How to fix the $26bn repacking problem29 January 2018
How to fix the $26bn repacking problem
Michele Barone, consumer packaging expert at PA Consulting Group
Consumers expect more variety and convenience than ever before, demanding exactly what they want, when and where they want it.
For the consumer goods sector, this means there’s a growing variety of packaging formats. Portion packs, promotion packs, e-commerce solutions and bundles are just a few of the factors driving new packaging formats and product diversity.
Consumer goods companies find managing such a range complex and costly, so often turn to product repacking. Products are unpacked and repacked, usually manually, to adapt to customer needs. We’ve seen that for some organisations this can be up to 30 per cent of their production, rapidly eroding margins and increasing packaging waste. In 2016, this reportedly cost companies $26 billion, and is forecast to reach almost $50 billion by 2022.
This trend is unsustainable from both business and environmental perspectives.
A self-destructive cycle
Consumer goods supply chains haven’t changed much in 20 years
Infrastructures are largely designed around a small number of products made in large batches on inflexible lines. Today’s repacking model was established as a stop-gap to overcome these inflexible systems, but has now become an expensive status quo.
At the same time, markets are changing rapidly
E-commerce grew more than 20 per cent in 2017, pack sizes are shrinking thanks to new consumption patterns, and global distribution requires stronger packaging using more material. On top of this, retail groups hold little inventory (demanding reduced turnaround times) and want more customised formats.
We need to break the cycle
These changes are resulting in lower margins that can’t be sustained. Companies need to invest in long-term disruptive solutions to reduce systemic waste and protect profits in years to come.
Fixes are out there
Short term – improve today’s model to create benefits quickly
Some companies focus on making packaging lighter to reduce materials. Unilever has cut packaging waste-to-landfill by 11 per cent, while PepsiCo has saved 160 million kilograms (the weight of around 16 Eiffel Towers) of packaging in the last five years.
We’ve seen savings of up to 25 per cent in materials and 30 per cent in labour just by designing cases for efficient repacking. It’s important to recognise the opportunities (like changing packaging size or design) that exist in a closed loop system.
New cases can be designed to be returned and easily stored when empty (eg. foldable retail trays used for fresh products), and can adapt to different products and shapes. By creating such versatile packaging, companies can recoup the cost of developing it in as little as a year. Returnable cases can also take advantage of sensors and wireless tracking cost effectively. They can then gather product and environmental data, which is valuable for the entire supply chain and can reduce end to end shrinkage and product spoilage.
Long term – can we eliminate repacking?
Avoiding repacking will improve responsiveness and lowers stock, letting manufactures accommodate new formats and more quickly respond to market demands.
Ultimate packing flexibility
By designing production lines that effectively handle a range of pack formats, we could significantly reduce the need for repacking. Technologies like adaptable product handling, in-line case construction and decoration, and modular pack design support this vision, while sustainable materials can minimise the impact of waste.
A retrofit flexible packaging system we worked on achieved a 20 per cent capacity increase, delivering over $200 million in savings over five years.
The packing process can be broken down into multiple stages and completed as the product goes through the supply chain. For example, companies could ship semi-finished cases and add extra printing at a warehouse close to the final destination, when demand is fully defined.
If the primary pack is strong enough, products could be connected using simple adhesives. This creates custom collections that can be divided into smaller groups as needed, whether that’s in the supply chain or by the consumer. Alternatively, bands or tapes with protective features could be used.
Another approach is to introduce transformational packaging designs suitable for multiple distribution channels, eliminating the need to repack altogether. We’ve designed a new secondary pack format based on cushioned film. It’s suitable for both e-commerce and retail distribution, single products or bundles, and uses a flexible packing process. We’ve also created a collation system that can be built in-line that saves up to 50 per cent of material costs and is adaptable to multiple product counts, sizes and pack strength levels.
A systemic problem needs a system-level solution
For the repacking problem to be fixed – or at least significantly reduced – there needs to be a system-level solution. There’s a lot of work the supply chain can do, but customers, retailers and government can help too.
Customers are the drivers for many repacking needs, but they’re often unaware of how their choices affect the environment. E-commerce platforms would find it easiest to show consumers the environmental impact of their choices (Amazon, for example, already offers customers the option to ship orders in as few packages as possible).
Government, meanwhile, could shape consumer behaviour and influence the entire set of stakeholders through taxation. Charging for plastic bags in the UK had a huge impact on the number used, showing taxation could be applied more broadly in the long term.
Customers are at the centre of it all. Increasing their awareness and shaping their behaviour is essential in driving substantial change that will save companies from the high-cost repacking model and create a sustainable future.