A Big Picture Approach to Optimizing Packaging Costs

  • June 23, 2020
Carboard box. View from inside

Your packaging material suppliers can be useful resources to lean on when optimizing your material spend. But a greater holistic perspective on your packaging needs and supply chain network can yield more significant savings.

Packaging material suppliers are often a useful extension of materials knowledge and expertise for your team. In some instances, they’ll even negotiate annual packaging material cost savings and include the target — often defined as a percentage of spend — in the vendor contract. But from a material supplier’s point of view, there are only so many things they can control. Consequently, that limits the savings they can find for you.

If tapping your materials suppliers is your only approach to cost cutting and value engineering, you’re almost certainly leaving savings on the table. Here are a few areas to reconsider.

Find real savings in your supply chain network

If your focus for savings is only materials, you’re missing out on the big picture. Supply chain and transportation costs can be between five to 10 times higher than what you’ll spend on materials. Inbound logistics, warehousing, outbound transportation, damage and return costs and labor costs — all impact the cost of goods sold.

By peeling back the layers of these supply chain cost categories, you may be able to identify much greater reductions. You may easily find savings in pallet layout, trailer loading efficiencies and double-stacking freight, to name a few.

In some cases, it may be to your advantage to spend more on materials to enable larger supply chain efficiency gains.

Access savings more than once a year

When you have a one-year runway to find savings, there’s no sense of urgency to push the envelope and move things quickly. You can achieve better results for your organization by developing success metrics that transcend what can be obtained through an annually contracted savings percentage.

It’s possible to build a machine that can continuously crank out and implement cost savings. Get started by empowering an internal savings champion and setting milestone dates for projects that resolve missed package optimization opportunities in your supply chain network.

A limited perspective limits your potential savings

There’s an old saying: “When all you have is a hammer, everything looks like a nail.” Conversely, when you task material suppliers with finding packaging savings, their limited perspective gives them an incomplete toolset to make that happen. They can only use those factors they can influence, like lighter-weight materials or reductions in package size.

But, if your suppliers can’t find a concrete way to find savings for you (selling you double-wall vs. triple-wall corrugated sheets), they may just give you a price discount. There’s nothing wrong with a discount; it’s an approach that does move the cost needle. But discounts pale in comparison to the long-term efficiencies available by optimizing packaging to ease handling or increase environmental sustainability. There may be alternative materials or completely fresh design or material ideas available to generate savings. Starting with a clean slate and exploring all of the available options will give you the best chance for success.

Don’t be bound by the scope of your existing suppliers

The information and advice you get from vendors is inherently limited. The scope of their input is defined by the products, materials or equipment they can offer. Reliance on a long-standing set of incumbent suppliers further limits your options. Other vendors may have better solutions, such as equipment that has enhanced capabilities or runs at a higher speed. Your packaging material suppliers and other vendors can be resources in your cost-cutting journey, but they should never be your only method or approach.

It’s essential to cultivate a cross-functional internal team to unlock broader savings by assessing your supply chain network’s components. Having an experienced partner like NTT DATA who can bolster your team with specialized knowledge and capabilities will help too. Challenge your status quo and set high goals to drive home implementable packaging cost savings.

— By Rob Kaszubowski

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