About a decade ago, I visited a packaging facility operated by a contract packaging provider. The facility would receive bulk quantities of goods from a leading consumer goods manufacturer and package them into different clamshell units (10-count, 30-count, 50-count, etc.) and then into cartons. The cartons were then transported just a few hundred feet through a tunnel to an adjoining building that was operated by a 3PL, where the products were stored and later shipped to retail distribution centers.
An obvious question popped into my head: Why not have just one party, either the contract packaging provider or the 3PL, do both the packaging and the distribution functions?
I later realized that the situation was actually worse across the CPG industry. I remember reading a case study at the time where Unilever HPC had nine different plants that shipped product to 60 co-packers and then to 15 distribution centers. Ultimately, the company reconfigured its network, reducing the number of DCs to 5 and incorporating co-packing capabilities within them. Unilever saved more than $20 million per year and improved its delivery time to customers by integrating its packaging and logistics processes.
Over the years, a growing number of 3PLs, either organically or through acquisitions, have started offering packaging services. However, many companies are still not leveraging packaging to its fullest value potential within their supply chain networks. In other words, they haven’t really analyzed where they should be doing packaging and how to use it more effectively. Why not?
That was one of the questions I asked Paul Lomas, VP at Ryder Supply Chain Solutions, in a recent episode of Talking Logistics titled, The Important Role of Packaging in Supply Chain Network Design and Optimization. Watch the short clip below for Paul’s response to my question:
And here’s an excerpt of his comments:
By virtue of the fact that packaging is somewhat unique, somewhat specialized, where the packaging decisions get made inside an organization are typically removed from the supply chain functions.
Decisions about packaging can get made in marketing, they can get made in manufacturing, they can get made, even in some cases, in the R&D function. So, as people in those functions make the decision about where to do the packaging and how to leverage it, they do so primarily on the basis of capability. Is the right kind of packaging capability available, and if so, then that’s where it gets done. Options, and bringing to bear, if you will, a landed cost type of approach typically are not used. And the supply chain functions aren’t really asked to offer counsel or advice on how to make a decision from a full supply chain perspective on where packaging ought to be done.
So, it tends to be a very compartmentalized kind of decision…and it’s done that way because of where packaging can fit [organizationally] inside large corporations.
Paul goes on to clarify that packaging capabilities are certainly a very important consideration in the decision process, it’s just that “the overlay about total landed cost is not necessarily always done, or if it’s done, it’s often done in very imprecise ways.”
I encourage you to watch the rest of my conversation with Paul to gain more insights and advice on this important topic. Then ask yourself these questions: Where does packaging fit within your organization? How are packaging decisions made at your company and by who? Are you taking a total landed cost perspective in your decision process? Does your supply chain network resemble Unilever’s from a decade ago? Are you fully leveraging packaging to its fullest value potential within your supply chain?