In the past, packaging was thought of as little more than a way to move products from one place to another. Companies usually consider the cost of packaging, but most don't realize the impact packaging has throughout the entire supply chain. Smart organizations now account for every cost and look for savings at every stage.
Brands need a reliable way to conduct an evaluation of packaging and find out how it influences the profitability of a product. Here is what you need to consider when analyzing the true costs of this often-overlooked part of your operation. These tips, insights, and tools can help identify opportunities to make packaging a lever of profitability within your organization.
Brands can use the metric Total Cost of Ownership (TCO) to determine their packaging costs. This cost estimate is designed to factor in the direct and indirect costs of packaging. The following variables contribute to the TCO of packaging:
Unoptimized packaging can drain budgets over time. Although some organizations try to cut costs with low-quality packaging and materials, the temporary savings can cost more in the long run. The top 3 contributors to hidden packaging costs include:
Damage to products can result in unexpectedly high costs for organizations. Up to 10% of e-commerce packages arrive damaged,1 and that figure jumps to 21% when shipping oversized items.2
When products are damaged in transit, they quickly accrue a variety of costs. First, the product has to be returned by the customer and replaced or refunded by you, all on your dime. There's also the future cost of the hit to your reputation. Customers don't always want to return to a brand that sent them a damaged product, so product damage can lead to lost sales.
Outdated storage, picking, or material handling equipment (45%), supply chain disruptions (39%), and inefficient space for inventory (35%) were among the top challenges for warehouses and distribution centers, according to Logistics Management.3 Packaging optimization yields shipping efficiencies that can lead to significant savings, and streamlining processes to be just seconds faster can result in significant savings in time and cost.
Consumer expectations are changing rapidly, and more consumers today expect brands to offer sustainable packaging. In fact, 90% of consumers are more likely to buy from brands with sustainable packaging, and 43% of consumers are willing to pay extra for a product with sustainable packaging.4 With unoptimized packaging, consumers are less likely to choose your product over competitors that use sustainable, renewable packaging.
Packaging costs begin with projections and purchases, but the price of materials alone doesn’t determine overall spending. Issues with packaging can push costs higher than organizations expect or budget for.
Other factors that can contribute to higher packaging costs include:
Packaging that protects your product, contributes to a positive customer experience, and is cost-effective is possible. Implementing a managed packaging program allows you to take advantage of the packaging expertise that providers have and access their network of providers to ensure your packaging program is:
If you have a high-cost packaging program that produces excessive product damage or turns consumers off with non-recyclable materials, is it worth the cost? On the other hand, the cheapest packaging program possible is likely to offer similar results rather than solve problems. A cost-efficient packaging program is one that protects your products and stays up-to-date with consumer expectations and regulations without excessive costs.
Shipping in and between extreme climates can affect packaging, which can then damage the product. Damaged packages can also put supply chain employees in danger. The key function of packaging is to withstand multiple modes of transportation, be it via ship, truck, or airplane, and numerous touchpoints throughout the supply chain.
Efficiency in design is using the right amount of materials in order to protect and ship products without excess or unnecessary materials. Efficient design means that packaging is:
A high return rate or supply chain complaints about product damage could indicate insufficient packaging. Besides the impact damaged products have on customer sentiment, additional costs include:
If your packaging is not sustainable, then it may not be fully optimized. Optimized packaging goes hand-in-hand with sustainability because:
Discover how you can reduce the carbon footprint of packaging in your supply chain.
Depending on the inefficiencies identified and solutions implemented, a comprehensive packaging program can yield significant cost savings.
Packaging engineers play a critical role throughout the supply chain and are instrumental in helping organizations discover significant savings opportunities. Trillora has helped companies realize:
Uncovering inefficiencies in your supply chain requires an approach that is both careful and deliberate. A packaging solution customized for clients starts by identifying areas that can be improved:
After a full, in-depth analysis of your supply chain, you’ll be presented with the areas for improvement and optimizations that will make a significant difference in your operations. Contact us today to request a packaging review.