Why You Should be Wary of Cheap Packaging.
Real world examples of how you can save up to 30 per cent on your packaging costs
It is obviously critical to your business success that you get the best value products.
Everything from industrial machinery through office supplies and stationary, overpaying for the products you need to run your business can have a detrimental effect on your company’s performance, particularly over the longer term.
Your corrugated packaging is no different.
However, the question to ask, particularly about cheap packaging, is that is it really cheaper? Or is under specifying your packaging a false economy?
Either way, it is important to get it right.
Why you should look beyond packaging unit costs
The temptation is always to look at the headline figures and, as a result, decide to go with what looks like the most cost-effective option.
This can be a mistake, however.
There are a number of hidden packaging costs that can soon render any gains made in unit cost worthless, or, worse still, actually end up costing you more money in the long term.
Identifying these factors is often not straightforward. And even if you know them, not all apply equally to each individual market, product or industry. Your packaging and the challenges it poses can be surprisingly unique to your business.
However, this article sets out a number of real-world examples of how cheap packaging can cost you more. And – crucially – how you can either take advantage of or mitigate the impact of this.
4 packaging cost reduction scenarios
Whilst there are in fact more than the four scenarios laid out below, the following are amongst the most commonly seen across typical users of corrugated packaging.
- Reduce cost by over 10% through minimising packing / assembly times
- Save up to 25% by utilising custom size packaging
- Realise cost savings of approximately 18% through rationalised packaging
- Reduce costs by almost a third through eliminating transit damage
Want to see how this is achieved in practice? Continue reading below.
Reducing costs through assembly times
Assembly of your packaging boxes can be time-consuming – potentially impacting your labour costs. Cheap packaging can exacerbate this. However, using specialist packaging such as crash lock boxes can not only speed up assembly but also help to reduce the costs of secondary packaging.
In the example below, a standard taped box (i.e. sealed with tape top and bottom) costs £0.25 each. 5 members of staff, paid £7.50 per hour, can assemble 50 boxes each in this time period. So the total labour cost of £37.50 sees 250 boxes assembled.
You can also factor in an approximate £0.07 cost of secondary packaging – mainly tape.
The total cost for an assembled box, therefore, is £0.47 each.
A crash lock box, however, costs more per unit – let’s say £0.33 (32% more expensive). The labour costs remain the same at £37.50 in total, but as they simply fold out and together (eliminating the taping process) each member of staff can assemble 4 times as many. Therefore, 1000 boxes can be assembled per hour.
Using less tape also sees secondary packaging costs drop by approximately a third (£0.07 to £0.05).
This means, even though the unit price of the box is 32% higher, the price of a fully assembled, ready to pack box, is actually 11% lower at £0.42 pence each.
Please click the image above for a larger version.
Reducing costs through custom size packaging
Custom sizes boxes can be one of the simplest ways to reduce your costs.
In the example below, the standard “stock” box (which is the form cheap packaging often takes) is not tailored to the size of the product. As such, it has to be larger than actually required (unless you are very lucky in terms of the fit).
Sending 5K boxes at a unit cost of £0.40 results in a total packaging cost of £2,000. However, only 50 can be put on a single pallet, meaning 100 pallets at a cost of £60 shipping each is required to send every product.
The total cost of packaging and shipping together, therefore, works out at £8,000.
By switching to a custom box, it can be possible to optimise the space and include up to twice as many products per pallet. With the unit cost the same (as less material is also used), only 67 pallets are required to send all the goods. This saves a third on shipping costs and overall cost of £6,000.
This is an overall saving of 25 percent, or £2,000!
Bear in mind this also does not take into account the secondary cost of void fill. Standard boxes will require more of this that a custom sized box (which may not require any), further increasing the price disparity.
Cost reduction using Packaging rationalisation
If you have a large number of packaging products or lines, simplifying (or “rationalising”) this can often lead to cost savings.
This is through simple economies of scale.
The graphic below shows a packaging inventory of 6 lines. Assuming these are ordered equally, and the total packaging units required is 30K (5K each), a unit cost of £0.40 and tooling charge of £250 per line results in an overall packaging cost of £13,500.
Rationalising this inventory, so only 2 boxes are used, reduces the tooling costs by two thirds immediately (£1,000 saving). The unit costs also drops, as instead of ordering 5k volumes of 6 lines, it is possible to 15K volumes of 2 lines.
The tooling reduction, and lower unit cost allows for an overall packaging spend of £11,000 – an 18.5% saving over the 6 line inventory.
A caveat on this process, however, is that a consideration of shipping costs – as in example 2 – must also be factored in.
In effect, rationalising lines can impact transit volume and therefore costs, but it is usually possible to find a balance to take advantage of both tactics.
Lowering costs through transit damage reduction
Perhaps the most “profitable” way to reduce the costs associated with your packaging is through minimising or eradicating transit damage.
Saying that the figures differ depending on 2 factors. These are the volume of items being shipped, and the value of the products being shipped.
Taking the example below, mid volumes with mid value products (e.g. LED TVs), the unit cost of a standard box is £1.00. With 10K items being sent, this means a total packaging cost of £10,000.
However, with the value of the items being shipped being £500, if even one percent of these (100 products in total) are returned as damaged, the cost of this is £50,000. Please note this is excluding the additional transportation and admin costs of doing so.
This means the total cost of this packaging solution is £60,000.
Using a custom engineered box that has been created to minimise damage can see significant savings, however.
Even though the unit cost is 75% higher at £1.75 per box if this can reduce the return rate by half a percent (from 1% to 0.05%) the cost of returned products also drops by half – seeing a saving of circa £25,000.
So although the upfront packaging costs are £17,500 compared with £10,000, the overall cost when factoring in damaged products sees a 29% saving – or £42,500 vs £60,000 (£17,500 total saving!).
As mentioned previously this does not factor in additional transit and admin, and more importantly, it also does not account for customer satisfaction and the potential loss of repeat business.
Customers frequently receiving damaged products – caused by cheap packaging – will be much less likely to reorder, recommend your company and ultimately your brand perception will suffer too.
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So is cheap packaging really cheaper?
Effectively, cheap packaging isn’t always everything it promises to be.
By spending more to optimise the performance of your packaging, or streamline your processes or inventory, a larger upfront cost can soon become a significant saving down the line.
Therefore, it is important to take a holistic view of your corrugated transit boxes and remember – cheap packaging is often a false economy.