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In this series, we put a spotlight on the unspoken needs of Glass Suppliers, so that glass buyers can trade their exemplary customer behaviour, for the best possible pricing.

Today our countdown moves to Need Number 2 – “Customer Tenure or more specifically Contract length”

I rank this item as the second most important Supplier need a packaging customer should be aware of, because size matters enormously to manufacturers, especially when it comes to investment payback.

This is a big topic and to explain why, I’ll use a case study:

Recently OI sold 5 glass plant facilities to Visy for $733m. Annuals revenues for this business are circa $750m with an EBITDA of 16% and profit of $30m or just 4%.

This means Visy are looking at a 24 year wait to recover their purchase investment.

 Now presently the cost of borrowing cash is cheap but equally market conditions for glass across key sectors, particularly wine is poor. So, what can a Glass Supplier do. Well locking in customers for long periods of time is one super clear solution. The guarantee of long-term demand through lengthy supply agreements provides a vital assurance that the initial and future investment in the acquisition will not be in vain. Packaging Manufacturing is capital & operationally intensive. Especially here in the ANZ region. Long term customer contracts are simply paramount for Suppliers.

So how should you cater for this Supplier need? Well, the first step will be to stare down any fears about locking in for long periods of time. A long-term contract doesn’t need to be a restrictive one. Packaging customers can proactively include many forms of protective performance clauses into their supply agreements. Quality specifications, back up supply provisions, Force Majeure definitions, price adjustment formulas, mould provisions, grounds for termination and safety stock quantities are just some of the items that you can use to appease any concerns about long terms agreements.

The challenge is to consider what will give you the most piece of mind. If you need glass today, chances are you will need it tomorrow. So much can be gained by building a long-term supply partnership, provided both sides treat each other with respect & are clear about the rules and responsibilities of their contract. I can tell you from experience that many customers are not.

The second step is to find out what your longer tenure is truly worth. If your presently on a standard three-year deal, what price and service benefits would be available for a 5- or 7-year term. Even better what would a 10-year commitment get you? There is so much room to move on price if your business is underwriting the future earnings of a supplier. Consider this carefully and get granular because the individual furnace your glass comes from, the colour you buy and the type of container you use, will have a further effect on your negotiation outcome.

I’ll conclude again with the wisest of wise procurement advice. And that is “Give the supplier what they want, on your terms, not theirs!”

Buy well & in our next episode, our countdown moves to the number 1 Glass Supplier Need! (Volume)