9 Ways to Reduce Packaging Costs and Increase Profit
There’s a saying that, “The packaging sells the product the first time, but what’s inside sells the product a second time”. Business owners can reduce packaging costs while maintaining the integrity and brand identity of their products. Packaging solutions and strategies exist to reduce the amount of time and money that goes into the packaging process.
So what does this mean? In the long run, businesses spend a fortune filling boxes with bubble wrap to protect goods. They also spend money on package design to build their brand and create memorable “unboxing” experiences for customers.
Food for thought: waste in your product packaging turns into waste elsewhere. Fast Company estimates that around 165 million packages are shipped each year. The world is already struggling with its waste and recycling issues.
Table of Contents:
- What Factors Contribute to Higher Packaging Costs?
- Improving Materials Storage and Packaging Lines
- Reduce the Amount of Packing Time with Automation
- Optimize Packaging by Using Smaller Boxes
- Minimize Returns by Ensuring Products are Properly Packaged and Transported
- Rethink Your Packaging Operations Model
- Stay Tuned to Packaging Industry Innovations
- Redesign to Optimize Packaging
- Look at New Packing Products, but Buy in Small Quantities
- Vary Your Packaging Costs Based on the Durability of Goods
- You Can Discover Significant Savings By Reducing Packaging Costs
BONUS: Before you read further, download our Warehouse Management Software Whitepaper to see how Logiwa uses real-time data to help you get up to 100% inventory accuracy.
What Factors Contribute to Higher Packing Costs?
Materials costs aren’t the only contributing factor to packaging expenses. In fact, there are several factors that increase packing costs.
- Poorly designed materials storage and packing lines
- Long packing process times
- Paying for box dimensions rather than product dimensions
- Ineffective packing materials that allow damage
- Inefficient manufacturing models
- Failing to optimize packing
- Expensive shipping costs
By taking a holistic approach to cost savings, your business will identify ways to improve the packaging process without compromising on quality.
1. Improving Materials Storage and Packaging Lines
As your business grows, it’s natural that the number of packaging materials you use will increase too. There is a wide variety of packaging materials available and variations within each category.
Consider the layout of your warehouse. Are packing items stored in an organized fashion? Is there a way to streamline your layout and speed up your overall packaging process? If you’d like to improve your existing operations, try the following steps:
- Analyze your current inventory of product packing
- Identify similar items that could be grouped together
- Identify infrequently used packing materials and group them together
You want to reduce several packing lines into a few, highly optimized packing lines. Rather than a dispersed, decentralized process, your facility will reduce labor costs by minimizing waste movement and accomplish more by speeding up the packaging process.
You’ll also reduce costs by minimizing the amount of warehouse space you use and the costs associated with it, such as lighting and heating.
2. Reduce the Amount of Packing Time with Automation
Will cutting your unit costs drastically compromise your packaging quality? The good news is that there is another effective method for reducing costs: boosting productivity by cutting down on packing times.
Your workforce could be spending valuable time on the following, time-consuming tasks in the packaging process:
- Constructing corrugated cardboard
- Assembling and securing cartons
- Inserting dividers or stuffing materials
- Taping and securing boxes
In fact, one of the most time-consuming steps of the packaging process is taping and sealing, likely because the stakes are rather high. A poorly sealed product has a higher chance of damage or spoilage.
Oftentimes, long sealing times are due to old, malfunctioning sealing equipment or a highly manual packaging line.
Do your machines regularly break down, costing your team time?
Similarly, do your sealing machines often malfunction, leading to tape jams or miscuts that slow down your entire workflow?
Such an environment slows down your team, leads to redundant work, and increases the number of manual inspections your workers must perform.
On the other hand, malfunctioning machinery may not be your problem because you don’t have machines to malfunction in the first place. You may be using manual packing processes that could easily be automated.
An automated packaging line will improve your operations in the following ways:
- Increased output: Automation speeds up your picking and packaging process, making your business more profitable.
- Reduce your carbon footprint: Manual sealing produces ample waste. An automated machine only uses the exact amount of material needed.
- Reduce workplace injuries: Automation reduces the likelihood of repetitive strain injuries, minimizing the risk of absenteeism and workplace injury claims.
- Enhance your brand reputation: Machinery introduces precision, giving you perfectly packaged and secured products. So you get to present a better-looking product to your customers, and reduce the likelihood of damage.
Better Warehouse Performance = Higher Profit Margins: Logiwa syncs accurate data across your entire interface so the inventory numbers you see on your dashboard are what your employees see on their devices. Learn how Logiwa uses real-time data to help you get up to 100% inventory accuracy and double your shipments.
3. Optimize Packaging by Using Smaller Boxes
To reduce packaging costs, you’ll need to think about reducing shipping costs as well.
Prior to 2015, UPS and FedEx used weight to price shipments. In theory, this made sense, but in practice, it cost these carriers money. Customers used large boxes to ship relatively small products, eating up space within a carrier’s truck – space which could have gone to another paying customer.
To remedy this, UPS and FedEx introduced dimensional pricing. This works by weighing the product to get the “normal weighted rate” and by calculating the volume to find the “dimensional weight”. The customer (you) pays the higher of the two.
When you’re shipping relatively small products in large boxes, you’re missing out on an easy cost saving opportunity. Consider the following strategies to optimize packaging and reduce shipping costs:
- Maximize packing space: Ship as many products as possible in one packing box.
- Diversify your packaging materials: Rather than using the same three box sizes, evaluate your average shipment size and ensure you have appropriate packaging that doesn’t cost you through the dimensional volume rate.
- Use padded envelopes: Some of your products may be small enough to go into large, padded envelopes rather than small boxes.
