Many of the elements driving these indirect spend cost increases cannot be controlled.
That does not mean your organization is limited in its ability to manage and mitigate some of these rising expenses. A strong relationship with your support partners helps. So, too, does an expert partner with awareness of industry trends and spend management tactics that realize efficiencies, even during volatile times.
To support your indirect spend management efforts in Q4 and heading into 2021, let’s explore some of the factors driving cost increases in your operation.
Resin Increases, E-Commerce Demand Drives Indirect Spend Cost Spike
Resin costs continue to fuel increases for companies that utilize stretch film, bubble wrap, flexible mailers and other polyethylene products. Each resin increase usually translates to a product cost increase of 6-7 percent.
Five consecutive months of resin cost increases have inflated prices 44 percent. That has translated to a 20-25 percent uptick on flexible packaging-related products costs, such as the Oct. 1 increase announced by all major manufacturers of stretch film. That is the second stretch film increase this year – and we anticipate there will be additional increases on other produces that rely on polyethylene.
At the same time, demand is up in the plastic market compared to 2019. A growing e-commerce marketplace began booming when COVID-19 accelerated consumers’ online buying behaviors for a broader range of products, from groceries to home office products.
More e-commerce businesses are utilizing plastic packaging, bubble bags and poly bags to ship their products, whereas a few years ago they put those items in small boxes. In the 2020 parcel shipping environment, it is more cost effective to use poly mailers, and that is impacting demand.
While demand is up, some of the major manufacturers implemented maintenance related shutdowns in Q2 and Q3, reducing supply in the process. Increased hurricane activity along the Gulf Coast is also forcing shutdowns for many resin operations and nearby poly-product manufacturing plants situated close to petroleum refineries in the region. Additional shutdowns will only create a tighter market.
Cardboard and Other Commodity Costs Require Awareness
Market conditions may not support a fourth quarter cost increase on corrugated and linerboard. Often the top producers of these materials float the prospect of a rate increase to gauge pushback. Expect talk of a 6-8 percent increase to emerge toward the middle or late part of the quarter.
Due to activity that scaled back for many operations during the pandemic, the demand and inventory levers may not support that increase. Expect that increase to emerge in 2021.
As businesses continue to ramp up coming out of COVID-19, demand may increase on those cardboard products, as well as others that are already in short supply. Costs for Personal Protective Equipment (PPE), safety supplies and cleaning products will continue to escalate into 2021. That will cause pain for businesses from a pricing and availability standpoint.
Cost increases on steel and related products will have a similar effect on MRO supplies. Expect price movement on nuts, bolts, fasteners, and other maintenance products in the early part of next year.
Lessons Learned for Future Performance
The challenges emerging in 2020 really validated the importance of strong relationships with your support partners.
Do you always beat up your suppliers to get the best price?
If you do, the pandemic has taught us, you might suddenly find that you do not have a reliable supply base because you have not been loyal to a supplier. If you focus on buying what you need at the lowest cost and jump from vendor to vendor, when trouble arises you may not have a partner you can count on.
Thanks to partnerships forged through Transportation Insight’s Group Purchasing Organization, we have the leverage to secure both the best product prices and the supplies you need to continue operating.
The pandemic has taught us that when businesses align with national supply partners, they have access to competitive prices and products delivered on a timely, reliable basis.
This is especially important in the poly-packaging space. When times get tough and supply gets tight, suppliers will take care of the customers that have been good to them. They will have a difficult time supplying customers that are here today and gone tomorrow.
Relying on long-term partnerships established in Transportation Insight’s Group Purchasing Organization, we are able to secure both good pricing and consistent supplies of products necessary to your operation. At the same time, we help you manage indirect spend areas that is driving up your overall operational costs that could be jeopardizing your profit.
To learn more about how we help organizations manage their indirect spend and achieve double-digit savings watch our recent webinar.