A Few Lessons from the Field

At a major US packaging manufacturer, a CPG co-manufacturer buying $5 to $15 million a year had resisted every price increase by threatening to move its mass-retail volume to our competitor. I sorted their roughly 450 SKUs into three groups: dual-sourced high-volume business where their leverage was real, sole-sourced medium-volume business, and sole-sourced premium items where packaging was a negligible share of the retail price. We cut the first group slightly, and raised the second by mid-single digits and the third by low double digits. Moving the volume we had just reduced would have looked like retaliation, not savings. No volume was lost, and the blended increase added a six-figure sum every year.

The lesson: leverage is not fixed. Break the problem into its parts and structure the proposal so retaliation becomes visible.

A bottle manufacturer had run an on-site plant inside a global CPG company's facility in Mexico for nearly twenty years. Its contract required it to absorb the first 1% of inflation every year. When the customer put the business out to bid, the reaction inside the company was concern. I saw an opening. We priced mid-single digits higher, benchmarked to the market and to what it would cost the customer to replace an on-site supplier, and we used the bid to fix terms that time had broken. When they asked for a cost bridge, I declined: in a bid, we only had to beat the next alternative. We renewed for five years at the new prices, with the inflation clause removed.

The lesson: understand your position better than your customer does, and know exactly what you do not owe.

At a specialty packaging company, prices had not moved in four to five years, and the team expected strong resistance to a double-digit increase. Our largest customer, a premium home goods retailer, bought mostly white paper, at a significant premium over brown. A truly price-sensitive buyer would have switched to brown long before leaving us. A second customer was paying a meaningful premium for recycled paper over virgin. Both accepted the increase with no volume loss. We also set the expectation of annual increases, so every future concession would become leverage for the following year.

The lesson: a customer's buying pattern is the most honest signal they will give you. Procurement pressure is not the same as price sensitivity.

A fast-growing kids' beverage brand needed a second source for its caps, which required us to invest in a dedicated line. We proposed a six-year agreement in which volume roughly doubled over the term. Procurement said our volumes were too aggressive. We answered with two facts. The equipment could not run anything else. And their own CEO had just shown us an investor projection of about 150% growth that he called conservative, while we were asking them to commit to roughly half that. We closed without concessions.

The lesson: the best negotiating data is often what your customer gives you. When a CEO tells you what his company will become, that is a term sheet.

When I took over a global relationship with a major CPG company as Division President, I found a contract extension for an on-site plant in Ohio that had been negotiated but never signed. We had already installed the new equipment it required. The customer's projections had changed. I told my procurement contact the problem was theirs, not ours. Without a signed contract, every future project would need one first, a process of about six months. I offered to help solve their capacity problem once this contract was signed. One week later, I had it.

The lesson: use the leverage you have earned, keep your terms fair, and stay ready to help once the principle is settled.

At a large packaging manufacturer, we kept missing orders for an industrial customer, and supply chain blamed the customer's erratic weekly forecasts. But their demand was driven by retail promotions they did not control. The real cause was structural: a label with a five-week lead time and no frozen window. I asked one question: what would it cost to hold enough labels to cover the swings? The answer was $15,000 and one pallet of space. We pre-bought the labels, the customer paid for them upfront with a credit on the finished goods, and the missed orders stopped.

The lesson: diagnose before prescribing. Work with the customer's reality instead of asking them to change it.