Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How a Buyer Cut Packaging Costs 19 Percent with Reusables
Transcript
- Lucas: So, Luna, you remember that packaging project we teased a couple of weeks back — the one where a buyer cut packaging costs by nineteen percent? Luna: Yeah, the one that sounded too good to be true. Nineteen percent off packaging without switching to cheaper materials? Lucas: Exactly. And the twist is, they didn't even touch the price per box. They completely changed the packaging itself — from single-use corrugated to reusable plastic totes. The company is a mid-sized food manufacturer, about eight hundred million in revenue, that ships ingredients to commercial bakeries. Luna: So they're not a giant like Kraft or anything. That makes it more interesting, because most people think reusable packaging only works at massive scale. Lucas: Right. The buyer's name is Dana, and she runs packaging procurement for their dry goods division. Her category was about forty million a year, mostly cardboard boxes and shrink wrap. And she'd been getting squeezed — corrugate prices were up about twelve percent year-over-year, and every negotiation with her box supplier felt like a battle just to keep the same price. Luna: So the raw material inflation was the trigger. That's what pushed her to think differently, I assume. Lucas: Exactly. She started asking, do we actually need a new box every time? Because the bakeries weren't destroying the packaging — they were opening the boxes, dumping the flour or sugar, and then the cardboard went into a compactor. But the box itself was still structurally fine. It was just being thrown away after a single trip. Luna: So the idea of a tote that could do a hundred trips was born. But the immediate problem is, you can't just swap a box for a tote without thinking about the return logistics, right? Lucas: Right, and that's where most people stop. She told me that when she first floated the idea to her CFO, he looked at the capital required — about two million dollars for the totes and the tracking system — and said, 'Show me the payback.' And she came back with a model that showed fourteen months. But the CFO was still skeptical, because her model assumed a certain return rate, a certain number of trips per tote, and a certain amount of washing. He wanted to see how those assumptions held up under pressure. Luna: So she had to build a total cost of ownership model, not just a simple purchase price comparison. That's the classic TCO approach. Lucas: Right. She compared the cost per shipment for corrugated versus reusable. For corrugated, she included the cost of the box, the disposal fee, the labor to break down the boxes, and the occasional damaged product from a crushed box. That came to about one dollar and ten cents per shipment. For the reusable, she included the amortized cost of the tote over its expected lifespan of a hundred and fifty trips, plus the return freight, the washing, the labor to handle the returns, and a small allowance for shrinkage — totes that never come back. That came to about eighty-nine cents per shipment. So a twenty-one cent saving per shipment, which is about nineteen percent. Luna: I love that she included the disposal fee and the labor to break down boxes. Those are the costs that often get left out when people compare packaging options. Lucas: Exactly. And that's what convinced the CFO in the end — the model was transparent. She didn't hide the risks. She even ran a sensitivity analysis that showed the payback would stretch to twenty-two months if only a third of the totes came back. But she also had a mitigation plan: she put a deposit on each tote, so the bakeries had an incentive to return them. Luna: A deposit. That's brilliant. It's like the shopping cart model. You get your dollar back when you bring it back. Lucas: Exactly. She set it at ten dollars per tote, which was enough that the bakeries didn't want to lose them. And she worked with her logistics provider to consolidate returns — instead of a dedicated truck going out empty to pick up empties, the totes would come back on the same trucks that were delivering other products to those bakeries. That cut the return freight cost by about forty percent compared to a dedicated return trip. Luna: So the deposit solved the return rate, and the consolidated backhaul solved the cost of returns. But what about the washing? In a food environment, you can't just toss a tote back into the supply chain without cleaning it. Lucas: Right, that was actually the biggest operational headache. They had to set up a wash station at their main warehouse, and it took about three months to get the process right. The first few weeks, they had totes coming back with flour residue that wasn't coming off in the wash. They ended up adding a pre-soak step and changing the detergent. But once they figured it out, the washing cost came to about twelve cents per tote per cycle, which was already in her model. Luna: So the model was accurate, but the execution was messy. That's the part that doesn't show up in a spreadsheet. Lucas: Absolutely. And now, I know we're always told to find the concrete lesson, but here's one I think is worth remembering. Dana told me that the biggest mistake she almost made was focusing only on the tote price. She had a supplier come in with a cheaper tote — about