Itâ€™s estimated that the South African wine industry spends over R 4 billion on packaging annually. And whatâ€™s even more astonishing is that a measly 10% saving equates to an additional R 400 million bottom line profit â€“ without even selling one extra bottle of wine. This demonstrates that the impact of packaging decisions is huge. Few companies have a grasp of the total cost impact of packaging and the opportunities that can be gained by understanding them.
Here are the six cost saving tips your packaging suppliers donâ€™t want you to know:
Planning in advance gives you time to weigh-up options and evaluate new suppliers. Itâ€™s good practice to regularly evaluate alternate suppliers. Look for suppliers that are willing to work with you to identify cost saving options the industry is capable of delivering.
Once the development process is complete and specifications agreed 80% of the costs are embedded, leaving only 20% of the problem to work on for those in manufacturing. Thus the major opportunities for saving occur in the design stage and this is where your designer or packaging consultant should add value.
Continue looking at cost saving ideas even when you need them the least. A simple modification to your packaging specifications could lead to substantial cost savings over the long run.
Determine your production volumes annually. Itâ€™s more expensive ordering small quantities so rather order less frequently and let your suppliers carry the stock, invoicing only when it goes into production.
Unlike fine wine, inventory doesnâ€™t improve with age. Excess inventory ties up capital and â€˜hiddenâ€™ costs such as damaged, lost, redundant stock, warehousing, insurance and financing costs, all eat into the bottom line.
Insist on having a service level agreement in place. A simple way to measure your supplier performance levels is based on on-time, in-full and error-free deliveries. For example an order delivered 85% on-time, 90% in-full and 80% error free, returns an actual performance of 61.2% – clearly unacceptable. By regularly monitoring and managing your suppliers you can maximize the benefits of your sourcing strategy.
Because the wine business operates in a time sensitive and globalized environment suppliers have to be a source of competitive advantage. Build a culture of cost control into your daily operations and leverage the brainpower of your suppliers. Research shows that wine producers that pre-screen all possible suppliers are more likely to be profitable.
By Mike Carter (first published on www.wine.co.za).