How to Identify Cost Savings with a Contract Manufacturing and Packaging Supplier

Posted by Jim Kurtz on Sep 10, 2021 11:23:58 AM

contract manufacturing and packaging

To maintain a competitive advantage in the ever-changing manufacturing world, optimizing your supply chain — especially in the areas of manufacturing and packaging — can provide efficiencies and cost savings.

It shouldn’t come as a surprise that the growth of e-commerce has had a significant impact on packaging sectors, including flexible packaging, which had a compound annual growth rate (CAGR) of 5.7% between 2020 and 2021. This growth occurred in a single year, seeing a dip of 16.5% in U.S. manufacturing

To either acclimate or make up for the past year's changes, two short-term solutions companies turned are also evergreen solutions to cost-savings issues: contract manufacturing and packaging.

  • Contract manufacturers are third-party manufacturers that develop components or products for the company under contract.
  • Contract packagers are third-party packagers that implement primary or secondary packaging for the finished, consumer-ready products.

In other words, contract manufacturers create the product, and contract packagers package the product. However, many contract manufacturers that develop finished products also offer packaging services, which we will refer to as contract manufacturing and packaging suppliers in this blog post. 

Whether you are planning to launch a new product, enter a new market, or transition into new packaging formats, a contract manufacturing, and packaging supplier can fuel your company’s growth by helping you avoid significant costs and risks. 

Cost Savings in a Contract Manufacturing and Packaging Partnership

The primary benefits of a partnership with a contract manufacturing and packaging supplier are the cost savings that come in the form of:

  • Capital, labor, and product savings in manufacturing 
  • Fast output and design input in contract packaging

Capital, Labor, and Product Savings in Manufacturing 

Partnering with a contract manufacturing and packaging supplier provides three major areas of cost savings:

  • Capital Investment Savings: A contract manufacturer already has the space, equipment, and technology necessary to build your product. This means your company doesn’t have to invest in upgrading these areas to increase development of the product.
  • Labor Savings: When considering in-house manufacturing, evaluate the capability of your workforce by answering how many people would need to be added to your workforce to increase throughput. A contract manufacturing and packaging supplier partnership provides the workforce necessary to build additional products and capacities without adding new full-time employees. Plus, you will not be responsible for salaries, wages, and benefits. 
  • Product Savings: Product specialization in manufacturing requires unique processes and materials. Because contract manufacturing and packaging suppliers have extensive experience in manufacturing certain products, they can provide new methods and materials based on their testing procedures that can reduce your costs while maintaining the quality and integrity of the product. 

Fast Output and Design Input in Contract Packaging

Like a manufacturing facility, a packaging production facility includes equipment, staff, training, and materials, allowing you to expand your production without investing capital in those areas. On top of that, a contract packager provides: 

  • Faster Output: Contract packagers are often professional package designers and manufacturers, so they have the experience necessary to make business decisions to improve their efficiency, cost-effectiveness, and speed. In partnerships with a contract packager that also manufactures your product, packaging the product the moment it is developed reduces the lead time to market and helps deliver your inventory on time. Centrally located contractors make your national distribution quicker and more efficient.
  • Design Input: According to the product your contractor has developed, they also apply the proper design of the package to ensure you are saving on packaging costs. Your contract supplier saves you the trouble of dedicating staff and resources to that task by providing packaging designs and ideas.

Identifying Cost Savings with a Procurement Partner 

According to the Association for Contract Packagers & Manufacturers, there are also downsides to using a contract manufacturing and packaging supplier, including lack of control, missed opportunity for salvageability, and financial and organizational unpreparedness.  

The procurement consultants at SRM (Strategic Resource Management) can help identify these potential pain points before you experience them while under contract. We find the right contract manufacturing and packaging supplier for services that save on cost while also providing you with procurement strategy initiatives.

In a partnership with SRM, you will have a tailored procurement process based on what works best for your specific needs. To learn about how we’ve delivered immediate higher ROI to hundreds of previous clients, download our guide, Why Procurement Consulting Brings Immediate Results to Your Business.

Learn how procurement consulting can bring ROI to your business.

Topics: Packaging, Manufcaturing, Cost Reduction