Everyone that touches the packaging industry, markets a packaged product, or deals with packaging costs is most likely familiar with a packaging audit – the close observation of the packaging journey from production through development, manufacturing, distribution and retail. But few realize the potential breadth of an audit or the multiple purposes it serves.
A new product introduction is a no-brainer. Of course you need a packaging audit. It’s impossible to develop a package or choose a package structure unless there is a thorough understanding of how the item needs to be packaged, which retailer will sell it, whether it’s pegged or shelved, how it must protect the product and so on. It’s standard operating procedure. It may vary from manufacturer to manufacturer, but for the most part, we’ve all got it down to a routine.
Anyone who is packaging anything for retail or industrial use – it doesn’t have to be a package that goes to a consumer – should consider a packaging audit to see if there are efficiencies that can be gained in the process. Packaging audits can lead to measures that reduce packaging costs and improve financial performance. All of the decisions and changes instituted after an audit ultimately have an impact on the bottom line.
From a plant or operational perspective, an audit might uncover ways to reduce labor costs, increase throughput or increase productivity rates. Inventory strategies may also be positively affected. Many manufacturers conduct audits when planning to launch a new product, but there is a lot of upside to conducting an audit on packaging for established products as well, especially for brands that have been in market for a long period
Brand owners tend to introduce numerous products over time, and a well-executed packaging audit for a brand with multiple-sized SKUs and forms almost always uncovers opportunities. It’s possible that the number of packaging structures could be reduced or that items like tooling or secondary packaging equipment could be used universally across the brand with just minor updates to pack structure, footprint or outside dimensions.
Sell-through can be positively impacted, too. Every brand would surely love to have a more impactful presence at shelf. The opportunity to do just that can sometimes be brought to light by conducting an audit. It might be possible to get more facings within a portion of the planogram or increase the area for marketing and communication on pack.
When is the right time for an audit?
Theoretically, you could conduct a packaging audit whenever you want. But there are factors that signal when it might be even more crucial to take a step back.
Some manufacturers are forced to audit packaging based on cost or an increased level of competition. Others are just proactive. Again, it often goes back to financial performance. Many companies have their own goals and metrics, and they are constantly trying to stay on target. Reducing cost, increasing efficiency, managing inventory and raw material sourcing have just as much to do with hitting those metrics as increasing volume. It takes an effort on all fronts.
And companies that aren’t continually, proactively looking for efficiencies in the packaging lifecycle should stay up to date on a few things that might signal the need for an audit.
Pay Close Attention to Sell-Through
Packaging may not always be the root cause of sell-through issues, but it might be. It’s possible that a competitive package allows consumers to interact with a product or try it. The size and shape might even make it difficult for retailers to place it on a shelf at eye level or for employees to stock it correctly. These are all things that should be assessed during an audit to determine whether a change is needed and if there might be a sizeable return on that change.
Keep Tabs on Pricing and Product Lifecycles
It’s not uncommon for a product to first launch in a high-end package or a structure with ample space for communication. A transition to lesser expensive packaging would then happen once distribution and sales meet certain milestones or the product begins to mature. A packaging audit can identify opportunities to drive extra cost out of the packaging, which ideally, would have a positive impact on margins.
When investigating ways to drive out cost, look at raw materials, behind-the-scenes manufacturing, printing and decorating. Step back and think about purchasing strategies and the sheer number of purchase orders required to procure, fill and ship packaged goods. Consolidation and annualized volume purchases may be an option. And think about inventory. Where and how long is empty packaging being stored? Where and how long are finished goods stored? How many distribution locations are required?
Packaging audits provide input, not answers
There are lots of levers that can be pulled to drive out cost. But proceed with caution. If downgrading material choices would affect sell-through, then maybe there is an opportunity to switch to a just-in-time inventory strategy or automate a portion of packaging assembly. A good packaging audit will help identify your options, but it may take some deliberation to weigh the pros and cons.
The inputs for auditing a package that is already in market are a little different than the audit for a new product. You’ve now got data – historical information on productivity rates, downtime, inventory, cash flow and the knowledge of consumer buying habits. Use this information wisely and lean on partners across the packaging supply chain to analyze it and help make decisions that will ultimately optimize financial performance.