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26th September 2017

Posted In: Guides & Advice | Reduce Costs

How is Your Packaging Priced?

Identifying the differing elements that affect and make-up the cost of your packaging

Deciphering how and why you spend what you do on your packaging can be surprisingly complex.

So whilst it is simple enough to say that you order a specific number of lines, in specific sizes and specific volumes, utilising a particular material, if you have grown your packaging inventory over a prolonged (or even quite rapid) period, the question can still be – why?

Average cost of packaging
There are a number of factors that affect the average cost of your packaging - an understanding of which can help you reduce costs

Why is a specific material or board grade used? Why do you order 2 similar sized boxes? Why does one box, which seems quite similar on the face of it to another, cost so much more? Why do you order so many additional items such as tape and inserts?

There are normally three possible answers.

The first is usually along the lines of “this is what we needed to accommodate our product range”. However, if the product range has grown over time, with new packaging introduced as you go, decisions made in isolation may be affecting your average cost of packaging.

Answer two usually focuses on cost. In effect, this was the cheapest option (at the time).

The final answer – which may be of some concern – is I don’t know.

The importance of analysing your spend on packaging

However, with an increasing number of companies seeing price increases across their packaging range, now is an important time to be able to analyse what truly makes up the cost of your packaging.

Put simply, an increase in the cost of your packaging puts you in an awkward position.

You can either take the hit to your bottom line or pass the costs onto your customers. Neither of which is ideal.

Analysing packaging spend
Analysing your packaging spend can often reveal inefficiencies and areas where you can reduce costs

This is why it is important to be able to analyse the cost make-up of your packaging.

If you do not know the key factors that are determining the price of your packaging, and therefore your overall packaging spend, then it is that much harder to identify areas where you can drive cost savings.

Once you know the reasons your packaging has been designed or manufactured in a specific way, it enables you to decide if these reasons are still valid, whether specific compromises can be made without affecting your packaging effectiveness, or if there is just a much better (and potentially cost-effective) way of doing things.

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So what factors affect packaging pricing?

For most business types and packaging users, it will usually be possible to identify 6 over-arching factors that affect the why and how of your packaging.

Whilst these can then be sub-divided into a number of sub-categories and considerations, the main 6 factors that influence your corrugated packaging spend are as follows:

  • Fragility of product
  • Volumes
  • Complexity
  • Sundries / Secondary
  • Marketing
  • Role in Supply Chain

Whilst not each of these factors may be completely relevant to your business, the remainder of this guide details why you should – if possible – analyse these elements in order to begin identifying potential cost saving opportunities.

Fragility / specification of product

Perhaps the most obvious, the fragility and specifications of your product can have a direct and noticeable impact on your overall packaging spend.

In simple terms, the more delicate the items you need to package, the more money you will need to spend to successfully protect them.

Similarly, larger items will generally cost more to package than smaller items.

This all leads back to a significant – and rising – cost of your packaging. The type and amount of material used.

Fragility of product packaging
When assessing costs, you should also think about your product - as your packaging may be over or under specified

One of the main reasons you may have experienced a price rise is the increase in demand for the raw materials that are used to produce corrugated cardboard (and for the finished material itself). This rise in demand has led to shortages, rises in pricing and ultimately an increase cost for your packaging.

So, even knowing this, is there anything you can do?

The short answer is yes.

For example, could your boxes be made smaller to use less material (this could be the case if you are not using custom packaging)?

Another area to explore is if the material of your packaging is over-specified. Whilst your packaging may be protecting your products in transit successfully, it may be the case that a lighter, cheaper board grade would provide no noticeable difference in protection, but could offer you an instant cost saving.

Packaging material costs are one of the biggest factors in the price you pay.

Role in supply chain

A similar principal actually applies to the intended use of your packaging. So whilst looking at how fragile or robust your product is, you should also consider what environments and types of handling it will experience in your supply chain.

As a very basic example, a product that will be delivered to an end user through a courier network may be handled numerous times as it passes through various distribution centres. It will also potentially have a number of different journeys in vans or lorries where it will be exposed to differing forces (impact, vibration etc.).

The exact same product, being delivered directly to your customer using your own transport will be handled considerably less and depending on location, may also travel less distance too.

The first scenario would require a considerably higher level of transit protection than the second.

Packaging role in supply chain
Similarly to the fragility of your product, by looking at your packaging's role in the supply chain, you can ascertain if it is suitable

This again returns to the material specification of your packaging – and the cost of using a material or board grade that may or may not be suitable.

It is therefore important that you look at the average distances your products travel, how they are transported, the amount of handling they are likely to be subjected to and then combine this with analysis of your products fragility to ascertain the optimum material to strike the balance between cost and protection.

Remember; an over-specified carton will only offer you one thing – additional costs!

The complexity of your packaging

The final point that links to the protection of your product – but can manifest itself in other ways – is the complexity of your packaging.

For example, in order to protect different items within your outer carton, you may have a complicated die cut insert that requires assembly before being placed in the outer box. Whilst a good idea, in theory, the design of your pack may be overly complex.

