The function of procurement has transformed over the past decades, from simply securing goods and services to managing the supply chain in a way that is inseparable from corporate strategy. This makes sense: in our increasingly complex global economy, procurement goes beyond simple transaction-cost economics to assess transport cost, tariffs, cultural and legal differences, government regulations, political stability, environmental issues, and other risks and opportunities.
For retailers, this shifting landscape poses a growing challenge around packaging procurement. Research shows that buyers and managers who are responsible for retail packaging decisions are not experienced in the technical aspects of packaging. As retailers continue to focus on cultivating their brand, buyers are concerned with design and development rather than procurement logistics. Leading retailers and their packaging partners are adapting to this challenge by adopting vendor-managed procurement.
“Today, retailers and product manufacturers need suppliers who don’t just deliver what’s requested but who can also help determine what’s needed,” Steven Voorhees, the CEO of WestRock, says. “In short, best-in-class suppliers cannot act like suppliers anymore. They need to become strategic partners, devoting the time and resources needed to fully understand the business of their clients and the changing environment in which they operate. They need to be just as committed to growing the client’s business as their own.”
This new supplier role goes beyond simply sharing the workload of supply-chain logistics, according to Remko Van Hoek, a professor of Supply Chain Management at the University of Arkansas. Van Hoek, who was formerly a global head of procurement at PricewaterhouseCoopers, Nike, and The Walt Disney Co., sees vendor-managed procurement as a critical part of corporate innovation in general.
“There’s going to be a decrease in focus [on] strategic sourcing. That sounds strange because a lot of the claim to fame of modern procurement in corporate America is based on the ability to become more strategic about procurement,” Van Hoek notes. Instead, it is “becoming increasingly important to manage [supplier] contracts that we have put in place over the years to not only deliver performance, but to deliver continuous improvement and beyond that, even supplier-enabled innovation.”
Indeed, leading suppliers are no longer solely focused on fulfilling the order. Steve Shamah, the CEO of Edge2Edge, says: “Over the decades, our role has changed from a packaging supplier to a strategic partner who actively de-risks the supply chain and navigates the innovation road map.”
Most recently, Edge2Edge helped The Gap, Inc. overcome a severe packaging shortage caused by the increase in online sales in the wake of COVID-19. Edge2Edge delivered millions of units within a week of the order, at a time when all online retailers similarly faced packaging shortages. Afterwards, Edge2Edge also identified future risks to the supply chain and proposed a long-term packaging solution that lowered the procurement cost. Shamah explains, “our idea of vendor-managed procurement is a personalized end-to-end service, which includes solving challenges before they happen.”
As the latest advancement in supply-chain management, vendor-managed procurement is poised to drive business innovation in the 2020s. “A lot of the foundations of modern supply chain management go back a ways, and I think the sourcing and procurement part of the supply chain is potentially one of the youngest in it,” Van Hoek says. “We’re just getting started.”