Holes in the bottle contract
BottleCo, a global manufacturer of a product sold in plastic bottles. The new global category manager took inventory of his contract portfolio and determined that its bottle supply contracts had many holes in it. He knew there was an opportunity to improve this category of contracts but was not sure how.
Synaptic was asked to redefine how BottleCo purchases plastic bottles globally to lower its overall costs.
Aim contract provisions at key value drivers
Our approach was to:
- Review the US bottle contracts and identify key issues and risks
- Develop a dynamic bottle cost model to understand the key value drivers under simulated results
- Analyze past bottle demand and contract pricing
- Construct a new contract archetype using best practices in contracting that can be applied to global bottle purchase
Insights & Recommendations
Linking price changes to commodity market prices
One of our key insights was that the bottle manufacture had the ability to increase invoice prices with increases in raw materials (i.e., plastic) prices. We compared past price changes to the market index for plastic (HDPE) and found some interesting results.
Over the past 10 years, the supplier slowly raised its contract prices higher than its actual material cost per pound to where BottleCo was paying 20 cents more per pound (a 33% markup).
A rebate check from the supplier
The new global procurement manager approached his largest US bottle supplier with our results. The bottle supplier immediately cut BottleCo a multi-million dollar rebate check and signed a contract amendment linking changes in the contract price to changes in a visible market index for plastic.