Like any other manufacturing company, FMCG companies are constantly looking at ways to reduce costs. While there are many areas in which companies can make savings, the largest area for most companies is in packaging. For a company like Procter & Gamble, packaging can equate to over 50% of the total production cost. Packaging cost not only increases the price of a product, but it has environmental impacts as well.
Many packaging costs can be reduced by optimizing product configuration, changing package form, material selection, or process technology. Packaging costs can also be improved by using the right technologies that help manage inventories and demonstrate a return on investment. So, are there technologies that can help FMCG companies manage their packaging better? And if so, how can these technologies help reduce the cost of packaging?
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To understand how technology can help cut packaging costs for fast-moving consumer goods (FMCG) companies, it is first necessary to understand what an FMCG company is and why they need packaging.
What are Fast-Moving Consumer Goods?
FMCG is a term used to characterize the everyday items that we use at home or while we are on a trip. The term "fast-moving consumer goods" refers to a wide variety of perishable products that are sold quickly at a low cost. These include consumer packaged goods (CPGs) such as food, beverages, toiletries, over-the-counter drugs, chocolates, and other consumables.
Why Do FMCGs Need Packaging?
FMCG companies sell low-cost products that are often used once and thrown away. Packaging is a significant part of any product. It is essential to FMCGs because:
Protection
Packaging is a critical aspect for any FMCG company. The reason is that these companies' products often have short shelf lives and are prone to degradation if not packaged properly. And so, the packaging protects the product during transport, storage, and use. It also keeps them safe from tampering by unauthorized sources.
Ease of usage
Packaging has always been about value addition. FMCG packaging adds a certain amount of convenience to the consumer’s life and also makes their life easier. For example, it helps make the products easier to use and store by saving space, preventing spillage, and encouraging safe carriage. For example, bags of rice or dal are much easier to store in a pantry than if the rice is poured on the floor. Also, perfume is better appreciated when in small containers, than if the contents are in a big bowl.
Brand Recognition
Since a large number of FMCG brands compete for shelf space and consumer attention, brand owners need to find ways to make their products stand out from the competition. Packaging identifies the product, promotes the brand, and provides instructions for use, marketing claims as well as contact information.
Thus, to maintain quality and for brand recognition, FMCG companies rely heavily on packaging. They can leverage innovative packaging designs to promote their products by making them look more attractive or useful than competing brands.
Aesthetic Appeal
FMCG packaging also helps improve the aesthetic appeal of a product. It can be used to highlight key features of a product – in its design or even through printing techniques such as flexography – so that customers can easily spot a brand on a retail shelf.
Types of Packaging for Different FMCG Companies
For FMCG companies, it is very important to choose the most appropriate material(s) for packaging their products. The selection of materials is based on several factors such as the protection requirements of the product, cost efficiency, production capabilities, and sustainability. There are four types of packaging for FMCG companies: primary, secondary, tertiary, and quaternary packaging.
Primary Packaging:
Primary packaging is the wrap that first encloses the product. It is closest to the product. Primary packaging provides barrier protection, maintains freshness, contains the item, and provides information. Materials used are plastic (rigid or flexible), metal (cans or tubes), paper, and board (cardboard boxes).
Secondary Packaging:
This type of packaging features a box or bag with multiple items inside. It is used by many FMCG companies to ship multiple products in bulk. Secondary packaging also protects shipping materials from damage and provides instructions on how to use the product. The most commonly used materials are cardboard boxes/crates as well as shrink wrap film and stretch wrap film for palletizing products.
Tertiary/Transport Packaging:
This type of package binds together all the lower levels of packages for shipment and distribution at a wholesale level. These types of packages can be in the form of a pallet or large container holding many boxes of products picked from the factory floor for transport.
Quaternary Packaging:
Quaternary packaging is used for retail displays and may include special retail displays or shelf-ready displays that display multiple items together.
Components of Packaging Costs
However, despite its many advantages, the packaging for FMCG does have its downsides too. For example, packaging materials such as cardboard boxes, plastic containers, and metal cans can be quite expensive if you consider that you need them. Packaging cost comprises three components which are the cost of Packaging Material, Direct Labour Cost, and Indirect Cost.
1. Price of Packaging Material
This depends on the quality and quantity of material used in packaging. In many developed countries like the USA, Japan, there has been a considerable reduction in packaging material cost by using environment-friendly materials as well as better utilization of space through improved engineering designs and technology available in this field.
2. Direct Labor Cost
This includes costs incurred for various operations such as printing, cutting, folding, gluing, pasting, etc., that take place while packaging a product.
3. Indirect Cost
The true cost of packaging includes not just procurement and manufacturing costs, but also 'hidden' costs such as inventory costs, logistics/transportation costs, delayed shipments/orders, and returns.
Technologies That Can Help Reduce Packaging Costs
To reduce packaging costs, it would help if one can identify potential packaging cost savings. Breaking down these costs can be tricky because each component of packaging has its own cost associated with it. For example, packaging materials for the food and drinks industry account for up to 25% of total product costs. Therefore, it becomes imperative for FMCG companies to find ways to reduce this cost. Technology can help by calculating the 'true cost of packaging' and tracking leading indicators for packaging cost reduction.
