By David Foster, president, Adept Packaging
Reducing costs of goods has long been a high priority in sectors of the consumer packaged goods (CPG) market. In highly competitive CPG sectors such as food and beverage and personal care, the need to control and reduce costs is an ongoing battle. Even in less competitive sectors, such as furniture and white goods, there is sufficient price sensitivity to make cost saving a necessary focus. Packaging has been an obvious, although not necessarily simple, area through which CPG companies have achieved this cost saving.
We are now starting to see some of the prominent drivers in the CPG industry gaining relevance in the life sciences industry. Sustainability has begun creeping into the design goals for life sciences packaging, and cost reduction is becoming a significant concern for life sciences packaging.
Industries can (and should) learn from one another. For instance, the pharmaceutical industry pioneered serialization and track and trace, driven by regulatory need, and the food and beverage industry is currently capitalizing on what pharma learned from implementing serialization. The same can be true with packaging cost savings. As the life sciences market continues to become more competitive and social pressure to reduce healthcare costs increases, CPG approaches and strategies to cut packaging costs can be applied to life sciences to achieve these objectives.
This article explores some of the strategies that have been employed in the CPG industry to reduce the cost of packaging, with the aim to stimulate ideas about applying the same strategies in the life sciences industry.
In the article, we will approach cost savings by looking at two main areas:
Components And Material Tactics
A primary method of cost savings is material elimination or reduction. A common tactic used by CPG brand owners is to eliminate a layer of packaging. For example, a well-known kitchen appliance manufacturer eliminated the “brown box” used for shipments to the U.S. from Asia by strengthening the primary packaging. Products now go straight to the shelf from shipping pallets. Similarly, for e-commerce products, because consumers have less need for package information and imagery, decorative boxes can be eliminated in favor of using just the shipping box. As an increasing number of healthcare transactions transfer to e-commerce, perhaps there are lessons that can be gleaned from the CPG industry about the necessity for double packaging, as well as eliminating expensive shelf-purposed packaging when it is not required.
Other approaches used in CPG include:
There have been a number of initiatives related to ink and printing to reduce costs in CPG that can be relevant in healthcare. A common focus is reducing the amount of ink through reduction of printed areas and numbers of colors. Companies also look to use cheaper printing processes. An example that was very successful was a lithography printed label program. Displays were flexography printed in a single color, and a differentiator label, printed using a lithography process, was applied at a co-packer. The smaller footprint of the lithography printed sheets resulted in significant cost savings.
Material conversions, substituting a cheaper material for a more expensive one, can quickly bring significant savings. A typical conversion to cheaper materials is replacing SBS (solid bleached sulfate) paperboard with alternatives such as CCNB (clay coated news back) paperboard. SBS paperboard is a high-quality material, typically used for a high print quality; however, lower-quality materials can often suffice if environmental moisture is not an issue. CCNB paperboard has been found to be a satisfactory substitute in many cases. Another common example in plastic is converting from polystyrene to PET.
Changing materials or designs for production efficiency improvement can also be a cost-saving consideration. Often, components that have proven to be problematic in production are explained away as “just how it is” or even may be misdiagnosed as to the true cause. Understanding the cause of the problem and available solutions can improve efficiency tremendously and have a similar impact on cost. Examples of some component changes to improve efficiency include:
Strategic Cost Saving Practices
Strategic approaches to cost saving may take more time to implement and require input and support from a greater number of stakeholders, but they usually have a greater positive impact on the overall business and therefore can be very beneficial.
Increasing Efficiency and Reducing Damage
Supply chain efficiencies are achieved by evaluating the entire packaging life cycle and removing wasteful activities, thereby eliminating added expense. With the frequency of ownership changes as products move through the pharma supply chain, successful practices used for CPG can be very relevant.
Many companies report high costs due to pallet damage and undertake programs to increase the life of pallets. Pallet damage can happen frequently in a plant, in which case the product is often repacked prior to shipping. If pallets are returnable, determining operating standards and initiating operator training can help reduce the risk of pallet damage. An increase in the strength of pallets, while resulting in a higher cost per pallet, can reduce overall cost by reducing waste.
Maximizing truckloads is another valuable focus area within all segments. As a well-recognized practice, companies understand that putting as much product on a truck at one time can have a massive impact on cost. To make this process more efficient, software applications are available that calculate the most effective shipper sizes, pallet patterns, and truck patterns to maximize efficiency.
