Cheap packaging – is it really cheaper or a false economy?

Cheap packaging can be a false economy, as focusing purely on unit price can increase costs elsewhere in your business. Cheap packaging can cause slower packing times and diminished staff productivity. Product damage and costly returns can also increase. And cheap packaging can lead to inefficient transit (shipping excess void fill/space inside the packs).

So, whilst you need to get the best prices when sourcing products for your business, cheap packaging can cost you more in the long run.

This guide shows you how to reduce your packaging costs by as much as 30 per cent while (counter-intuitively) not always specifying the lowest-cost cardboard boxes.

It covers:

• How minimising assembly times can dramatically reduce your labour costs.
• Why custom size packaging nearly always works out cheaper.
• What is rationalisation, and how can it save you money.
• Why transit damage is the hidden cost of your packaging.

Discover all this and the most suitable packaging for your business by reading on or downloading the free guide detailing 17 ways to reduce your long-term packaging costs.

It is crucial to your business success to 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.

This focus on value is particularly important with the current levels of price rises and inflation evident in the UK and globally.

Your corrugated packaging is no different.

However, there is a crucial question to ask, particularly about cheap packaging. Is it really cheaper? Or is under specifying your packaging a false economy?

Either way, it is essential to get it right.

The temptation is always to look at the headline figures. Doing so typically results in deciding to go with what looks like the most cost-effective option.

Doing so can be a mistake, however.

Several hidden packaging costs can soon render any gains in unit cost worthless or, even worse, cost 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 specific market, product or industry. Your packaging and its challenges can be surprisingly unique to your business.

However, this article describes several real-world examples of how cheap packaging can cost you more. And – crucially – how to take advantage of or mitigate any impact.

Whilst there are, in fact, more than the four scenarios laid out in this guide, the following are amongst the most commonly seen across typical users of corrugated packaging.

• Reduce cost by over 15% by minimising packing and 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 by eliminating transit damage.

The following examples illustrate how you can achieve this in practice.

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 this example, a standard taped box (i.e. sealed with tape on top and bottom) costs £0.25 each. Five staff members, paid £9.50 per hour, can assemble 50 boxes each in this period. So the total labour cost of £47.50 allows for the assembly of 250 boxes.

You can also factor in an approximate £0.07 cost of secondary packaging – mainly tape.

Therefore, the total cost for an assembled box is £0.51 each.

However, a crash lock box costs more per unit – say £0.33 (32% more expensive). The labour costs remain the same at £47.50 in total, but as the boxes fold out and together (eliminating the taping process), each staff member can assemble four times as many. Therefore, your packing team can build 1,000 boxes per hour.

Using less tape also sees secondary packaging costs drop by approximately a third (£0.07 to £0.05).

The labour savings mean even though the unit price of the box is 32% higher, the price of a fully assembled and ready-to-pack box is 16% lower at £0.43 each.

(please click the image for a larger version of the calculations).

Custom sizes boxes can be one of the simplest ways to reduce your costs.

In this example, 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 required (unless you are fortunate in terms of the fit).

By sending 5,000 boxes at a unit cost of £0.40, you see a total packaging cost of £2,000. However, only 50 can be put on a single pallet, meaning 100 pallets at the 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 the boxes also use less material), only 67 pallets are required to send all the goods. The reduction in pallets saves a third on shipping costs and gives an overall cost of £6,000.

As such, you can see an overall saving of 25 per cent, or £2,000!

Bear in mind this also does not consider the secondary cost of void fill. Standard boxes require more of this than a custom-sized box (which may not require any), further increasing the price disparity.

If you have many packaging products or lines, simplifying (or “rationalising“) can often lead to cost savings.

These cost savings result from simple economies of scale.

The graphic alongside this text shows a packaging inventory of six lines. Assuming you order these 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 that you only use two boxes reduces the tooling costs by two-thirds immediately (£1,000 saving). The unit costs also drop, 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 allow for an overall packaging spend of £11,000 – an 18.5% saving over the six-line inventory.

However, one caveat regarding this process 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.

Perhaps the most “profitable” way to reduce the costs associated with your packaging is through minimising or eradicating transit damage.

However, the figures differ depending on two factors. These are the volume of items you ship and the value of the products.

Taking the example here, mid volumes with mid-value products (e.g. LED TVs), the unit cost of a standard box is £1.00. When sending 10,000 items, this results in a total packaging cost of £10,000.

However, consider that the value of the items you ship is £500. If even one per cent of these (100 products in total) are damaged and returned, this leads to costs of £50,000. Please note that whilst this includes unsellable goods, it excludes the additional transportation and admin costs.

Looking at the overall picture, the total cost of this packaging solution is £60,000.

Using a custom-engineered box that minimises 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 per cent (from 1% to 0.05%), the cost of returned products drops by half too. This improved performance provides 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 figure does not consider additional transit and admin; more importantly, it does not account for customer satisfaction or the potential loss of repeat business.

Customers frequently receiving damaged products – caused by cheap packaging – are be much less likely to reorder or recommend your company, and ultimately your brand perception suffers.