Wal-Mart Stores Inc. officials are telling suppliers not to come crying to them about resin price increases.
The mass-merchandising giant, known for wringing low prices from its supply base, has had to deal with similar issues of rising material costs, said Ronald Reed, corporate manager of packaging, speaking April 1 at Packaging Strategies in Atlanta.
More than a year ago, Wal-Mart recognized that an upward slope in material costs soon would send its purchasing prices rocketing, Reed said.
Its purchasing group sat down to head off that problem. The plan included buying in bulk and in advance.
``We were ahead of it because we considered costs and knew they weren't going to be the same,'' Reed said. ``We feel for and understand the importance of [resin] costs to a business, but we hope that you have already been dealing with that like we have.''
For some suppliers facing an upward spiral in material prices - made more difficult by a recent, temporary surcharge on some resins - the news might sting. Some packaging suppliers said at the conference they were caught in a squeeze between rising costs for such resins as polyethylene and stepped-up demands for price reductions from customers.
Some suppliers are using the challenge to look internally for changes.
``Ongoing price pressures are likely to continue for some time,'' said Harris DeLoach, president and chief executive officer of packaging supplier Sonoco Products Inc. of Hartsville, S.C. ``The advantage goes to those who use price as a competitive weapon in the short term.''
Unfortunately, that issue can polarize processors and vendors, said Bill Westwood, chief financial officer of Amcor PET Packaging in Manchester, Mich. The company, with world headquarters in Melbourne, Australia, became a major North American player in PET bottles last year after buying the plastics business of Schmalbach-Lubeca AG.
Amcor had undergone a major change, selling its paper business and then becoming the largest North American producer of PET containers, Westwood said. Amcor now sells close to $2 billion annually in PET bottles, accounting for about 32 percent of the packager's overall sales.
But Amcor also has grappled with PE price increases that have shot prices up this year. Meanwhile, the company is working to offer a Wal-Mart-like approach to business, Westwood said. It wants to offer ``everyday low costs,'' a riff on Wal-Mart's ``Everyday Low Prices'' slogan, he said.
Schmalbach has a lot of balls still to juggle, he said.
One of those is working with resin and equipment suppliers to remain a low-cost producer that makes a quality product,Westwood said.
He admits the industry is imperfect and the partnerships with resin and equipment companies are far from ideal.
``As an industry, we need to do much better,'' Westwood said. ``It's up to you to go to see if you can work it out with a [resin supplier]. We're in an industry that is crying out for collaboration and cooperation.
``We can't go far with this business model if our partners work at all against us in the future.''
Westwood said he was speaking in general terms and not about Amcor in particular. But he also said that equipment makers must work with PET processors to share technology that is developed jointly and not give it away to competitors.
``We're into a bit of a bunker mentality,'' he said. ``We all need to profit.''
While he was speaking about an ideal world, the stresses of resin prices cutting into profit drove those comments, he said. After Westwood's speech, several equipment companies approached the PET packaging executive to ask about his remarks.
Thomas Jordan, vice president of the plastics division for blow molding machine maker Krones Inc. in Franklin, Wis., said he agrees wholeheartedly with Westwood's critique.
``As a company, we've invested more in research with our customers over the past several years than a lot of our competition,'' Jordan said. ``We take the same attitude. We have to be working with our customers and not trying to take money from their pockets.''
A big driver of that cost-cutting move is Wal-Mart, the nation's largest retailer, with annual sales larger than some countries' gross domestic product.
The company keeps such tight controls that buyers are responsible personally for products returned from stores that do not sell, Reed said. Wal-Mart developed an in-house scanning code system to keep a better lid on distribution. ``We ran out of buyers to fire,'' said Reed, tongue planted in cheek.
But in that pressure-cooker culture, Wal-Mart thinks cost first, he said. The company is not a major proponent of the consolidation being considered by many processors and end users, Reed said.
If that happened, the retailer would lose some of its leverage and its upper hand on price controls, he said.
And while Wal-Mart values innovation in new packaging, innovations still must meet tight cost parameters, he said. In fact, he encourages companies to send prototypes to Wal-Mart for testing. Sometimes it does not take that long to decide if a product meets its strict criteria.
``Give me five minutes to test it, and I'll know right away if it is going to work for Wal-Mart,'' he said.
Some new products have Wal-Mart's backing. Specifically, the company views fresh, case-ready meat - packaged in film that preserves it on the shelf without the need for an in-store butcher - as a major advantage.
Wal-Mart also owns Sam's Club discount stores, a company that uses butchers to package its meat and fish. But that might not be the case much longer. ``Our customers prefer to buy it at Wal-Mart, put it in the refrigerator and not worry about it,'' Reed said.
With costs a major focus at Wal-Mart, the company also is hoping for the success of a new computer-chip technology now under development by the Massachusetts Institute of Technology and others.
The technology would place the tiny chips on packages, where radio frequencies would be used to identify their contents and their location in the supply chain.
RFID technology, short for radio frequency identification, still is several years away, Reed said. But when it happens, it will represent a major change in controlling shipments and costs, he said.
Another shift at Wal-Mart could be in recycling. While cost issues are king, recycling is becoming more of a consumer concern, Reed said.
The retailer might look at products that offer recycled materials more directly in the future, he said.
``On the packaging end, I'm not so sure we've really moved toward that yet,'' he said. ``I think this will be a bigger focus, especially as we get more into plastics.''