With the continuous increase of costs associated with running most business how has PPP addressed price changes with respect to your client projects (supply chain)?
Planet Protective is a little bit different than a lot of other packaging companies. We buy from a lot of different suppliers. We buy plastic, wood, paper. We are constantly monitoring those product lines. We take a look at the trends and where pricing is going and we are relaying that to our customers.
We’re tying our customers into publications regarding the resources. If you don’t do that nowadays you are continually running to your customers with price increases. This way it takes the discussion out of it and its all black and white. We raise our prices according to the fluctuating prices of the raw materials. If the raw materials go up 5% we raise our prices 5%. Same thing if the prices come down. There is constant fluctuation.
The areas where we run into issues are areas where we have a pack that we designed for somebody and we have three different raw material components that are going in there. One raw materials might be going up, one might be coming down and one might be staying the same so that pack cost is affected. So we analyze it by breaking down each component. That’s the only way to handle it.
How does the increase in the cost of raw materials affect the end user?
Raw material is not 100% of our cost structure. We’ve had to be relatively open book with our customers and explain…We say listen, this particular item is 65% raw material costs. This is our cost to you. We’re also dealing with increases on labour and freight on top of it all. We are spending a lot more time being open with our customers to explain how our costing structures are formulated. It’s really a balancing act to try and make sure we’re not giving away all of our information because it’s proprietary.
How do your clients react to the fluctuations or price increases?
Customers are dealing with price increases on everything right now. They’re getting hit everywhere and anywhere. And it’s not just the price increases, it’s supply chain issues as well. They’re not getting stuff when they normally get it. Our buyers are struggling with trying to get supply from everybody and try to maintain pricing. I try to make it as easy for them as possible and take stuff off their plate so they don’t have to do a lot of work.
How do you make it easier for them to manage the price increases?
We sit down with our customers and break down the percentage increases for freight, raw materials. Our buyers can then go to their supervisors and have it all broken down for them. And they can validate those price increases. We also tell them what publications we follow. So they can sign up with those same publications. This is part of our transparency.
Is there anyway to mitigate those increases because of your buying scale?
We used to be able to do that. August is likely going to be the slowest month in the packaging industry in the past two years, from the trends that we’re seeing. The supply chain is just getting caught up. We were doing 130 km/h for two years, now we’re down to 100. The mills are getting caught up, suppliers are getting caught up. Demand is falling off a little bit. Some sectors are still pretty busy, such as the automotive industry which is still trying to get caught up from the chip shortage.
Our industry is a perfect economic model for supply and demand. So we’re starting to see some normality back in our industry.
Has inflation and/or price gouging impacted some industries more than others and in particular your sector?
I think everyone has taken advantage of the COVID situation. The feedback we were getting form a lot of our suppliers was if you don’t like it, there are 15 people in line that will pay that price. It’s all driven by demand and now that demand is easing off it’s giving a lot more flexibility to negotiate. We have a handful of suppliers that worked with us throughout COVID and that we are going to continue to work at the forefront. They were smart enough to see that this was only a short term advantage.
When do you see the situation normalizing?
I can see it happening as soon as late August. Demand is going to drive the supply and supply is going to drive the price down. Lead times in our industry have gone down from 12 weeks to one week. That tells me that there’s lots of inventory and when demands starts to tip off we going to start seeing surplus at mills and suppliers and that’s when you’re going to start seeing a decrease in prices. From end of August through to October is when we’re going to see the sharpest decrease.
Can you then stock up on raw materials?
I think people learned a lot of valuable messages throughout COVID. Like not being hand to mouth on your supply. Stockpiling just enough so you just have a bit of a buffer. Before COVID we were getting next day delivery. Within 30 to 60 days the lead times jumped to 12 weeks. And people had no buffer.
The companies that have survived through all of this, are building in a bit of a buffer. I’m asking my suppliers to carry a little bit of extra raw materials for them so they have a buffer, we have a buffer and our customers have a little buffer.