 years around the manufacturing and packaging industries, I’ve lived through my fair share of bull and bear markets. 

As a former executive at International Paper, one of the world’s largest pulp and paper companies, I’m used to running businesses with high margin sensitivity. 

With rising inflation and commodity prices, civil unrest, and supply chain and labor shortages, many companies have the gut reaction to stop innovating and start cutting costs.

And I get it – there’s a great deal of uncertainty in the world right now.

But you have to do both. I’ll tell you how.

While cost control is critical in a downturn – the businesses that survive and thrive innovate their way out of it rather than stagnating.

A looming recession will no doubtedly create winners and losers. 

The only way to survive and thrive is to take a data-driven approach to optimizing your business. 

And of course, the first place CPG, food and industrial companies typically look to is packaging. Here’s how you can set yourself up for success.

Reducing the Cost of Packaging During Turbulent Times

The first place every manufacturing company looks to cut costs is packaging. After all, packaging is viewed as a commodity. 

And the playbook is simple: reduce SKUs, go to bid, change materials. 

But just because the playbook is simple doesn’t mean it’s easy to execute. 

Any company looking to optimize or take cost out of packaging has to digitize before they optimize, then use data to drive maximum savings and consolidation opportunities and finally have the ability to communicate any changes across their supply base to make cost initiatives a reality.

You Have to Digitize Before You Can Optimize 

I founded Specright because I saw firsthand that no one – not brands, not retails, nor packaging suppliers – managed packaging data well. And it made it nearly impossible to get anything done. 

Whenever we’d enter into a down market, it would take months to gather the data needed to find cost savings— whether that’s material costs, production costs, raw materials, operational costs, and more (and forget about realizing them). 

We’ve worked with leading companies like Grimmway Farms, Proctor and Gamble, and Johnson & Johnson to help them digitize and standardize all of their packaging data. The very foundation of Specright was to create a common language for packaging that everyone could work from. This is the key to companies saving money and making life better for their suppliers – after all, I lived this pain firsthand as a packaging supplier to many leading brands.

Taking a standard, templated approach to specification data management enables companies to compare apples to apples and easily find similar specs that can be consolidated. Tying spec data to purchase orders and pricing info can also reveal opportunities to change out materials to save costs or identify packaging materials that should be prioritized for bid. It also enables suppliers to partner with companies to find the right sourcing solutions. 

The good news is, standardizing and digitizing data is no longer difficult. Five years ago, it required manual data entry and even reverse-engineering of packaging. But today, our team has deployed technology like Intelligent Document Processing to convert static documents into digital data in seconds. We’ve also built a team of people in Spec Squad that can do the heavy lifting for you to get you up and running and getting value out of your packaging data, faster.  

Use Data to Drive Cost Savings and Consolidation

Once you have digitized, standardized packaging data, it’s easy to figure out the following:

  • Specs within an inch of each other (so you can consolidate)
  • Specs associated with highest costs (so you can replace)
  • Prevent SKU proliferation by flagging similar specs during the development phase (our similar spec feature is a customer favorite and has reduced the amount of new SKUs companies create, which enables them to purchase existing specs at a higher volume and usually better discount)
  • Confidently report and avoid paying packaging fines related to sustainability (to comply with growing legislation like Extended Producer Responsibility (EPR)).

The list goes on and these are just a few examples. You can read more about how our customers have used data to consolidate costs here.

Collaborate with Your Suppliers to Make Ideas Reality

I always tell my team that ideas are great, but execution is better. 

And cost savings ideas are nothing if you can’t realize the benefits. 

With Specright, we make it easy for companies to share data with suppliers and communicate updates on our platform.

Here are just a few examples of how companies can collaborate with their packaging suppliers

  • Share spec changes with suppliers and require an approval process to make sure changes get enacted
  • Collaborate on new packaging designs that may substitute materials or structure to reduce total costs
  • Share existing specs with new suppliers to get bids

A common misconception is that tools like Specright are punitive to suppliers. I literally started this because it would have made my life as a supplier easier. Companies will always want to be more cost-effective during downturns, but if you can work with them to partner and find those costs in innovative ways, that service is more valuable than them moving to a new vendor. 

Don’t Stop After a Recession

One question I always had when I was an executive in packaging was this: “why are we not running our businesses like this all the time?” 

Why are we only optimizing and looking for ways to reduce the cost of your packaging when there’s an economic downturn? 

Why are we not constantly optimizing to fund new innovation instead of making it a trade-off? 

There are more challenges ahead: sustainability reporting, supply chain shortages and others aren’t going away. 

With the right data at your fingertips, you can operate your business more efficiently, proactively, and intelligently no matter the economic climate. 

And most importantly, you can continue innovating to make sure you emerge stronger than before.

Download Report: Tactics for Navigating Packaging Shortages

Supply chains are experiencing some of the worst materials shortages to date and Chief Procurement Officers everywhere are feeling the affects.

Check out this Gartner Research report to learn why your specification data is the key to managing the challenges of packaging shortages.