Cut combined distribution, packaging and transportation costs by 30%
Specific consumer products look exactly the same when they roll off the manufacturing line. To satisfy retailer requirements, however, these identical products are wrapped, sealed, tied and packed in dozens, even hundreds, of different ways for presentation on the retail shelf. Consumer packaged goods (CPG) companies often outsource custom product packaging to outside contract packagers, adding a costly and time-consuming step between manufacturing and the distribution center.
CPG companies can streamline their supply chains by integrating final product packaging into existing distribution operations and entrusting the function to the logistics professionals who manage warehousing and transportation. Performing final packaging in the DC can reduce combined distribution, packaging and transportation costs by 30%, and can cut at least 7 days in order-to-delivery cycle time.
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There are different types of contract packaging services. Primary packaging, such as filling a bottle or wrapping an individual unit, is typically performed as part of the manufacturing process. However, since it is not economical to change products on the manufacturing line into variety packs and other configurations for retail display, these kinds of secondary packaging, or copacking services, are generally done by outside contract packagers. It is this final stage of packaging that offers an opportunity for cost-saving integration with distribution operations.
Combined packaging/distribution has become possible with the increasing sophistication of third-party logistics providers (3PLs), who have invested in the equipment and resources to take on custom product packaging assignments as part of the warehouse services they offer. Packaging performed in the 3PL-operated distribution center (DC) eliminates costly runs to outside packagers and shortens the product customization cycle.
The enhanced packaging capabilities of 3PLs means that integration of custom packaging into distribution operations has now become a compelling proposition. 3PLs can also be your contractor packagers. Examples include:
Companies that integrate custom product packaging into distribution operations can reduce CPG logistics costs -- for warehousing, packaging and transportation -- by 30%. Savings are driven primarily by these factors:
Some are. Some aren’t. Moving a custom product packaging operation to a distribution center is a big shift, from a “ship it” to a “make it” operating environment. That has significant implications for 3PL operations, and they need to make important changes. Enhanced 3PL requirements include:
Logistics providers that have developed their businesses to manage in a manufacturing environment are well positioned to assume the final packaging function. They have ready access to capital to buy labor-saving automation equipment and sophisticated information technology systems to manage both distribution and custom product packaging.
These 3PLs offer another notable advantage over contract packagers and the companies that manufacture the corrugated displays: They understand the impact of packaging on overall supply chain costs.
Case in point: A packager for a large CPG company designed a point-of-purchase display that took 28 hours to assemble. A 3PL suggested changes that maintained the basic look of the display but cut assembly time and labor costs in half.
Let’s be clear. Contract packagers are generally very good at what they do. The need for a new model is not driven by a flawed custom packaging capability; it’s driven by a flawed, unnecessarily complex supply chain process.
America’s largest CPG companies are recognizing the inefficiencies in the current process for product customization and are leveraging 3PL packaging capabilities to streamline their supply chains.
Custom product packaging trends are clear. It’s only a matter of time before manufacturers of all sizes recognize integrated packaging and distribution as an opportunity to get products to market faster with greater flexibility and at a lower cost.
Mass retailers are the power brokers in today’s retail supply chains. They want what they want, when and how they want it. An “in DC” packaging operation gives brand managers the freedom to change packaging formats with great agility, to reflect the retailer’s merchandising strategies and without concern about vastly inflating costs.
Here’s an example. Let’s say a cleaning product manufacturer has an idea for a multi-product “Spring Clean-Up” bucket. Walmart likes the idea and requests 100,000 buckets for a pilot program that it wants to kick off in four weeks. A flexible, fast solution for custom packaging and distribution enables the manufacturer’s sales team to book the order with confidence rather than bargain for more time to design and create the kits. That’s a powerful competitive advantage.
CPG supply chains can no longer afford the added costs and time that comes with separate packaging and distribution operations. These functions will be integrated. And the integration will not stop at simple execution of final packaging. 3PLs that have evolved their businesses to meet this emerging market demand will enable CPG companies to pursue a total outsourced model for contract packaging, including:
Consumer product manufacturers, led by the largest global companies, have already begun to integrate custom product packaging with distribution operations. Small and mid-sized manufacturers will follow suit as they recognize the potential of an integrated model to drastically reduce supply chain costs and cycle time.