Cost management is a driving priority for many contract packaging companies, as they strive to meet customer expectations while maximizing profits. Since packaging is a complicated and often specialized process, there are many different elements with associated costs, so the possibilities for reducing costs can be tricky to identify.
What Is Contract Packaging?
A contract packager is a company that manufactures and packages products for other companies to sell and distribute. A contract packager works with the hiring company to manufacture products as though the products were manufactured directly by the hiring company.
The starting point for making contract packaging more cost-effective is with a full process review, down to a granular level. By reviewing the production line and individual packaging processes in detail, it is far easier to pinpoint areas where overhead can be reduced, processes can be streamlined, and operations may become more efficient.
How to Make Contract Packaging Services More Cost-Effective
Good packaging should be as simple as possible to open, while maintaining the appropriate amount for securing the package and its contents during transport. One common way contract packaging companies are over-spending on their operations is by over-packaging unnecessarily. Of course, new products are usually (and should be) introduced with safer packaging specifications, but after a reasonable track record has been established, the materials used should be reduced accordingly.
Standardize, Standardize, Standardize
The most efficient way to operate the packaging element of the supply chain (and other areas as well, for that matter) is to standardize processes. This leads to quicker, more accurate services, and with packaging in particular, it has a direct impact on materials cost when the packaging itself is standardized by size, weight, and other factors.
Human labor is expensive, more prone to mistakes, and often less efficient than technology. Although the upfront cost to purchase automation equipment is typically steep, the cost of labor vs. the speed of return from automation makes it well worth it in the long run. Some contract packaging companies may be able to acquire greater productivity as well as reduce costs by automating some of their packaging processes.
Reduce Energy Usage
The implementation of green energy alternatives help reduce utilities costs as well as costs for maintaining older equipment. For example, replacing fluorescent lighting with LED can create an average of $11 per bulb per year in savings, and they last for more than a decade before needing replacement (even when running for 12 hours each day). Also, by replacing pneumatic machinery with electric, air cylinder maintenance costs are eliminated.
Perform Preventative Maintenance
Studies have shown that contract packaging companies (and other logistics service-providers) spend as much as 80 percent of their operations time reacting to breakdowns and other issues. Alternatively, they can save on costs and create more opportunity to expand their business by making preventative maintenance a priority, planning ahead and working to prevent breakdowns before they happen. Otherwise overhead costs will be controlled by downtime.
Use Appropriate Calipers of Ply
Some contract packaging companies make the mistake of failing to analyze the necessary caliper of ply for the packaged product. To save on materials cost, the thinnest material possible should be used. When reviewing individual packaging processes, product packaging should be considered to identify instances where thinner ply may be more appropriate.
Buy Packing Materials in Bulk
Bulk buying is more cost-effective in many industries and applications, and that applies to contract packaging as well. If the packager has sufficient warehouse space to accommodate the extra materials, they can take advantage of significant discounts. However, some materials have expiration dates so it is important to be aware of those to avoid wasting resources.
Reduce Damage in Transport
Returns are a given part of the supply chain, but they can be minimized, reducing the costs associated with them. One way to minimize returns is to reduce damage that happens in transport between the distribution center and the retailer or end-user. Packaging may need to be better or different (such as a thicker gauge of stretch film or different compatibility for wrapping machinery) to prevent damage, or the packager may need to review their freight partner and consider a change. Remember that damage and returns costs more than just overhead; it jeopardizes the relationship with the customer.
Outsourcing packaging services is an excellent way to save on overhead costs and experience greater success and efficiency with packaging. Contract packagers and 3PL companies not only have the experience, facilities, and flexibility to more effectively handle packaging operations, they often incorporate the latest, cutting-edge technologies and processes that are strategically designed based on experience. Instead of having to hire, train and manage a workforce of packaging technicians and rent varying sizes of space to store products before they are packaged and shipped, the outsourced packaging partner facilitates all of this, often at a fixed cost. They can also handle seasonal projects and demand surges with far greater flexibility.
As an ideal partner in 3PL and contract packaging services, Hollingsworth offers decades of experience, strategic operations, and other advantages for our clients. We have a proven reputation of accuracy, efficiency and reliability in packaging for a wide range of industries, including consumer electronics, automotive and healthcare.
Contact us to learn more about what Hollingworth offers in contract packaging and to find a solution for your packaging needs.