Consolidation and Standardization
Packaging consolidation or standardization programs allow single designs to be used for a greater number of SKUs and product ranges. Cost benefits come from price discounts from larger batch sizes and greater supplier competitiveness. To differentiate products and SKUs, late-stage customization can be used in the form of labeling and digital printing. We have seen examples of harmonizing shipping case artwork and differentiation of SKUs at late stages at the plant during production. These technologies are already common in healthcare, where serialization, which relies on late-stage digital printing to apply unique serial numbers, has been implemented.
Production location changes can also be used as a consolidation strategy (within a company or from a co-manufacturer to a company location). Savings come from larger purchasing volumes and efficiency improvements due to fewer changeovers.
To be successful, a standardization strategy requires development of a robust specification system, so that components can be compared properly. A good specification system, using functional data, also allows other strategies, such as supply mitigation and quality improvements, to be implemented. It is essential to have a robust specification system in place if utilizing an online bidding process. A change in specification strategy has also been successful in consolidation of corrugate. Instead of classifying according to ECT (edge crush test) values, using BCT (box compression test) values allows greater standardization.
Design for Efficiency
Cost-saving strategies such as design for efficiency can also be applied during packaging development, rather than trying to take cost out of packaging post-launch. Minimum design standards can be applied in guidelines and best practices during the design and development process. For example, policies can be implemented to ensure cases are designed so that pallets can be double-stacked. The goal is to find the design that will optimally compromise the cost of the packaging and the acceptable quality. Design standards will support this goal, in combination with accurate data on the cost of quality.
The ideal packaging performance should balance package costs and damage costs.
Ensuring on-time launches for products reduces excessive costs and brings in revenue as soon as possible. Packaging departments can ensure timelines are met, or improved, by implementing a number of strategies.
A current global trend is to change the ownership of packaging responsibility. Whether through regulatory or social pressure, brand owners are taking responsibility for the ownership of packaging. This gives an opportunity to close the circular economy through use of reusable containers, as well as to control sustainable sourcing and increasingly sustainable practices throughout the package life cycle. TerraCycle’s Loop program is an example of emerging trends around reusable packaging.
The immediate and primary benefit of reusable containers is an environmental one; however, reusable packaging can also provide economic benefits to brand owners. Achieving the economic benefit is reliant on getting a sufficient number of returns by using either incentives for return or by tracking packaging. Both strategies require connected packaging to be successful; therefore, we predict an increase in the use of connected packaging technology to support reusable packaging initiatives. Investment in this technology has many implications for future cost savings.
Organizational structure and the source of projects are important considerations when creating a culture of cost saving. Cost-saving programs are commonly driven by purchasing functions. This can be successful if the full organization is in alignment, but with large organizations there can be conflicts with purchasing-driven programs. For example, a supplier may often offer discounts that are supported by purchasing, but the supplier may have a negative history with some plants or divisions that will hinder the success of the program.
Organizations are currently making decisions on whether to form packaging departments that are focused solely on productivity and cost savings, although in the majority of organizations productivity projects are embedded in the regular packaging department. The issue encountered in models where a general packaging department handles cost-saving projects is that projects may not be vetted properly prior to execution, simply because of the more general focus of the department.
A particularly successful model that has been observed is one that included a formal review process of cross-functional directors who review and approve projects to move forward, enabling a streamlined execution.
While the need to reduce packaging costs in life sciences may never be as heavy a factor as it is in the CPG industry, the need to cut costs is always relevant and will continue to increase. Increased generic drugs, consumer pressure on pricing, and the need to satisfy shareholders will drive a focus on packaging cost control. As seen with other drivers, learning from first movers and applying those lessons is an easier way to meet these new objectives. So why not examine the strategies used by CPG and see if they can be applied to help meet the pharmaceutical industry’s evolving goals and objectives?
About The Author:
David Foster is president of Adept Packaging, which provides packaging consultancy services ranging from packaging development management to track and trace implementation. He has spent over 25 years leading multifunctional teams in the development of packaging for life sciences, consumer packaged goods (CPG), and durable products markets. Foster has considerable experience in developing business processes and systems to increase productivity in packaging departments and to ensure goals and objectives are met. He holds an MBA from Bowling Green State University.