As retail customer demands for customized items grow, and as retailers expand the variety of packaging to fit trends, themes and holidays, the demand for contract packaging services has also grown.
In an earlier blog, we discussed the four important trends that have prompted CPG manufacturers to rethink how they manage their packaging, and what partners are best suited to handle this important function.
The potential benefits to handing over contract packaging services to your 3PL are clear:
- CPG vendors can delay decisions about packaging, using the best, most current market and trend data on product demand. That agility translates to having more of the right inventory on hand.
- It’s cheaper than doing it elsewhere in the supply chain, such as at the manufacturing stage. We estimate that performing final packaging in the distribution center can cut combined warehousing, packaging and freight costs by 30%.
- Packaging-savvy 3PLs understand the impact of packaging on overall supply chain costs. For instance, a poorly designed point-of-purchase display can eat up space in a trailer, forcing you to use more trucks and spend way more money than is truly needed.
Is the 3PL “Packaging Capable?”
So, it makes sense that many 3PLs want to add product packaging to their roster of services. But how will you know that it’s not just talk and that they’re really capable?
We explore this and other issues around contract packaging in the DC in the Kane is Able white paper: “Integrating Contract Packaging into Logistics Operations.” Moving a complex 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 have important prerequisites in place:
- Experienced packaging engineers. They are needed to design the packaging process and specify and modify the equipment required to automate and streamline operations.
- A rigorous quality control process to manage the greater risk inherent in a packaging environment. The financial downside of a missed shipment is minor compared to an improperly packaged product for a large retailer order, which could result in chargeback fines or even recalls. Managing this risk requires methodical in-line and pre-shipment quality checks.
- Strict processes and KPI measurement tools to monitor and measure outside labor. Manufacturers want a variable cost structure for final packaging based on volume. 3PLs must be able to meet fluctuating demands using outside labor providers, while meeting all quality objectives.
Furthermore, contract packaging services should 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 services, including:
- Display design and testing. A 3PL could work with a corrugate company to design a display that meets marketing’s specifications and is practical to build and ship.
- Sourcing and ownership of packaging materials. A 3PL could source materials and take ownership of this inventory until it’s used. As a result, manufacturers avoid administrative costs, as well as the cost of carrying this non-sales inventory.
- Equipment specification and purchasing. Shedding these assets enables manufacturers to direct available capital to support core business strategies.
Consumer product manufacturers, led by the largest global companies, have already begun to integrate final packaging with distribution operations. Check out this article on Kimberly-Clark from Contract Packaging magazine. 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.