Total Cost of Ownership: Unlocking Hidden Savings With Packaging
With rising costs and economic challenges, leaders are under immense pressure to reduce overhead. Many operations focus primarily on price reductions—such as initial capex costs—but that’s only part of the story. If, instead, the primary consideration is Total Cost of Ownership (TCO), an organization’s ability to maximize efficiency while achieving budgetary goals skyrockets. TCO is the comprehensive cost of producing, storing, distributing, and commercializing products. It includes both direct costs, like materials and labor, and indirect costs, such as logistics and sustainability. In this blog, we kick off our series on Total Cost of Ownership and explore how it helps businesses uncover hidden expenses, reduce waste and optimize operations.
Beyond Material Costs: A Holistic View of TCO
A closer look at how Total Cost of Ownership applies to the specific decisions a typical operation balances daily is eye-opening. It reveals both the wide-reaching scope of its impact and the many nuances that businesses can consider to maximize their operating budgets.
Key TCO Factors:
- Procurement Costs: True costs extend beyond the invoice—encompassing the time and resources spent on purchase orders, vendor management, and administrative overhead. Those frequent, small orders of bulky materials? They could be costing far more than you realize.
- Handling & Labor Costs: Labor costs and maintaining a skilled workforce are factors in the decision-making process. Finding ways to reduce the amount of manual touches within an operation can be advantageous to reducing overhead and increasing worker productivity. For example, manual packing can drive up labor expenses. There are a number of processes that could benefit from automation to reduce long-term costs.
- Transportation & Freight Costs: For businesses that rely heavily on shipping, freight is a major cost driver. A more efficient packaging design that reduces shipping weight, fuel surcharges, and handling fees can significantly improve the bottom line.
- Storage & Warehousing: Every square foot that can be used to support growth rather than add to operational costs is valuable. Storing large quantities or bulky packaging ties up space and capital, driving up costs.
- Packaging Costs: Packaging, especially tertiary packaging, is often seen as an easy target for cost reduction. In reality, the unit price rarely moves the needle in total cost. The upstream and downstream impacts on the other cost drivers such as labor, freight or processes can be much more significant—for better or worse.
- Product Damage & Returns: The often-overlooked costs of damage and returns, including the impact on customer perception, can be staggering. Consider this: 73% of customers would not repurchase if they received a damaged product. The cost of damage, returns, and replacements often outweighs any material savings.
3 Keys To Optimizing Total Cost of Ownership
- Data & TCO: A successful TCO approach relies on data-driven decisions that optimize costs across materials, labor, operations, and supply chain. Pregis and our authorized packaging partners help businesses analyze inefficiencies through audits, cost consultations, and inventory management—ensuring smarter, long-term packaging strategies.
- Sustainability & TCO: Sustainability isn’t just about compliance; it can also lead to more efficient operations. Investing in better protection reduces damage-related returns, minimizing financial losses and environmental impact. The optimal sustainable packaging solution for a company may actually reduce packaging use and also mitigate Extended Producer Responsibility (EPR) fees while meeting evolving customer demands.
- Automation & TCO: Automation can reduce labor dependency, provide better insights, lower costs, increase throughput, and standardize processes—but it also may require skilled operators. Finding the right balance between automation investment and workforce expertise is key to maximizing cost savings within a TCO framework.
Embracing TCO for Business Growth
Embracing Total Cost of Ownership empowers businesses to make more informed, strategic packaging decisions. Pregis and our packaging partners are here to guide you through this process! We provide data-driven insights and expert support to ensure packaging strategies deliver lasting value. Understanding the true cost of packaging means looking at the bigger picture—the story behind the costs and the data that drives smarter decisions.
Stay tuned as we continue our TCO content series to dive deeper into the many ways this approach can impact your business and be sure to connect with a Pregis representative today to learn more.
