Analyzing packaging costs

Jul 01, 2005 9:30 PM  By

Choosing cost-efficient packaging is a complicated process that involves consideration of far more than just the cost of the materials alone. Labor, assembly, and a whole range of indirect charges must be factored in. Fortunately, the following checklist, provided by Unisource Worldwide, a commercial packaging and printing systems provider in Norcross, GA, should enable you to prepare your packaging budget in a systematic manner:

INTERNAL MATERIALS: Assess the cost of blocking, bracing, and cushioning materials on a per-package basis. Account for internal protective materials, but also ask whether the choice of internal packaging has an impact on the number of carton sizes you must inventory or requires other materials such as wraps, inserts, or tape. Anything that complicates purchasing or inventory management is a hidden cost.

PROTECTIVE MATERIALS: Evaluate not only the cost of protective materials but also the expense of keeping them in inventory, material handling costs, and the time spent to purchase and stock multiple materials. Ask yourself whether consolidating the number of materials used can deliver savings by simplifying the inventory and supply chain management function.

OPERATOR TRAINING: This is perhaps a minor cost, but it is an important one to factor into the equation, particularly if you experience turnover in the packaging function or must have multiple people trained to perform at the same level. This cost is particularly important to direct-commerce companies with seasonal fluctuations in their business and a passing parade of part-time helpers.

PACKAGING ASSEMBLY LABOR: Consider not only the time it takes to complete a box but also the time spent determining which type of material is most appropriate. The fewer decisions a packager must make, the faster the job is completed. Your spreadsheet for expenses should include provisions, if appropriate, for redoing packages if materials are not handled correctly. For example, cushions may be improperly fabricated, bags not inflated fully, or foam-in-place cushions allowed to rise well beyond the top of the carton.

RETURNS BECAUSE OF DAMAGE: Include the cost of the damaged product, the original shipping materials, the replacement product and its packaging, the cost of return processing, and the intangible price to pay for customer dissatisfaction. Also throw in the cost of repairs and the estimated fees for disposing of the damaged product and its packaging material.

FLOOR SPACE: If applicable, calculate the cost per square foot of space occupied by packaging materials and machinery.

INSURANCE: Could you reduce premiums and/or claims by using a different packaging system? The packaging system you have selected may require extra insurance payments or extra equipment (special ventilation, additional fire safety procedures, eye wash equipment) that push up your costs.

WORKER CLOTHING/UNIFORMS: Does your current choice of packaging hold potential for damaging clothing or employer-supplied uniforms? Determine whether special safety apparel is required. Figure out how much this will add to the cost of the current packaging system and compare it with the cost of installing an alternative system.

SHIPPING COSTS: Examine whether your internal protective packaging strategy will have an impact on your freight and transportation costs. Does the void fill used make the package cube excessively large, minimizing truckload utilization? Is the package overly heavy? Also remember to factor in the cost of shipping packaging materials to your distribution site, if applicable.

PACKAGED PRODUCT STORAGE: Do your decisions have an impact on the amount of space that must be dedicated to product inventory? This cost is closely related to cube size and particularly affects large-volume shipments.

EQUIPMENT MAINTENANCE: If you opt for any type of on-demand packing system, remember to factor in anticipated preventive maintenance, repair, cleaning, or part replacement expenses, including the internal or external labor and downtime that may be incurred.