- Automate your process: Automated packaging solutions can quickly select the optimal box for each product based on size.
- Negotiate shipping rates: If you ship a large volume of products regularly, contact your account manager and discuss preferred pricing. Remember that everything is negotiable. Review your shipping data to understand your shipping profile before entering into negotiations with your carrier.
4. Minimize Returns by Ensuring Products are Properly Packaged and Transported
Product damage costs your business in a painful way. When a customer returns a damaged product, manufacturing, packaging, shipping, and returning it are all sunk costs. Moreover, you’ve jeopardized your relationship with a customer who may not buy from you again or worse, will share their negative experience with friends, family, and their online social networks.
There are two leading causes of product damage: poor packaging and transit damage. While the former is easier to address, the latter sounds difficult to manage. How can you control something that is literally outside of your warehouse space?
What Qualifies as Transit Damage?
First, understand the causes of transit damage. Oftentimes, it occurs when there’s a sudden impact or prolonged vibration during transportation. Sometimes, it’s wear and tear caused by repetitive handling and transportation which is known as storage fatigue.
Another possible transit damage cause is poor load stability. If a carrier doesn’t properly stack its loads or stacks its pallets too high, products can get damaged.
Some causes, like prolonged vibration, are hard to avoid. In these cases, investing in durable packaging like heavy-duty boxes or protective stuffing materials is important.
Poor load stability, while the carrier’s fault, is harder to prove. A recommended approach is to use multiple carriers and determine which carrier manages your highest volume of damaged and returned products.
If you identify such a carrier, you can either bring it up with your account manager or use a different, more reliable carrier altogether.
5. Rethink Your Packaging Operations Model
Manufacturers have embraced Just-in-Time (JIT) manufacturing. This model enables them to drastically reduce inventory, freeing up capital and warehouse space. Nevertheless, they use a math-based approach to calculating their needs to avoid stockouts and disappointed customers.
You can apply this model to your packaging. The packaging materials discussed earlier take up a lot of warehouse space. You may struggle to find room for the large amounts of corrugated cardboard, paper, and plastic you use to package and ship materials.
How can you adopt a Just-in-Time packing model? By employing a packaging WMS system. Better yet, work with a packaging supplier that offers this service. Instead of shipping all of your corrugated cardboard and paper orders directly to you, your provider houses these products and releases them on an as-needed basis.
You might be concerned about cutting it too close and not having the packing you need in time. If that’s the case, look for a supplier like Packaging Technologies Inc, who offers pre-scheduled or automated releases of packing materials based on your company’s historical data.
6. Stay Tuned to Packaging Industry Innovations
Keep your ear to the ground for changes in the packaging industry. Particularly for changes related to your sector, whether it’s food, cosmetics, or pharmaceuticals. The packaging industry invests in research and development to design products that are more durable, lightweight, secure, and environmentally friendly.
All of these add up to cost savings. More durable packages reduce the probability of transit damage. Lightweight packaging limits the amount of space you take up in carrier trucks. Secure packaging reduces the probability of spoilage and damage. Not to mention, your brand reputation benefits from environment-friendly products.
Staying ahead of the curve also keeps you ahead of the competition. Keep an eye on the following trends in the packaging industry and assess how they could impact your business:
- Plastic alternatives such as research into fiber-based materials
- Robotics for picking, sorting, and packing
- Smart packaging which uses the internet of things to track goods in the supply chain
- 3D printing for packaging design and customization
7. Redesign to Optimize Packaging
Cutting unit costs at the expense of product safety is never a good idea. That said, sometimes product packing is costly due to style, not substance. Consider redesigning your current packaging to optimize it for space. Moreover, you can eliminate pricey add-ons like labels by printing graphics or logos directly onto the packaging.
8. Look at New Packing Products, but Buy in Small Quantities
Rather than committing to a new type of packing materials, buy a small quantity and evaluate how it holds up under different conditions. For example, you may find materials that withstand transport damage better, limiting the amount of money you lose on returns and replacing products.
On the flip side, if the materials don’t perform as expected, you don’t have a large quantity to burn through. The last thing you need is a surplus of unsuitable packing materials.
9. Vary Your Packaging Costs Based on the Durability of Goods
Not all of your products require maximum attention. Some products are more durable. Others will need to be more visually pleasing. Divide your products into the following packaging categories:
- Durable: Open crates with protective covers for debris and dirt will suffice.
- Benchmark: Less than 2% of product cost for packaging
- Fragile: Internal components required to secure products. Packaging materials necessary to protect against movement during transit.
- Benchmark: 3 to 7% of product cost for packaging
- Marketing Materials: These materials have higher costs because they require product design and professional printing services.
- Benchmark: 3 to 7% of product cost for packaging
- Complex: These are the products that require complex packaging. They may have calibrated components or sensitive equipment. They require specialized, custom-made, very durable packaging.
- Benchmark: 8 to 10% of product cost for packaging
You Can Discover Significant Savings By Reducing Packaging Costs
Packaging is an unavoidable part of selling products. Don’t worry, it doesn’t have to be an exorbitantly expensive part. Moreover, reducing packaging costs doesn’t mean you need to jeopardize the integrity and security of your products. Rather, reducing the amount of money you spend on packaging is about taking a holistic view of your current processes.
Understand where your money currently goes. Identify things that are slowing down your current packing processes such as machine malfunctions or a poor warehouse layout design. Upgrade machinery, improve existing processes, redesign to optimize your current packaging, and keep tabs on developments in the packing materials industry.
By taking package design and packing costs seriously, you can discover valuable cost savings and increase your profit margin.