As shortages of packaging materials persist across various sectors, Gartner sets out strategies that chief procurement officers (CPOs) can use to mitigate the impacts of tightening supply, rising costs, and delayed deliveries. This includes centralising packaging specifications, collaborating with suppliers, and segmenting different packaging types.

The supply chain situation

According to John Blake, senior director analyst at Gartner Supply Chain practice: “Shortages of packaging materials such as pallets, plastics, corrugate, metal and glass are wreaking havoc across supply chains, and it remains unclear when – or if – these constraints will subside.”

The packaging supply chain has been contending with disruptions wrought by several factors. At the onset of the COVID-19 pandemic, production largely ground to a halt, but a significant economic rebound has since meant demand is often outstripping supply as companies grapple with raw material shortages, price hikes, and Force Majeures statements.

For the plastics industry, the past year has been a “perfect storm” of challenges with “an unprecedented shortage of polymer and additives” and “all-time record high prices”, according to Renato Zelcher, president of EuPC. In early 2021, for example, Storm Uri shut down production across Texas, a hub for polymer and derivatives production, leading to unexpected delays and ripple effects for the whole plastics supply chain. The industry, like many others, has also had to deal with uneven international shipping logistics as container shortages and harbour backlogs remain problematic in places.

Now, following Russia’s invasion of Ukraine earlier this year, already unstable oil and gas supplies have been thrown into further uncertainty as Europe begins to slowly phase out its dependency on Russia as part of its portfolio of sanctions. As an energy-intensive industry, as well as one that largely relies on petrochemicals, it is likely that the war in Ukraine could pose additional challenges for the plastics value chain. 

As for paper-based packaging, the war in Ukraine and the consequent surge in energy prices is also a concern, with Cepi recently appealing to the European Commission to recognise the sector as an essential supplier, which would make it eligible for state aid and ostensibly help to protect its value chain from untenable price hikes. 

In addition, the supply of wood is set to undergo a series of changes due to both harvests reaching their peak in Central Europe and Russia’s invasion of Ukraine. Russia, Belarus, and Ukraine supply a considerable amount of the softwood used to manufacture pallets and packaging in Europe. The European Federation of Wooden Pallet & Packaging Manufacturers (FEFPEB) predicts significant pressure on the supply of pallets and packaging in Europe as soon as in the coming weeks. 

Meanwhile, the label industry has issued a warning about an “impending crisis”, in part due to the unresolved dispute between UPM and its union workers, who have been on strike since the 1st of January 2022, at the Finnish mills that supply most of Europe’s release paper for labels. FINAT, an organisation that represents the label industry, has also issued a statement calling on the European Commission for help as lead times have extended beyond 5 months and essential downstream segments like pharmaceuticals face disruptions.

As for the challenge facing CPOs attempting to address these crises, Blake explains: “Packaging procurement is highly complex, as it requires coordinating many different suppliers.

“To further complicate matters, there has been a lack of investment in technology that would allow for seamless collaboration across the supply chain.”

Centralising packaging specifications

To navigate these challenges, Gartner begins by suggesting that CPOs work to centralise packaging specifications across their organisations.

At present, Gartner says that packaging specifications are mostly linked to stock keeping units (SKU) or bill of materials (BOM). This apparently means that CPOs are not always aware of all the packaging specifications utilised across their organisation’s operations.

Earlier this year, Blake told Packaging Europe that there is a “lack of fundamental packaging specification data to capture how much and what types of packaging an organisation consumes and produces”, with the data that does exist requiring manual intervention to look across SKUs. This could be one of the reasons why, according to Gartner, 90% of public sustainability claims will not be met by 2025.

By centralising specifications, Gartner claims that CPOs will have better visibility across all packaging types. The organisation adds that this enables improvements to be made with a more holistic knowledge of packaging specifications, such as harmonising similar materials or establishing more sustainable alternatives. This approach could therefore help companies to make targeted interventions to meet sustainability targets.

When it comes to supply shortages, Gartner adds that having a centralised system for understanding packaging specifications could help companies to switch more easily to alternative suppliers, explore avenues for replacing materials, and identify where bottlenecks may occur.

“Ultimately, procurement teams need to build a packaging supply ecosystem, but they must first obtain full transparency of packaging specifications across the enterprise,” Blake explains. “Currently, we still see very limited adoption of advanced SaaS applications that would enable such a step. This is a massive investment gap for CPOs to close.”

Collaborating with suppliers

Gartner suggests that many packaging suppliers are operating at maximum capacity as demand surges and the availability of raw materials tightens. As lead times escalate, companies have indicated that they are struggling to fulfil orders and may have to prioritise particular shipments. Overall, this means companies may be more likely to pick and choose which customers they work with.

According to Gartner, CPOs need to establish a close and collaborative relationship with suppliers to secure order fulfilment. This could include negotiating material substitutions or alternative production facilities, as well as offering incentives. The organisation also points to streamlined supplier onboarding as a potential solution.

Blake says: “Suppliers with limited capacity will prioritize customers with the most favourable commercial conditions. CPOs must align the interests of the suppliers with the internal requirements of manufacturing and R&D to chart the best path forward.”

Segmenting packaging

As part of Gartner’s triad of solutions, this final suggestion links closely with the need to centralise data on packaging specifications. Gartner explains that, when CPOs can look holistically at packaging requirements, segmentation can then be used to break down silos and identify the opportunities and risks presented by each discrete specification.

Gartner uses the example of primary packaging, which is often required to protect a product’s shelf-life and may require additional certification by suppliers, such as in the case that it is used for food contact applications. These unique requirements could push up leads times even when shortages are not present, while also requiring more effort from CPOs when sourcing materials and suppliers.

On the other hand, Gartner points out that secondary packaging like pallets, crates, and stretch wrap are often standardised. In this case, the organisation implies that reusable packaging could be a potential solution to supply shortages, as there are fewer demands associated with packaging that does not involve direct contact with the product. This can reportedly smoothen out the process of procuring these packaging types. However, secondary packaging segments are not without specific challenges, such as ensuring the materials used can cope with volatile warehouse conditions as just one example.

By breaking down these packaging types, Gartner highlights that CPOs can understand the different requirements of each and act accordingly. The aim is therefore to gain a better understanding of how to cope with supply shortages in each segment.

Blake concludes: “Each level of packaging has its own set of risks that CPOs must factor into strategies to mitigate supply shortages. Segmenting packaging across the organization provides a better base for decision-making.”