Some technologies that can help reduce packaging costs are:
1. Radio-frequency identification (RFID) Tags
These tags have been around for many years now and have generated a lot of hype. However, these are yet to be used extensively in the manufacturing sector - especially within the FMCG industry. These tags can go a long way in reducing packaging costs because they can be used to track and trace products throughout the supply chain. This helps in reducing spoilage and wastage rates while also helping companies identify when products need to be replenished. RFID tags are expected to become even more relevant with the advent of the Internet of Things (IoT).
2. Dedicated Software Packaging Technologies
While most big FMCG companies have been investing in dedicated software packaging technologies for some time now, these technologies have only recently become affordable for smaller companies. Dedicated software packaging technologies include those that help manufacturers determine optimal shipping configurations and manage their warehouse operations. With a dedicated software packaging technology in place, manufacturers can determine the most cost-effective way to package and ship their products. This in turn helps them reduce product damage, improve warehouse efficiency and manage inventory more effectively.
3. Automated Packaging Technologies (Robotics)
Automated packaging technologies enable manufacturers to automatically fill bags of different sizes with different quantities of products. This minimizes the need for human intervention in the packaging process, thereby reducing both labor costs and errors.
Automated packaging can also be used to create custom packaging based on customer requirements without incurring additional costs. These technologies include those that allow manufacturers to produce custom labels, pack individual cakes or biscuits into boxes, and pack boxes of biscuits or cakes into cases.
4. 3D Design and simulation technology
Packaging designers use sophisticated software to design and test new packaging. This allows them to find innovative ways of reducing materials without compromising the integrity or safety of the product.
With 3D, FMCG companies can test different packaging before full-scale production is implemented. Examples of the 3D software include:
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ArtiosCAD
ArtiosCAD is a 3D software application that helps users design and develop packaging. It has a series of powerful tools that help users visualize their designs, analyze them for cost-effectiveness, and then optimize them for mass production. By using this software companies can reduce the time and cost of developing new packaging materials as they will be able to check ideas against existing designs, saving many man-hours in the process.
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PackEdge and Plato
PackEdge is another application used by companies in the packaging industry to design packaging materials. It is often used alongside a related application called Plato which helps users perform structural analysis of their designs so they can identify any potential weaknesses before mass producing them.
How Can Technology Help in Reducing Packaging Costs?
During Planning:
Digitalization of E-commerce platforms allows FMCG companies to predict and plan the production as per the demand which was earlier based on the gut feeling or experience of a salesman, thereby reducing the waste in the supply chain caused by overproduction or underproduction.
During Designing:
The development of 3D printing allows companies to design and test different aspects of product packaging at a very low cost than that incurred in traditional manufacturing processes. Also, developing a single design for different sizes/variations reduces the task of designing as per different needs and thereby reduces the cost for both company and user.
Testing:
Artificial Intelligence (AI) & Machine Learning (ML) algorithms integrated with IoT sensors lead to the development of automated quality control systems which can perform testing at rapid speed using less human resources, thereby reducing the manpower costs and increasing efficiency too.
Manufacturing:
The introduction of modular machines allows companies to adopt flexible manufacturing models without investing much capital on non-core process activities, thereby reducing the fixed cost incurred on manufacturing equipment and processes.
Other ways that packaging costs can be reduced
Reusable Packaging
It is important to create new, disposable and reusable packaging materials that can be used to ship products that are more appropriate than conventional plastic and metal-based packaging. The company could take the steps of reducing its packaging costs by using reusable, cheaper containers from local manufacturers.
Recycled Packaging
Packaging could also be made from recycled plastic materials and organic compounds instead of using more expensive tin, glass, and plastic. The price of the re-usable packages will likely be significantly cheaper than the price of usual petroleum-based packaging accessories.
Using Less Material
Innovations that help reduce packaging material without negative consequences include using lighter bottles or jars, thinner-walled containers, and cartons made from laminated materials instead of solid cardboard. The use of thinner plastics is not always cost-saving, though, as it may require more material to maintain the same strength as thicker plastic.
Conclusion
Although FMCG packaging accounts for only 1% of the world’s total plastic production, it has a big impact as 80% of it ends up as waste. But with technological advancements, FMCG manufacturers are looking at ways to reduce packaging costs, keep our environment green, and increase efficiency through changing their packaging approach.
To reduce costs, FMCG manufacturers can look at how they use technology-enabled packaging innovations and techniques such as remote monitoring, sustainability initiatives, and mass customization to reduce their overall packaging needs. And there are even more ways for FMCG companies to use technology to cut costs. For example, reducing the number of materials used in packaging is another way to save money without sacrificing performance.
Ultimately, it is up to FMCG companies to decide how they want to proceed with the technologies available for cheaper packaging. They should bear in mind though, that consumers are increasingly demanding more sustainability efforts from the companies they patronize. With this in mind, FMCG companies should consider all options that can help improve the sustainability of a product.
At Arka we offer top-notch eco-friendly and sustainable packaging solutions. We're committed to helping businesses reduce their environmental impact while maintaining the highest standards of quality and performance. Our eco-friendly custom shipper boxes and custom mailer boxes are designed to provide an amazing unboxing experience!
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