Packaging Cost Reduction

Packaging for cost reduction and profit improvement.

This is a three-part article from my Profits Weekly newsletter that explores the various aspects of packaging and how they relate to costs, profits and our green planet.

Package for reduced costs Part 1 of 3

I was speaking with an executive from a major international pharmaceutical manufacturer a few weeks ago about some of the things that they are doing to reduce costs in these recessionary times. Product packaging came up as a prime candidate for cost reduction. He told me that some of their products were packaged in glass bottles and others in plastic. He also said that the formula for choosing the most cost effective packaging was somewhat complex. Here are some of the factors that they have to consider:

-Glass is usually less expensive to buy than plastic when oil costs are high.
-The purchase cost of glass relative to plastic depends on container size as well as oil costs and other market factors.
-Glass weighs more so shipping costs are higher when the product travels long distances.
-Over-packing (case boxes, etc.) is more expensive for glass.
-Every package type has to be certified for safety before use.

His estimation was that, with current market conditions, they could save several hundred thousand dollars per year by converting most of their packaging to plastic. Plus he was initiating the safety certification on all major package types so he could have flexibility in the future as packaging advantages changed.

Process:

The key to saving is to ask the following questions until you get the answers you are looking for:

1. How are we packaging our products?
2. How are we receiving inbound packages?
3. Why are we doing it that way?
4. What are the alternatives?
5. What are the supply chain costs/benefits of changing?
6. What are the impacts to the customer? Are they neutral at worst?
7. Will it maintain or enhance safety and quality?
8. Does it make sense to change?

What can you do with your inbound and outbound packaging?
 

Packaging for profit improvement Part 2 of 3

Last week I talked about packaging for cost reduction. This week the topic is profit improvement. If cost reduction is about subtraction then profit improvement is about addition. These questions about packaging and the internal business conversations sound like this:

1. What can we add to the product package or how can we change it to enhance the product’s perception of value by the customer?

The internal conversation will come up with ideas about higher quality graphics, better product display characteristics, feature descriptions, enhancement language such as “new” and “improved.” Discussions will also often include package size and product volume – larger or smaller to match market researched pricing. It is interesting that in hard economic times smaller package sizes often sell better because of their lower pricing.

2. What products and/or services can we combine in a package to enhance their perception of value by the customer? In this case a package I include bundles of products/services as well as physical containers.

The internal conversation here often centers on features and related products that can be combined for enhanced value. Computer guarantees and service plans are an excellent example of what used to be assumed to be base features are now significant profit centers. Computer buyers now have to pay for just about everything above a bare bones warrantee.

I, for example of packaging for value, used to sell my book “Achieving World-Class Profit Improvement” for $129 and the white paper “Profit Improvement Executive Analysis” for $99 only in print. The delivered cost overseas would often approach $250. Today, however, I supply these in electronic PDF format including another book and report bringing the total retail value to $322 with a selling price of only $99. In this case I eliminated all inventory, all printing costs and all delivery costs and passed them on to the customer. Everyone wins on the price and delivery is hours versus the days to weeks that international mail sometimes required.  In this case I eliminated all packaging and shipping.  See the books here.

Process:

The repackaging for profit improvement challenge starts with challenging yourself to rethink your products and services and may follow a series of questions such as these.

1. What are our most important products and services?
2. Or what products and services could most benefit from a margin boost?
3. In what ways can we repackage to support higher prices and to drive higher margins? Margins can sometimes benefit from combined packaging.
4. Is the market asking for or able to support larger or smaller packaging to increase our margins?
5. Can we piggyback new products with existing brands to speed market introduction?
6. Can we test these changes to find the best ones?
7. Do these changes support our brand image?

What can you do with your products and services?
 

Packaging for green Part 3 of 3

It pays to be “green” not only for the environment but also for the bottom line. Almost everything that is moved from one place to another consumes resources in the form of packaging. Some packaging like bins and parts trays are reusable but even that carries the cost of transportation. Other packaging like cardboard boxes and many plastic containers are recyclable but recycling uses energy and 100%recycling is not usually possible. So even in this imperfect world what can we do?

1. Look at your waste bins to see what incoming packaging you are pay to freight in and dispose of. Find alternatives.
2. Buy your incoming materials in bulk to minimize or eliminate packaging.
3. Use bins and parts trays that return to the vendor.
4. Consider freight-miles on incoming goods. Model after Japanese automobile plants that collocate their suppliers nearby to minimize time, freight and packaging waste.
5. Reexamine all of your outbound shipments and product packaging to optimize the materials use, shipping costs and other resource consumption.
6. Maximize quality to minimize waste.
7. Model after consumer goods companies that now offer concentrated forms of products such as clothes washing liquid. This not only minimizes packaging material but it also reduces the shipping cost. In addition it makes efficient use of retail shelf space that vendors often have to pay for and increases the revenue per unit of retail floor space.

What is the value of green? For some companies it means millions of dollars per year in savings and for all of us it means a better planet upon which to live. This is probably the first time in human history when you can make bold cost cutting moves and be lauded as a green contributor. That sure beats the past history when you would have been criticized.

Catch the green wave and save.