Corrugated container prices. Buying Guide for corrugated pricing. Analyze box prices. Evaluate corrugated suppliers.Negotiate lower prices on corrugated boxes. Save 15-20 percent or more

Corrugated Industry Consolidation
 Is it Good For You?

On July 16,2001, Williamette Industries (WY)  announced certified results in the election of three nomineees to its Board of Directors. The elected directors were ones nominated by Weyerhaeuser (WY) which had been in a hostile takeover bid with Willamette since late in 2000.

When the hostile takeover was initiated, Reuters reported  "Now, industry experts believe a takeover of Willamette by Weyerhaeuser Co., could help solve the industry's problems by eliminating some of that excess production." But is what may be good for the corrugated industry good for you?

Dramatic corrugated industry consolidation has resulted in major companies controlling a far greater percentage of shipments. If Weyerhaeuser is successful in its takeover, this will mean, according to McCoy Corporation estimates, Weyerhaeuser would enjoy a market share of about 14%, second only to Smurfit-Stone at approximately 19%. Six companies would combine to control two thirds of the market. Only ten years ago, leading companies enjoyed only 1-2% market share in a highly fragmented industry.

Is consolidation good for you, the corrugated buyer? Demand for corrugated containers follows the cyclical nature of the economy. The market for corrugated containers softens in a weak economy. Skillful purchasers can realize cost savings. In a tighter market, buyers are forced to accept price increases as the cost of linerboard goes up. We are all too familiar with what can happen in the oil industry when OPEC decides to limit production.

As the corrugated market gradually evolves to one more like an oligopoly, buyers face a more difficult time benefiting from industry cycles. Weyerhaeuser, in today's competitive climate, may attempt to prop up prices and maximize profits. However, a skilled buyer has the option of attempting to secure better pricing from another supplier such as Willamette. After a Weyerhaeuser takeover, a buyer won't have this Willamette option. In fact, there is now mention by corrugated companies of reducing capacity during down cycles to maintain pricing levels. This should be of direct concern to corrugated purchasers as they face, potentially, a slow down in the economy.

Fortunately, consolidation and lessening competition is a gradual process. There is still excess capacity in the corrugated industry and alternate suppliers that welcome new business. This affords an opportunity, using expert knowledge, skilled analysis, and appropriate purchasing practices, to realize significant savings in your corrugated purchases. As consolidation moves forward, some companies succumb to the determination of suppliers to prop up prices and maximize profits. McCoy Corporation provides its clients a differential advantage to yield cost savings others don't enjoy.What's really going on here? Despite the commodity nature of linerboard and corrugating medium used to make corrugated boxes, your suppliers are selling you containers of varying sizes and construction. They aren't giving you a way to compare box prices as a commodity. This camouflages the fact that different companies are paying significantly different prices for their containers. And you may be paying a higher price level for one box than another. You typically buy commodity-type manufacturing components, much like fruits and vegetables, on a per pound basis but not corrugated boxes. This works to the advantage of suppliers. What are you doing to regain the advantage?

You probably use the bid method to assure getting "competitive" prices. When bids are received and compared on a per box basis, you do not get information necessary to compare bid price levels from one box to another or to any industry price level. A conventional purchasing program, using the bid method, will not yield you any assurance that you are purchasing boxes at a competitive price unless you know how to compare prices of boxes of different sizes and construction. You are, in effect, comparing apples to oranges.

The problem of not being able to compare box prices by any commodity-like standard is not limited to evaluating competitive bids. On an ongoing basis, buyers struggle to determine if price increases are reasonable and if a price decrease is merited.

In fact, without knowing it, some buyers pay as much as 25-30% more than a commodity-based industry standard. Others pay 25-30% less than "standard". To a certain degree, of course, the lower prices go to volume purchasers and low volume buyers pay higher prices. However, for historical reasons beyond the scope of this article, it is a little-known fact that with the same corrugated purchasing volume and techniques, your company may be paying a premium of 25-30% over other buyers. This is a well guarded industry secret.

Do you even know where you stand? Take a look at our online assessment. Do you know whether you are paying lower than standard or higher than standard? Without knowing where you stand, you may assume that conventional buying processes are serving you well. However, here's the problem. Your prices are almost certainly pegged to historical levels rising with industry cost increases and, perhaps, being adjusted downward to reflect published decreases in raw materials such as linerboard. That is, if your costs have historically been higher than the unpublished and unspoken standard, that condition will remain. You may be paying more than other buyers or more for some containers than others despite purchasing techniques comparable to or even better than those of buyers with lower prices. You won't achieve a favorable change versus this status quo, which is reducing price levels versus standard, through competitive bid processes or pressuring your corrugated sales person. You have to change tactics and adopt new methods to address this challenge

With industry consolidation, and the major companies focused on improving profitability, it is harder than ever for you to affect change that will bring more savings to your company's bottom line. We can solve the mystery of what your containers should cost, crack through the changes required to achieve optimal prices, and give you the tools to move you into being in the elite group of buyers getting the best prices.

What's the secret? First, you have to know how to calculate what your containers should cost. Secondly, you must know which suppliers, based upon the configuration of their plants and equipment can produce your boxes most economically. And you have to know which suppliers will accept, but not offer, more business to use capacity versus those where management policy is more geared to achieving higher price levels. Don't kid yourself into thinking that your trusted supplier will clue you in on how to implement this kind of purchasing program. But we will! And you can save a lot of money.  Our high volume clients have found annual savings of $100,000 to over $1,000,000. 

If helping you achieve these savings were as simple as calculating some prices for you, the McCoy service would be routine. Frankly, it takes careful examination of your existing operations and a detailed analysis of all your corrugated purchases by item. Again, it might surprise you to know that you probably are not buying each item at the same price level. Once a careful evaluation is completed, we help you develop a supplier strategy. Next we use over 50 years of industry experience to assist you in building supplier relationships that result in assuring you of a dependable, high quality supply, not just lower prices. We know that you aren't willing to sacrifice quality and you want to be working with suppliers that will serve your long-term needs.

Here's the deal. The corrugated industry is gradually getting better at getting prices up and keeping them stable. Consolidation helps them, but not you. However, things are moving gradually. As suppliers get better, you need to as well. Our clients do. We routinely affect savings of 10-20%, sometimes more. You have to be willing to make some changes in your thinking and adopt methods that give you an advantage over other purchasers.

In baseball, it's Pedro Martinez that out duels the best hitters in baseball. In golf, its Tiger Woods who consistently outplays his fellow professional golfers. In basketball, Michael Jordan could fly through the air and dunk the ball. However only after he acquired intimate knowledge of the game did he win six championships. In reality, to outperform others in sports, you need to not only know the game, but also be blessed with exceptional physical skill. In the world of corrugated purchasing, knowing the game and how to play it can make you a winner. You start by opening your mind to a new approach. Learn from an expert; we'll show you how to make it work. Now that the corrugated industry is changing and gearing up to perform better, we hope you will too! Contact us for more information.

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