fifteen percent less per unit — but it was made of a thinner plastic that could only handle eighty trips. She ran the numbers and realized that the cheaper tote would actually cost her more per trip over its life. So she stuck with the more durable tote, even though the upfront cost was higher. Luna: That's the whole TCO lesson in one example. The sticker price is not the cost. Lucas: And that's what I think separates a good buyer from a great one. It's not about being the toughest negotiator. It's about understanding the total cost of the product over its entire life, and then having the confidence to explain that to a CFO who just wants to see a simple number. Luna: Yeah, and honestly, it's that kind of careful thinking that we try to bring to every episode. If these conversations have moved your work forward in some small way, that's the thread that keeps us going. You know, the show stays ad-free because a few listeners who find it useful decide to support it. If today was worth a coffee to you, there's a link for that — buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing, but it makes a big difference for us. And we get back to the story. So where were we? The wash station was up and running, the returns were working, but there was one more hurdle — the bakeries themselves. Luna: Right, because your customer has to accept a new process. They have to break down the tote, store it, and make sure it's clean before returning it. That's a change for them. Lucas: Exactly. Dana told me that one of her bakery customers almost derailed the whole rollout. They said, 'We don't have room to store these big totes, and our staff doesn't have time to clean them.' So Dana had to go in and redesign the tote with that bakery's input — they added wheels and made the tote collapsible, so it could be stored flat when empty. That cut the storage footprint by seventy percent. And she simplified the cleaning by using a lining bag that the bakery could just throw away, so they didn't have to wash the tote itself. Luna: So she co-designed the solution with the customer. That's supplier-led innovation, but in this case, the customer was the one who knew what they needed. Lucas: Exactly. And that's a great example of why you can't just buy a reusable packaging solution off the shelf. You have to adapt it to your specific supply chain and your customers' operations. Dana's team spent about six months in the pilot phase, testing with a handful of bakeries, before they rolled it out to all forty of their customers. Luna: And the result was that nineteen percent cost reduction. But I'm curious — did they see any other benefits beyond the cost savings? Sometimes reusables come with ancillary benefits like less damage or better stacking efficiency. Lucas: Great question. The totes were sturdier, so product damage claims from the bakeries dropped by about thirty percent. And because the totes were stackable, they could pack more product per truck, which improved their freight utilization by about six percent. So the savings were actually more than just the packaging cost per shipment. But the nineteen percent number was just the direct packaging cost line item. Luna: So it's a win on multiple fronts. But I imagine there's a threshold where reusable packaging doesn't make sense. Like, if you're shipping one-off products or have a very long supply chain, the return logistics might kill the business case. Lucas: Right. Dana was shipping to a stable set of customers within a two-hundred-mile radius, and the product flow was fairly predictable. If she were shipping to a different customer every time, or across the country, the return logistics would be a nightmare. She also had the advantage of a relatively high-volume product — flour and sugar — that moved steadily throughout the year. So the totes were in constant rotation. Luna: So what would you say to a buyer who's listening and thinking, 'This sounds great, but my category is totally different'? What's the first step? Lucas: I'd say start with the data. Look at your packaging spend, the number of trips each package makes, the disposal costs, and the labor involved. Then ask, 'Is there a reusable alternative that could work?' You don't have to start with a full rollout. Dana's pilot was just ten percent of her volume. She proved the concept, built the operational muscle, and then scaled. That's a much less risky approach than a big bang. Luna: And the TCO model is the key to convincing your finance team. If you can show them the total cost, not just the purchase price, you're speaking their language. Lucas: Exactly. And the last thing I'll say is this: the savings were real, but they didn't come from squeezing the supplier. They came from changing the fundamental way packaging was used. Dana's box supplier actually lost a chunk of business, but she worked with them to transition some of that volume to other products. The relationship stayed intact, and that's a good reminder that procurement is about problem-solving, not just beating up vendors. Luna: That's a great note to end on. Sometimes the biggest savings come from questioning the assumption that you need to buy the same thing every time. Lucas: Right. So if you're a buyer staring at your packaging category, maybe ask the question Dana asked: 'What if the packaging could come back?' The answer might surprise you.