Resin prices have continued to rise across the board due to constrained supplies, higher feedstock costs, and continued strong demand. The polar vortex with record-low temperatures hit the exact area along the Texas/Louisiana border that was decimated by hurricanes last fall. A huge loss of resin production has been accumulating, and this last extreme disruption was only one among many freak events that have hit the industry over the past six months, reports the PlasticsExchange. The cumulative effect has resulted in resin supplies plummeting throughout the supply chain to grossly insufficient levels. While the mend has begun, we are not remotely out of the woods yet. Even as demand drops off while prices rise, every day more pellets are being melted than being made, and the hole in the supply trough has been getting deeper by the day. However, business owners are not completely helpless. ForeFront Packaging President Laura Boucher has over 40 years of experience in the supply chain industry, and she had the following words of wisdom:
If the forecasted March polyethylene increase of $0.07 per pound is implemented, it will bring the total resin increase to $0.46 per pound since June 2020. The worldwide resin shortage has resulted in many companies declaring Force Majeure. The magnitude of multiple increases in such a short time was unexpected and we understand that it is disruptive to business. Additionally, all alternative packaging materials have also been impacted. Nevertheless, LDPE continues to be the most economical and cost-effective packaging option compared to paper and polypropylene.
In order to manage risk, we carefully review customer inventory levels to maximize price vs. the risk of increasing inventory levels. It may seem prudent to increase order levels to manage costs at the current price vs. the future unknown price, but panic buying has a downside. First, this emotional behavior actually exacerbates the supply/demand problem and fuels additional price increases. Second, purchasing excessive inventory negatively impacts cash flow, potentially at a higher price point, increases the risk of obsolescence due to unforeseen changes in demand or ingredient/design changes, and additionally burdens the manufacturing industry that is struggling with labor shortages.
One of the easiest ways to control costs in the current climate is by reducing the number of SKU’s that you produce. Early on in the pandemic, many customers reduced their production to a set of core items in order to maximize their production runs. A focus on core offerings allows for increased purchasing power and productivity for both your plant and your suppliers. Review aged or inactive items for opportunities to use existing inventory in your foodservice production. This inventory is likely at a lower price point than the exact size or print designated. Next would be to downgauge your current packaging. We often find that customers like a thicker, higher quality package and this may be a good time to look at some thinner options to weather the storm. Your customers will understand and it could be a way to “Go Green” and reduce your carbon footprint.
It is not known when the increases will subside, so short term prices that adjust monthly or quarterly instead of annually will allow companies to quickly adjust to lower resin prices when available. We cannot prevent disruptive weather or market changes. Rational planning based on forecasts and patience will get us through this tumultuous time.
Call us for a no obligation review of your supply chain process using our proprietary inventory management system.
President, ForeFront Packaging