Challenge Question 4.1: IS THE PACKAGING COST EFFECTIVE?
- YES – Total net cost of the package is acceptable per company’s internal requirements.
- NO – Total net cost of the package is NOT acceptable per company’s internal requirements. Determine if costs can be reduced, modifications made, and re-evaluate.
- DON’T KNOW – Work with internal cost accountant to determine total net costs, then re-evaluate.
Rationale: Virtually all companies across the plastics value chain want to do the right thing by making their packaging more circular and sustainable. However, even if all indications are positive that a new package type being considered will have favourable environmental impacts, the package will still need to have acceptable total costs and ROI before being implemented. What is considered ‘acceptable’ is determined by each company’s internal financial requirements.
Summary: Companies are therefore encouraged to calculate the total net costs (& overall return on investment (ROI), if possible) of the packaging structure you are considering using, and determine if the costs (& ROI) pass your company’s internal financial metrics. Also evaluate how the total net costs (& ROI) of the proposed new package structure compares with the total net costs (& ROI) of the incumbent package you are looking to replace?
In ‘total costs’, be sure to include things like
- raw material supplies (cost of new polymers and changing volumes),
- manufacturing/production (new equipment),
- product testing and certification,
- freight (potential changes to shipping containers – bags vs bulk),
- capital investments, storage (on-site storage – warehouse vs silos), marketing/branding/promotions,
- cost of returns (due to product breakage),
- cost of dissatisfied customers, and
- EPR fees, etc., net of any possible gains that may be realized in converting to a potential new package structure.
- ‘6 Factors that Effect your Average Cost of Packaging’, https://www.gwp.co.uk/guides/average-cost-of-packaging/
- ‘Calculating the Cost of Product Packaging’, https://blog.catalpha.com/calculating-the-cost-of-product-packaging
- ‘How to Calculate the Cost of Packaging’, https://www.boxmaker.com/blog/how-to-calculate-the-cost-of-packaging
- ‘Product Packaging Cost Explained: How to Estimate It‘, https://www.meyers.com/meyers-blog/product-packaging-cost-explained-how-to-estimate-it/
- ‘Understanding the Cost of Packaging’ by Mohana Madhurakavi, April 2021 https://packmojo.com/blog/understanding-packaging-pricing-economies-of-scale/