The factors that determine a brand’s packaging spend are varied and can be highly nuanced. These factors range from the design of the packaging itself to the materials used to create it, the processes used to pack the product and the shipment methods that carry the product from the packaging line to its ultimate destination. Those key factors and every input in between combine to determine the overall spend. With that level of complexity, it can be easy for brands to miss optimization opportunities and overspend on packaging without even recognizing the problems. This making getting started with packaging cost savings a tricky part of the process.
While the process of reviewing every aspect of a packaging operation can seem daunting, recognizing factors that lead to overspending and identifying solutions to rein in those costs is within the grasp of every packaging team.
Factors that Drive Up Packaging Costs
There are many factors that impact the costs of packaging, and changes to any of those factors can lead to a brand overspending on its packaging operations. The most obvious of those factors is time; as packaging technology advances over time, newer materials and packaging specifications may offer equivalent or improved product protection at a lower cost. For brands that sustain success over a long period of time, packaging may remain unchanged. As the saying goes, if it’s not broke, don’t fix it. But sticking with the same materials and packaging processes as lower-cost alternatives become available can lead to overspending on packaging.
Rapid growth or change is another factor that can create a deficit between the current packaging spend and an optimized packaging spend. Pricing agreements a brand reaches with its packaging suppliers can become a source of cost inflation when a brand grows quickly. A year-over-year increase in sales is likely to produce a proportional increase in the amount of packaging materials required to safely ship products to customers. Revisiting those pricing agreements and renegotiating rates based on new quantities is likely to produce a lower cost per unit.
Similarly, a change to the brand’s business, such as the rapid shift e-commerce during the initial COVID-19 outbreak, is also likely to push packaging costs off course. For these brands revisiting their agreements with suppliers and adjusting them to suit their new packaging needs can reduce the potential for overspending on materials.
Sometimes the packaging process can be a larger source of overspending than the packaging materials. Operational inefficiencies can take many forms. Inefficient planning for packaging storage can lead to lost time in bringing the materials to the packaging lines. Storage and purchasing efficiency can also be improved through packaging SKU rationalization, which highlights opportunities to reduce the number of packaging specs in a brand’s portfolio. Packaging machinery that doesn’t perform up to its potential can also slow the process down – a problem that can be quantified by evaluating Overall Equipment Effectiveness (OEE).
Many brands have recently discovered opportunities to save on costs by switching from wood pallets, for which costs have ballooned in recent years, to inexpensive and sustainable slip sheets across their manufacturing and packaging operations.
Overpackaging products is another trap that’s easy to fall into. Ensuring a product reaches the customer in good condition is the top priority for packaging teams, but this can lead to wasteful and inefficient design. The best design is the one that optimizes packaging materials with just the right amount of protection with out driving up costs with packaging that’s too heavy or takes up more space than needed during transportation. To find the right balance, brands need to understand their distribution environment, the modes of transportation used during shipping, their product’s unique needs and the requirements of secondary and tertiary packaging. Then they must design a package that meets the needs of all of those factors without adding unnecessary weight and size.
The opposite side of that coin is insufficient packaging that fails to protect the product from damage during shipping. These costs show up in the form of product returns, rework and warranty expenses, and potential harm to the brand’s reputation, which can have a negative impact on sales. While the process to solve this issue can be complicated, involving a careful identification of the root cause, design and engineering to eliminate the problem and extensive testing to ensure the new packaging will perform before commercializing the new design, it can pay off in big ways.
Getting Started on Solutions
For packaging departments that suspect they may be able improve their costs or those that haven’t evaluated their packaging costs recently, a packaging audit is a great way to identify inefficiencies and areas for improvement. Among other benefits, a detailed packaging audit can highlight the difference between the current packaging spend and an optimized packaging spend while also providing roadmap for closing the gap.
Lean on the Experts
For packaging teams that lack the expertise to root out inefficient spending or those that are stretched too thin by current projects to invest time evaluating each aspect of their operations, it is helpful to work with an outside partner with experience optimizing packaging costs. The Adept Packaging team includes experts in more than 60 specialized packaging disciplines, including cost savings. Get in touch to learn more about how we can work with your internal packaging team to identify areas of concern and provide solutions to help you achieve bottom-line savings throughout your packaging operation.