Packaging in FMCG is a significant expense, accounting for up to 30% of direct costs. As businesses face economic challenges, optimizing packaging has become essential.
In this podcast based on a GEP report, the speakers unpack seven proven strategies to help FMCG companies reduce packaging costs while driving efficiency and sustainability. From lean designs to innovative lifecycle management, these strategies can save your business 5–20% on packaging costs.
What You'll Hear:
- Simplify packaging to reduce material costs by up to 10%
- Collaborate with suppliers for tailored, cost-effective solutions
- Adopt e-auctions to drive competitive pricing and maximize savings
PODCAST SUMMARY
In this podcast episode, the hosts explore seven effective cost-reduction strategies for FMCG (Fast-Moving Consumer Goods) packaging, based on insights from supply chain experts at GEP. These strategies are designed to help businesses lower costs while enhancing efficiency in their packaging processes.
Lean Packaging
The first strategy is lean packaging, which involves reducing unnecessary packaging without compromising product quality. The hosts illustrate this with an example of a cereal box that bursts open, causing a mess. By trimming excess packaging—referred to as "packaging fat"—companies can save up to 5-10% on corrugated boxes and 2-6% on flexible materials. When applied to large volumes typical in FMCG, these small savings can accumulate significantly.
Building Stronger Supplier Relationships
The second strategy focuses on building deeper relationships with suppliers, particularly those further upstream in the supply chain. By developing direct relationships with raw material suppliers, companies can gain insights into market trends and pricing shifts, and discover opportunities for custom solutions. This can lead to more cost-effective packaging options, such as lighter materials or innovative packaging designs.
Demand Management
Demand management is the third strategy, which emphasizes the importance of accurate forecasting to minimize production setup costs. Set-up costs, especially for flexible packaging, can consume up to 20% of expenses. By improving demand forecasting, businesses can reduce the number of times production lines need to be changed for different products, resulting in significant savings. For instance, predicting a surge in orange juice demand can reduce the need for frequent packaging changes, saving money.
Long-Term Supplier Contracts
The fourth strategy is about locking in long-term contracts with suppliers. These contracts provide price stability for raw materials and supply chain security. Suppliers benefit from guaranteed business, which allows them to optimize operations and offer better rates, making it a mutually beneficial arrangement.
Transparency in Pricing
Transparency in pricing is the fifth strategy, which encourages companies to thoroughly understand the breakdown of packaging costs. Just like when purchasing a car, where knowing the detailed cost components—such as engine and seats—is important, businesses should analyze every cost involved in packaging. By examining materials, labor, and hidden fees, companies can make informed decisions when comparing suppliers and identify areas where they can save.
Life Cycle Analysis
The sixth strategy is life cycle analysis, which looks at the entire life span of packaging from production to disposal. GEP advocates for designing packaging to be reused, such as using reusable shipping containers for beverage companies. This approach not only reduces waste but also cuts costs, contributing to both environmental sustainability and a company’s bottom line.
E-Auctions
The seventh and final strategy is e-auctions, where suppliers bid in real time for packaging contracts. This competitive bidding process helps businesses drive prices down. GEP advises companies new to e-auctions to research the best platforms for their needs and ensure clear communication with suppliers about product specifications and bidding rules. This transparency is essential for success in e-auctions.
Avoiding the All-or-Nothing Trap
While these strategies can generate substantial savings, GEP warns against the all-or-nothing trap—the urge to implement all strategies at once. The hosts recommend starting with one or two strategies that resonate most with a business’s needs and gradually scaling up from there. Prioritizing the areas with the biggest impact ensures smoother implementation and reduces the risk of overwhelming the team.
Involving Your Team
GEP stresses the importance of team involvement when making packaging changes. Communication and training are key to ensuring employees understand why changes are necessary and have the tools to adapt. This ensures a smoother transition and greater acceptance of the changes within the organization.
Data-Driven Decisions
The final piece of advice is that data is king. Companies are encouraged to track packaging costs, monitor supplier performance, and regularly analyze data to identify areas for improvement. By making data-driven decisions, businesses can continuously refine their processes and optimize packaging efficiency.
By implementing GEP’s seven strategies—lean packaging, building relationships with suppliers, improving demand forecasting, long-term contracts, pricing transparency, life cycle analysis, and e-auctions—FMCG companies can uncover significant savings, boost efficiency, and contribute to sustainability. These strategies offer a comprehensive approach to transforming packaging from a simple cost into a valuable tool for business growth.
