Shipping supplies, such as corrugated cartons and bubble wrap, are the third highest overhead cost (after labor and facilities expense) in most order fulfillment operations. No matter if you outsource your order fulfillment or do it in-house, keeping shipping supplies affordable is a top priority for those who ship in volume.
Blanket Purchase Orders Are a First Step in Cutting Costs
Most shipping-supplies buyers start with local or online vendors and buy in small lots at published prices. As buying volume increases, the next step is to contact the vendor’s custom quote department to negotiate a blanket order subject to volume discounts. This will require buying in larger volume, but the cost savings can be substantial.
These are the stock packaging vendors that we work with at eFullfillment Service, the company I own:
In addition, purchased and free USPS shipping supplies are available from the USPS shipping supply store.
Simply Buying in Volume Isn’t Always Cost Effective
The unit cost of shipping supplies decreases as purchase quantity increases, but extra quantity requires additional investment in packaging stock on hand. The test is if the extra savings divided by the extra investment yields enough return compared to your other investment opportunities. You can use this downloadable spreadsheet to help calculate this.
In the above example, for an 11 x 11 x 11 carton purchased from Uline at published rates, the cost savings from buying 500 cartons instead of 250 is $45.00, but the added investment is $150.00.
The return on investment (ROI) is $45.00 divided by $150.00, or 30 percent, and, in my experience, any ROI over 15 percent is good enough.
But, in that same example, the savings to move from a 500-carton quantity to a 1,000 quantity is only $10.00. Yet the extra investment is $295.00, for a ROI of only 3 percent, which is much too low to be a good use of limited working capital.
Release Against a Blanket Order Can Improve ROI
There is a way around the low ROI problem, which is to place blanket orders with your suppliers subject to batch releases over time. The blanket order commits you to the volume required to achieve the lower unit price, but you then release in monthly or quarterly amounts until the blanket order volumes are filled. This gives you the cost savings you need, but lowers the added investment per release to a point that your ROI can then exceed your minimum.
Having Custom Cartons Made Locally Can Reduce Costs Even More
If you can place a blanket order for at least 1,000 cartons of the same size, you may be able to cut costs even more by having your cartons made to order by a carton manufacturer in your area. To find one or more vendors, consult your local yellow pages a heading like “Boxes-Corrugated & Fibre.”
The carton supplier will produce the cartons you need to your exact size requirement and can imprint your company logo and sales message as well. The carton manufacturer will deliver to your site and may be willing to warehouse your production run and release against a blanket quantity, which improves your ROI and conserves your floor space as well.
Dunnage Materials Can Cost More Than the Cartons
In our experience as a fulfillment house, the cost of packing materials, such as sealing tape, plastic envelopes, foam peanuts, bubble wrap, Kraft paper and inflatable packing pillows–known as “dunnage”—often adds up to more than the cost of the corrugated cartons.
A good way to manage this issue is to post the unit cost of each of the dunnage materials that you use at your packing stations so that everyone concerned can realize how much expense is involved.
For example, the published price of Uline’s standard 5/16” x 12” x 375’ bubble wrap is $36.00 in single rolls, or over $.10 per square foot delivered. That cost alone for a shipment that requires 4 running feet of bubble wrap is $.40 per package or $400.00 per 1,000 such packages.
When buying dunnage materials, you can use the same discount versus investment ROI calculation as used for cartons, although ease of use is sometimes just as important as unit costs. In our business, for example, we have found that high quality, 3-inch carton tape is faster to apply and thus has a net lower cost per package compared to “cheaper” tape because of the labor expense involved.
The Biggest Cost of Packaging Is Sometimes Hidden
When buying shipping supplies, there is a hidden cost, which is wasted shipping weight or DIM minimum weight resulting from use of cartons that are unnecessarily large because the right size carton is not provided.
The way around this issue is to stock your pick and pack work area with a full range of stock sizes, from small to large, so that wasted carton and dunnage weight can be avoided while still adequately protecting the contents.
Likewise, your shipping staff should be trained to avoid use of “free” priority mail or flat rate cartons when UPS or FedEx delivery is cheaper, taking into account the cost of the carton that you provide.
The best way to avoid hidden costs of packaging is to get all of the cost information in front of your pick and pack staff in the form of charts and posters so they can make the right decisions as they go along.
Shipping-supplies expense is a big part of order fulfillment costs. The best way to control that expense is to buy in volume, subject to ROI review. Sharing cost information with your staff, and staff training, can minimize wasted expense both in use of expensive packing materials and in the hidden cost of added shipping weights.