This does not apply to inserts alone, however – you have been a sold a highly technical solution that, whilst fulfilling the brief, is actually over-elaborate for what is required.

This can be particularly harmful (to your costs) if multiple, costly or labour intensive manufacturing processes are needed to produce your pack.

Hand finishing is a cost that will usually be added to your invoice. Similarly, multiple passes through a machine (e.g. for cutting, creasing or adding print) will also be reflected in your overall costs.

As such, consider if your packaging really needs to be as complex as it is currently. There are many occasions where you will not be able to simplify your packaging without compromising performance / protection for your products. This is often referred to as “value engineering”.

However, eliminating just one manufacturing process could see a significant reduction in your costs.

And whilst you may not feel confident analysing your packaging yourself, your packaging supplier – if competent – should be more than willing to help.

Packaging order volumes

As with any item you purchase, the overall volume ordered can have a significant impact on the price you pay.

Whilst this is simple economies of scale, the effect can be even more pronounced if you are using custom packaging.

Firstly you have machine setup time (and tooling costs on the initial order). You then have the manufacturing processes, plus any other manual tasks (e.g. hand finishing, packing into bundles etc.). There is then storage and shipping to your location.

The more each of these processes need to be completed (particularly the initial setup and delivery), the bigger impact on your costs.

Packaging order volumes
Packaging order volumes have a significant impact on the average cost of your packaging - giving you potential for savings

But how can you affect order volumes when you have a fairly consistent usage?

Well, there are a number of ways you can increase the volumes you order without impacting the day to day processes regarding your packaging.

For example, if you have additional free warehouse space you could put this to use to store additional packaging. If you know your average usage – and more importantly have the space – you could order larger volumes of packaging and keep them safely stored until they are required.

This makes the assumption that you have free space however.

If you don’t, your packaging company should be able to offer you a managed inventory service, where they will hold an agreed level of stock and deliver on a Just in Time basis. This could allow you to order a larger volume up-front (realising the cost saving), and then take delivery as previously.

The final option is to consider rationalising your packaging.

This would see you combining boxes of a similar size, and allowing you to order higher volumes of fewer boxes. This has the added benefit of minimising your admin and ordering process too.

Sundries / Secondary

Many people, when looking at reducing their packaging costs, tend to overlook all of the secondary packaging and sundries that they are using.

These can be a significant, hidden cost of your packaging.

How much of these you use is directly affected by the type and size of packaging you are using (and therefore the first 4 points listed above).

Boxes that offer little protection for your product may be “improved” using void fill such as expanding foam or polystyrene. You may be using additional bags or papers such as those that offer protection against static or rust (VCI). The design of your boxes may mean you use a lot of tape during assembly.

Each of these adds not only to overall packaging spend, but also creates an additional process for your staff to undertake (taping, putting in a bag before packaging into the outer etc.). This in turn affects their overall productivity, and thus your labour costs rise too.

All of them can be mitigated through analysis of your packaging design however.

It is possible for VCI and anti-static coatings to be applied directly to you boxes surfaces, eliminating the need (and cost) of the bags and papers you may have been using.

Custom size boxes can dramatically reduce the amount of void fill you use, whilst you can even switch to “crash lock” boxes to minimise the amount of tape required (and speed up assembly time too).

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Marketing

The final part of your packaging to consider is the role it plays in your company’s’ marketing.

If your corrugated packaging does not currently have your logo printed on the exterior, then it is a missed branding and advertising opportunity (although on occasion there may be security reasons why you do not wish to advertise the packs’ contents).

However, if you are using a 3 or even full-colour logo – and incurring the associated print costs of doing so – is this really necessary?

Marketing through packaging
Although not directly affecting costs, using your packaging for marketing purposes can provide additional ROI which should be considered

You should be able to analyse any impact of dropping from multiple colours to a single monochromatic logo and may find the cost saving of doing this easily outweighs the possible slight loss of visual impact.

You may also – with the help of your packaging supplier – be able to ascertain whether switching print methods can yield cost savings with little noticeable impact. This may be moving from a lithographic print to a high-quality flexographic finish for example.

The key point is to think about what impact your packaging needs to make, and is your current print the most suitable option for achieving this.

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In Summary.

Factors to consider when evaluating the average cost of packaging

Although there is a myriad of factors that affect the price you pay for your packaging, if you focus on the factors that you can easily analyse – and even control – it will allow you to identify the quick wins that allow you start reducing your packaging spend.

And don’t be afraid to ask your packaging supplier for help and advice. If they value your business, and know their stuff, they should be happy to work with you to achieve your cost reduction targets.

And if they are not, it may be time to look elsewhere…

Ian Heskins, Business Development Director at GWP Group

About the Author: Ian Heskins

Business Development Director | GWP Group

Ian is one of the founding Directors of GWP, using his broad knowledge acquired over more than 30 years to oversee new business strategy. [Read full bio…]

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