Eliminate FIBC Supply Chain Uncertainty With Vendor Managed Inventory

February 1, 2021

Vendor Managed Inventory

How will the global viral pandemic affect the FIBC industry in 2021? Eliminate supply chain uncertainty with a Vendor Managed Inventory (VMI) program

The FIBC industry faces new prolonged challenges due to the global viral pandemic. Utilizing Vendor Managed Inventory can be one of the most effective methods in combating supply chain uncertainty (stock-outs) and price risk. 

How will the global viral pandemic affect the FIBC industry in 2021? 

Covid VirusAs COVID-19 swept across the world in early 2020, FIBC manufacturing plants across Asia and India shuttered. Plants were idled for as many 10 weeks due to government-imposed lockdowns. When plants reopened, limited labor availability caused significant production delays. Ocean transit disruptions further complicated delivering bulk bags to distributor and end-user locations. Lead times went from 16 weeks to 26 weeks or more.

Entering 2021 these disruptions have partly subsided and Southern Packaging continues to take strategic measures designed to combat the negative effects of the pandemic. Nevertheless, until the contagion is fully controlled, supply chain uncertainties will remain. 

In 2021 the global pandemic is expected to affect the FIBC industry in the following ways:

Pricing: Resin and transportation cost increases are driving FIBC prices higher. 

Rising feedstock costs, tighter inventory, and plant outages are affecting all commodity resin markets. Demand for PP and PE continues to remain strong. Limited supply combined with strong demand has caused PP resin prices to skyrocket. As a result, bulk bag prices are expected to increase substantially during the winter and spring of 2021. 

In addition, sharp increases in ocean transportation costs are contributing to FIBC price increases. Planned reductions in vessel capacity have buoyed the pandemic-driven drop in volume, allowing shipping lines to charge significantly higher rates. 

Transportation Disruptions: Container shortages continue to delay shipments.

India and China have been badly hit by deficits in empty sea container availability. This can be attributed to reduced imports driven by the pandemic. FIBC plants have bags ready, but no empty containers available to fill and ship. This is causing loads to be delayed for several weeks. 

Governmental Risk: New viral outbreaks may cause governments to reinstitute lockdowns.

In early 2020, the governments of India and China instituted strict lockdowns to control the viral outbreak. Plant personnel were required to remain in their homes for weeks. Bag production was brought to a standstill. 

Although these lockdowns have been lifted, the possibility of future lockdowns exists. Until the pandemic ends, we consider the likelihood of production disruptions to remain high. 

How do you avoid FIBC price increases and production disruptions? The answer is Vendor Managed Inventory 

Maintaining the availability of cost-effective bulk bags is difficult. Shifting demand projections and price fluctuations make a procurement manager’s job a continuous battle. Vendor Managed Inventory is designed to align custom demand and inventory availability, improving operational and financial performance. 

What is Vendor Managed Inventory?Vendor Managed Inventory

Vendor managed inventory or VMI is a supply chain model where the supplier maintains responsibility for their customers’ raw materials. This responsibility includes carrying adequate inventory levels to meet the customers’ real-time demands. 

Operational and financial benefits to the customer can be significant. Most importantly, VMI promotes strong supplier-customer relationships. 

How does bulk bag VMI work? 

Bulk bag vendor managed inventory works like any standard raw material program. In a VMI program, the distributor purchases and imports a forecasted supply of FIBCs. This is commonly a 6-12 month supply. The distributor holds the bags until the customer releases the inventory. In general, the customer is not billed for the FIBCs until they take delivery. On-demand FIBC inventory allows the customer to release the amounts they need, at the time they are needed. Southern Packaging supports many customer accounts in this manner. 

Benefits of a VMI program for your bulk bag needs

  1. Eliminate Stock Out Risk - Bulk bag lead times are generally 8-16 weeks depending on where the bags are sourced. Unanticipated disruptions like a global pandemic can cause lead times to jump overnight. Having a 6-9 month supply of bags on the floor may allow you to ride out temporary disruptions.
  2. Eliminates Price Volatility - Bulk bag prices are primarily a function of resin costs. Resin fluctuates throughout the year like any industrial commodity. Allowing your vendor to purchase a forecasted amount of inventory in advance allows you to lock in prices for 6-12 months.
  3. Improves Cash Flow - Vendor managed inventory is effectively vendor inventory financing. VMI programs allow you to take delivery of bags in quantities you need at a time that’s right for you. Bags are only invoiced as they are released. Monthly cash flows can be significantly improved when packaging costs are level and consistent with consumption requirements.
  4. Lower Inventory Levels - Pallets of empty bulk bags are large and can take up a significant amount of warehouse space. Taking deliveries in quantities that allow you to operate your business without unused inventory interference can be a significant operational benefit.
  5. Alignment of FIBC Supply and Demand - VMI places the burden of maintaining proper inventory levels on the supplier. Through VMI programs, the supplier is tasked with aligning customer needs and manufacturer lead times. The net effect is the elimination of supply chain disruption and high operational costs due to stock outs. 

Utilizing Southern Packaging VMI Programs

Southern Packaging carries the largest inventory of on-demand FIBCs in North America. We stock custom and of-the-shelf bulk bag solutions for a broad range of industrial customers. We invite and encourage our customers to utilize our substantial warehouse availability for all their bulk packaging needs. 

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