Optimising packaging and shipping costs offers interesting opportunities to reduce costs and increase profits in companies. If you want to effectively reduce your production costs, shipping and packaging is a good place to start.
Optimising packaging costs
Packaging is usually treated as a side issue in companies. Hardly any attention is focused on optimising packaging. Packaging is used for the supply of primary materials and operating supplies as well as for internal material transport and intermediate storage of semi-finished goods, the transport of semi-finished goods to co-operating locations and the dispatch of finished goods to customers. In each of these processes, costs are incurred for packaging.
Legal requirements must of course be met. This concerns the packaging itself, especially for substances that are harmful to health and the environment, but also the meaningful labelling of the contents of the packaging.
In many cases, the packaging has been used in unchanged form for many years. It may be worthwhile to occasionally critically question whether the packaging used is still useful or whether there is potential for improvement. Due to the greater importance of environmental protection, packaging alternatives are also developing that could be interesting for your company and contribute to cost savings.
Packaging costs include not only the packaging material, but the entire packaging process. Through standardisation, optimisation and automation, packaging costs can often be perceptibly reduced.
Ways to reduce packaging costs
- Negotiating prices and conditions with packaging suppliers
- Optimising the packaging itself
- Optimisation of the ordering cycle
- Optimising the process with suppliers of auxiliary and operating materials and with input material suppliers and customers
The simplest and most straightforward way to optimise packaging costs is to negotiate prices and conditions with packaging suppliers. When negotiating packaging costs, it can be helpful to agree on larger purchase quantities per delivery or a framework agreement, for example with a purchase obligation for a foreseeable annual quantity. Such framework conditions can optimise the packaging manufacturer’s processes in terms of costs, and the supplier can pass on cost advantages to you.
Also talk to your suppliers of raw materials and supplies about optimising packaging costs. Perhaps the supplier has no motivation to reduce packaging costs because he has been able to pass them on to you on a 1:1 basis. Discuss possibilities for optimising packaging costs with your main suppliers of input materials who incur packaging costs. There are usually starting points for good solutions.
Another and more creative way to reduce packaging costs is to optimise the size and shape of the packaging to reduce materials and labour costs. Another lies in the choice of packaging material. Using reusable or recyclable materials can help reduce packaging costs. But here, consider the whole process involved in the packaging cycle, not just the packaging material alone. Also consider conceptually how you can involve your customers and/or suppliers in the costs of reusable packaging.
Example: In food retailing, it has been common practice up to now for fruit and vegetable growers in Southern Europe, for example, to use cardboard packaging in which the food was brought to the German discount retailer and offered for sale directly in this cardboard packaging. The empty cartons were then disposed of by the discounter. Fruit and vegetable farmers not only had to buy the carton packaging, but were often also charged by discounters for the disposal costs. A switch to reduced-volume foldable reusable plastic packaging would change the entire process. Transport of the folded reusable packaging to the fruit and vegetable farmers, possibly to a central distribution point at a cooperative, would have to be organised, as would the inspection and cleaning of the packaging after each cycle. It would also have to be considered who pays for the packaging, who produces it and who should keep a pool for it. All these challenges have been factually and commercially implemented in food retailing with specialists that include pool operators and manufacturers.
Also consider together with suppliers and customers what possibilities there are to optimise the number of units per package. Solutions that promise advantages for all parties involved always work. So also think about attractive advantages for your business partners. Maybe you don’t need any packaging at all for one or the other product? That can also be an option for optimising packaging costs.
Example: In the value-added networks of the automotive industry, stable and long-term business relationships exist between the companies. Second-tier suppliers deliver to first-tier suppliers, who then deliver to the car manufacturers. In these delivery processes, reusable packaging is usually used for components and systems that optimally protect the products during transport. Similar to the business with reusable pallets, there is a process for handling this reusable packaging and agreed conditions for billing for the packaging used.
Even outside the automotive industry, such agreed processes for the introduction and handling of reusable packaging are conceivable in order to protect both the goods and the environment as well as the budget of all parties involved.
But don’t save too much on packaging. Otherwise, you may risk damage to the product, which will be more expensive for your business than adequate packaging would cost. In principle, however, there is interesting cost-saving potential in packaging in almost every company.
Example: Let us assume that the packaging costs in a company are 3% of the sales revenue and that there is a savings potential of 1/3 of the packaging costs, then the company could increase its profit by 1% in relation to the sales revenue just by optimising the packaging costs. If we further assume that this company has so far generated 5% profit in relation to sales, then this profit can be increased by 20% just by optimising the packaging costs. This even results in a 20% higher company value.
Optimising shipping costs
In shipping, there is often room for manoeuvre with regard to shipping costs. Usually, the same forwarding agents are used on a long-term basis because the cooperation is well-rehearsed – and because shipping is also a marginal issue for the company. However, shipping costs often make up a significant part of the costs in companies.
Example: If the shipping costs are an average of 10 % of the prices invoiced to customers for the goods and only 5 % of the shipping costs could be saved through negotiation or a change of freight forwarder, this would have a positive effect of 0.5 % in relation to the sales revenue. If the company’s return is 5% of sales, both the return and the value of the company can be improved by 10%.
It is therefore worthwhile to regularly check shipping costs and examine them for savings potential. But don’t save your business on shipping costs. It is important that the basic service of transport is carried out by the forwarding companies used in a process-safe manner and with a high degree of adherence to schedules. Otherwise you risk complaints, loss of reputation and perhaps even loss of customers.
The realised shipping service must fit your market and your business. If it is important for customers to be delivered on an agreed delivery date, say in a fortnight, they will not pay for a 12h delivery. Adjust your shipping performance to your customers’ expectations.
In addition to savings, there is also the possibility of giving customers a greater share of the shipping costs incurred. Shipping triggers variable costs in the company that go beyond the mere commissioning of a forwarding agent.
Special requests from customers are often planned at great expense. Such services, the costs of which usually remain within the company, can certainly be passed on to customers in the form of an appropriate service surcharge. Customers are often willing to pay extra for special services, such as time-certain deliveries to construction sites or small-scale deliveries.