How Smart Are Your Customers?

Posted by Tom Andel

Customers are getting smarter about doing business with paperboard packaging suppliers. That’s a mixed blessing. On one hand they’re more knowledgeable about the industry’s cost structure. On the other hand, many use that knowledge to ratchet prices down.

I just came back from the Canadian Corrugated Case Association’s annual conference in Toronto, and the keynoter was James Duncan, senior vice president of sales and marketing for Smurfit-Stone. In his comments he mentioned that Internet bidding and reverse auctions have taken a toll on corrugated converters and other industries as well. But he advised that converters get smarter about “strategic sourcing,” which recognizes total costs and may turn out to be a bright spot for the industry. Smart means knowing when your customers are getting their strategic sourcing teams together and adding your input before they send out the RFQ.

“We need to be there when they have the inevitable questions and clarifications during the analysis and ranking phase,” Duncan said. “We may need to consider partnering with other service providers to offer innovative expanded solutions to our customers’ packaging opportunities. In doing this we become more unique and less of a commodity.”

There’s that “C” word. It brings to mind another “C” word – Curse. Too many of your customers still see you as commodity peddlers. What’s worse is, many of you seem to agree, on both the independent and integrated sides of the aisle.
Triad Packaging’s Lee Shillito, from the independent side, told me that as long as his colleagues and competitors participate in online events like reverse auctions, the commodity curse will remain.

“Reverse auctions may apply to pure commodities like steel or oil, but when it comes to about anything else, it’s hard to make it work,” he says. “We buy sheet, and that’s as close to a commodity as you can get, but we wouldn’t even think of putting that out for reverse auction because we know all the other factors that go into it won’t get reflected in the pricing we receive on the reverse auction. The problem is some converters act like commodity sellers and that’s where the impression comes from. That’s what these reverse auction third parties sell.”

Shillito refuses to play the reverse auction game. He says the best customers know better than to play it.
Are your customers that smart?

Do they buy into the “total cost” concept Duncan and Shillito espouse? And do you? Let us know. These issues will shape the future of your industry.