Inflationary pressure has certainly caused challenges for suppliers and manufacturers this year. This is on top of the existing trade disruptions caused by Covid lockdowns, labor shortages, and border closures.
And, more pressure may be coming. A Federal Reserve economic survey released this month pointed to elevated recession fears amongst businesses along with a belief that soaring inflation will last at least through the end of the year.
Additionally, an Accenture report indicates that with the invasion of Ukraine, we can potentially see even more supply instability, price inflation, logistics disruptions and labor stresses throughout this year.
All of this stress is resulting in higher costs for your materials, including primary packaging. You then have the difficult decision of how much of those increased costs to pass to your customers.
To stop 40-year highs in price increases, the economy will have to slow, supply chains will need to get fixed, and demand will have to come back in line with pre-pandemic norms. This will require patience.
Since inflation is on everyone’s minds and it affects suppliers and manufacturers alike, we wanted to share some strategies for mitigating inflationary pressure to your bottom line, which may even allow you to minimize price increases to your customers for a competitive advantage.
What is inflation?
Inflation is the rate of increase in prices over a given period of time. Inflation impacts the entire supply chain, not just the end product. Prices for everything used to produce goods – materials, energy, transportation, and labor – increase during an inflationary period.
Inflated supply chain prices then trickle down to the end price of consumer goods. For example if the price of limestone increases, the price of glass increases and thus the final price you pay for a glass bottle of essential oil increases.
What caused prices to go up now?
A few things. Consumer demand is high. In fact, it’s surging past predictions. According to an article in PackWorld, U.S. consumer retail demand remains strong in 2022, even surpassing pre-pandemic trends. But manufacturers are having a hard time meeting demand because of supply chain disruptions over the last two years. Shipping issues and labor shortages slowed production and depleted inventory. Thus, there aren’t enough products on the shelves to meet consumer demand, so prices go up.
The combination of a rebound in economic activity post pandemic, more demand for goods, and continued strain from supply chain disruptions, is increasing upward pressure on prices.
How is inflation affecting the packaging industry?
In the news, inflation is typically reported as a broad measure, such as the overall increase in prices or the increase in the cost of living in a country over a period of time, most commonly a year. But it can also be more narrowly calculated—for certain goods or services.
Cost inflation is increasingly hitting the packaging sector due to increases in energy, transportation, and labor costs.
Again from the Packworld article, over the last two years, there have been once-in-a-lifetime price increases in the area of plastic packaging as a result of weather events, infrastructure breakdown, COVID-19, and labor shortages.
When it comes to other materials used in dispensing packaging solutions, the glass packaging supply chain is energy-intensive and is expected to be heavily impacted by rising energy costs.
Strategies to mitigate inflationary pressures
There are a few best practices and resources manufacturers can rely on to mitigate some of the effect of inflationary pressures. With a long period of price increases possible, a proactive approach can help weather the storm.
Here are a few strategies and the way Carow Packaging can support you to keep costs and price increases to your consumers down. We are proud of the efforts we have made to help our customers keep costs down and get products on shelves faster to meet consumer demand.
Source Products Made in the USA. During inflationary times, every dollar counts. Sourcing packaging products from China or Europe may seem like a deal initially, with less expensive per piece costs, but end up being more expensive once you factor in additional costs like overseas shipping, inventory costs, and even exchange rate fluctuations. During inflationary periods, this cost difference caused by supply chain pricing pressure can become astronomical. Packaging products manufactured in the U.S. can lower your cost dramatically. Carow Packaging offers both EuroDrop® cap and dropper pipette dispensing solutions that are made here in the USA. You avoid having to pay all of those additional transportation and importation costs that have been skyrocketing this year due to inflation, and we can get product in your hands within weeks as opposed to months to avoid missed sales opportunities.
Forecasting. During inflationary periods, it is so important to forecast to ensure you are buying the packaging products you need, when you need them. Planning and working through various scenarios to make decisions on purchasing your primary packaging is the best way to protect yourself from under or over ordering supplies. You don’t want to order too little packaging and not be able to get your products on shelves to meet demand. But you also don’t want to order too much packaging at higher inflationary pricing and have too much left in inventory when prices start to go down again. Companies who put some time and effort into forecasting have a strong competitive advantage. Our Account Specialists are available to help you work through forecasting.
Be flexible. To keep costs down, you may need to rethink how you package your products. Can you change your packaging to source packaging products that are faster or less expansive to get? If so, now may be the time to investigate alternative options. Our Account Specialists can help you identify new, less expensive packaging solutions that could help protect your profit margin or allow you to keep consumer prices down for a competitive advantage. Making a change in your packaging may require some new testing to maintain quality standards, but we have a Quality Manager available to help with testing and to trouble shoot any production issues that might arise from changes to your filling process.
Have any questions on how Carow Packaging could help you mitigate inflationary pressure? Please send us a message or give our Account Specialists a call at 815.455.4600. We are happy to answer any questions you might have or send free samples to evaluate new packaging options for your products
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