The saying “The whole is greater than the sum of its parts” is often attributed to Greek philosopher Aristotle. Packaging is largely overlooked as a strategic element in an organization’s manufacturing and supply chain operations. The annual packaging material cost typically is a line item in the non-production or Maintenance, Repair, and Operations (MRO) budget as these materials are not used in the final product itself. However, to get the “whole picture”, we challenge our clients to look at the role of packaging cost elements in the bigger picture including material, freight, labor, and waste disposal including recycling.
The Whole Package
A recent article in Inbound Logistics titled “Finding Cost Savings: It’s the Whole Package” highlighted that companies are giving more consideration to packaging in the bigger picture. Companies are now considering a “cost-per-use” instead of “cost of acquisition”:
“When selecting packaging for products in transit, cost savings represent just one of many factors manufacturers must consider. Over the past few years, companies have expanded their views on purchasing packaging materials. More manufacturers are considering the entire span of the supply chain—from increasingly automated manufacturing floors to return logistics.”
“Combined, these changes have led to more companies considering cost-per-use rather than cost of acquisition when purchasing packaging.”
Companies tend to view packaging as a stand-alone MRO cost that is not directly related to the cost of manufacturing their products. Does your organization track the costs of your packaging materials? Have you partnered with your internal packaging team or external suppliers to develop and implement cost reduction strategies? When these questions are asked and considered, we often find that companies do not have a solid understanding of current costs. Viable cost reductions proposals usually come forward when these questions are asked.
Packaging design has a direct impact on freight costs. Specifically, your packaging should allow for optimal cube utilization within the trailers and/or ocean containers used throughout the supply chain. Cost efficient packaging allows for good ship densities of your products without excess voids. Poor packaging that results in voids or air space is to be avoided as this results in potential part damage and higher freight costs. The packaging should also allow for stackability to maximize the space during shipment.
Labor costs can also be impacted by inefficient packaging design. Ease of handling unit loads within your operations results in efficient labors costs. Also give consideration to the labor required to pack and unpack your products. Packing labor will impact your internal your cost while the unpacking labor will have an impact on your customers. Design your packaging to allow for line presentation if your packaging is used within your customer’s internal operations.
Waste Disposal + Recycling
As household consumers, we all deal with the end of life of packaging materials. According to US based non-profit Keep America Beautiful:
“Americans recovered 34% of waste generated in 2009. That means we threw away 161 million tons of material, which amounts to about three pounds of garbage per person per day.”
Ultimately, your packaging ends up as your customers’ waste. Best case, the majority of your packaging is reused or recycled. Worst case, it ends up in a landfill. Is your packaging designed to allow for ease of recycling and disposal? Do you use a minimal amount of different types of materials? While this might not be a direct cost to you, it does have an impact on your customers’ bottom line. Does your packaging offer a positive image of your company?
Seeing the Bigger Picture
We challenge you to look at the whole picture of the role of packaging within your operations and supply chain instead of the individual elements. Also look beyond packaging as a “cost of acquisition” and focus on the whole as a “cost-per-use”. Both strategies will add value to your bottom line and might also increase your customer satisfaction along the way by looking at packaging in a new perspective.