Consumer packaged goods (CPG) companies often outsource final packaging to outside contract packagers, adding a costly and time-consuming step between manufacturing and the distribution center. Why not integrate final packaging into existing warehouse distribution operations?
Doing so can reduce combined distribution, packaging and transportation costs by 30%, and can cut at least 7 days in order-to-delivery cycle time.
The following chart shows where money can be saved.
3PL capabilities expand beyond distribution operations
Combined packaging/distribution has become possible with the increasing sophistication of a select group of third-party logistics providers (3PLs), who have invested in the equipment and resources to take on complex packaging assignments. Packaging done in 3PL-operated distribution operations eliminates costly runs to outside packagers and shortens the product customization cycle.
How Much Can Be Saved?
Companies that combine contract packaging services into distribution operations can cut costs by 30%. Here’s how:
- Lower freight costs. Typically, products ship out to the contract packager and then back to the DC for final distribution. These extra runs hike freights costs an estimated 38%. Eliminating these costs on an $8 million spend would mean a savings of $3 million, not to mention the added environmental benefit of taking trucks off the road.
- Lower inventory carrying costs. Use of an outside contract packager adds about 7 days to the distribution cycle. Worse, companies typically lose visibility of their product during this time, creating uncertainty about the amount of product available for sale. Manufacturers deal with this uncertainty by adding inventory, which in turn adds warehousing, labor and financing costs.
- Reduced labor and equipment. Combined packaging and warehouse distribution operations allow for labor and rolling stock to be deployed where it’s most needed at any given time, across multiple functions. Cross-trained workers can be available to address peak demands in the DC or the co-pack area.
- Reduced damage. The more product is moved, the greater the potential for damage. Shipping product to and from an outside packager results in about 3% damage. If it’s a liquid product, the percentage will be higher, since damage to one bottle can destroy multiple cases.