Smart use of stockholding could help SME manufacturers offset soaring paper packaging prices
As paper prices continue their upward trajectory, small and medium-sized enterprises (SME) in the UK are snapping up packaging stock and investigating options to save costs. Have you considered the opportunities open to you?
One cost-saving option would be to start, or extend, a packaging stockholding agreement this week (w/c 28 March) before the paper cost increases take effect. This would lock in prices and product availability and provide some much-needed stability for the next 3 to 12 months (depending on length of agreement).
Before you make a decision, we would advise you enlist the help of your packaging supplier. They can use their industry and product knowledge, combined with an understanding of your unique business, to guide you towards the best approach to meet your needs.
Paper chase
There have been so many increases in the cost of paper since early 2021 that news of more expense will doubtless trigger exasperated eye rolling. The problem is, rather than steadily creeping up, paper prices are now leaping and bounding.
It’s easy to see why paper was more expensive and in short supply last year. Online shopping and home deliveries shot up (along with the packaging required); the supply chain was interrupted by COVID-19 related lockdowns and employee sickness, self-isolation, and shielding; and not forgetting the dearth of qualified HGV drivers needed to make deliveries.
Just as things looked like they were settling down a bit, and lead times were falling back to normal levels, our attention was drawn to the escalating cost of gas.
Natural gas prices have been increasing since mid-2021 but the recent, sharp price surges have shaken the paper industry. As mentioned in previous industry update posts, as a direct result of this, some paper mills in Europe have closed while others are hiking up their own prices in order to stay afloat.
The Russia-Ukraine war, and uncertainty as to how long the conflict will last, is further driving up the cost of paper. Russia’s natural gas, timber, and paper are non grata in Europe and the rest of the world, while the paper and board industry in Ukraine has come to a halt.
And now the Confederation of European Paper Industries (CEPI) has been forced to step in, writing to the European Commission on the “devastating impact of unbearably high energy prices on operations of the European pulp and paper industry.” The letter, dated 23 March, has requested the Commission address the record-high prices and protect an essential industry from severe energy shortages.
Time to take stock
When it comes to stockholding as a means of delaying the effects of the paper price increases, one of the main points to raise is that it may not be suitable for you. It’s important to crunch the numbers beforehand and work out if it is likely to actually save you money. The packaging supplier offering you the stockholding option should be able to help you with this, comparing storage costs with anticipated price increases over the next 12 months to see if it would be a good decision in your case.
If the figures are in your favour, there are many benefits to a stockholding agreement in the current climate. You’ll be paying the best rates for your packaging in the industry due to the flexibility in manufacturing quantities, and less likely to be affected by raw material price increases through the year.
You are less susceptible to any production breakdowns or delivery delays on raw materials or parts. And for the sustainably-minded, by opting for fewer and bigger manufacturing batches you will be reducing the carbon footprint of your packaging.
While discussing your stockholding agreement, it’s worth checking the fine details of the arrangement to make sure it works for you. For example, you might want to have control over when and how much of the stock you can have delivered during the stockholding period. Little and often might be more useful than having to find space for less frequent, larger deliveries. And find out if there is a cut-off date – when your stock reaches a certain age point – and you suddenly find all of your stock being delivered to your premises, whether you’re ready for it or not.
Communication takes on more significance when you’re planning your packaging further in advance. Ask about the systems available, such as online account management or in-person support team, to help you keep track of your stock quantities, pallet totals, deliveries, and invoices. All storage costs should be crystal clear at every stage, with purchase orders matching the invoice amounts – or with acceptable reasons given if those numbers do differ.
How Actionpoint can help
At Actionpoint, we have assessed the situation and our capabilities to give our customers the best possible stockholding offer. The result is the following two options.
Option 1:
Order your bespoke corrugated product and we will manufacture and get it into stock as soon as possible. You can use The Actionpoint Portal, email, or a phone call to arrange for the stock to be delivered as and when suits you over the next 3 months. You will be invoiced as the stock is delivered.
Option 2:
Order any quantity of your bespoke corrugated product up to 12 months of usage. As with option 1, any quantity of this can be delivered to you during the first 3 months, and you will be invoiced on delivery. After 3 months, any remaining stock is invoiced and moved into one of our secure accredited stock locations. We will subsidise the storage cost that is charged per pallet per week. As you require more stock to be delivered, it is called back to our despatch locations and run through another, final, quality control check before being sent to you.
With each option, you’ll be able to track your packaging online 24/7 via The Actionpoint Portal. This way, you will always know your stock quantities and pallet total, and there will be a live running total of your stock costs, which will be invoiced at the end of each month.
Next steps
From mid-April, the cost of paper will rise by 15-20% and we know of at least one more increase planned for 6 weeks later. And that is only the start. There will be a lag time of anything up to 6 months before paper mills will know if the increases were enough to sustain their businesses. If not, paper costs will continue to go up.
If stockholding is of interest to you, don’t delay in contacting your packaging supplier. Agreements need to be in place by the end of this week to avoid the first round of paper price increases.
If, on the other hand, you would like to investigate other cost-saving approaches, you could look into reducing the amount of corrugated cardboard being used – such as changing to a different grade or adopting a new bespoke packaging solution – or switching to alternative materials that are more widely available. Another tactic would be to weed out packaging process inefficiencies that are draining your pocket. Again, this is something your packaging supplier would be more than happy to help you with.
The most important thing is not to stand still during such a fast-moving situation. It would be very easy to get left behind.
