Contract Packaging or Co-Packing is the process of assembling a product or good into its final finished packaging. Depending on the product, the final finished packaging can vary in a numerous amount of ways. Some examples of this are thermoformed packaging, clamshell packaging, dry or liquid filling, or a standing corrugated retail point-of-sale display.
Contract Packaging can be either a simple or a complex process since it is customized according to the specific range of the product packaging, which varies greatly across the retail, commercial or trade industries.
Having a third party logistics company (3PL) perform your contract packaging along with your warehousing and fulfillment can cut your costs immensely, as well as, cut order-to-delivery cycle time by at least a week. Combining packaging with distribution has become possible with the increased superiority of a select group of 3PLs who have invested in the equipment and resources to take on these processes.
How does combining packaging with a 3PL save a company money?
Lowering freight costs
- Usually, companies must ship their product to an outside contract packager and then back to the DC for distribution. Every time these products are being shipped back and forth; this creates a lot of extra costs that have the possibility of being eliminated. Another positive note is that it benefits the environment by taking trucks off the road!
Reduced Labor and equipment costs
- The merging of packaging and distribution operations allows for labor and rolling stock to be utilized where its most needed at any given time. For example, shipping products back and forth between outside contract packagers and distribution centers does not just use more freight but also more labor and equipment to load those trucks and process documents/details. Cross-trained warehouse workers can be available at 3PLs to address peak demands, as well as the management costs being reduced.
Lowering inventory carrying costs
- When a company uses an outside contract packager it typically adds about a week to the distribution cycle, which can cause losing visibility of products. Uncertainty about the amount of product on hand is built when the visibility is lost creating manufacturers to add unnecessary inventory, which adds to the warehousing and labor costs.
Reducing damage probability
- When shipping product to and from an outside contract packager, it becomes more likely that the product can be damaged. The more a product is moved, the greater the possibility for damage.
As technology continues to expand and grow, supply chains are expected to be able to create product quicker and more efficiently. The added costs and logistics of using an outside contract packager will make this harder for companies to keep up. The strategy of using a 3PL that also offers co-packing is the smartest way to go.