With the rapid rise of eCommerce trade, many business owners benefit from the opportunities provided by online sales. In the past, in order to start selling products, companies needed to invest a lot in manufacturing, marketing, distribution, and various other processes. Nowadays, businesses have the opportunity to outsource virtually every process. That’s why it’s easier than ever to start a business. In this article, we’ll share more about contract packaging, also referred to as co-packing. This is one of the hot packaging trends that is definitely here to stay. Make sure to check out other posts on subjects like wholesale packaging and eco-friendly packaging.
What Is Contract Packaging
Contact packaging is when a business partners with another company that manages the whole packaging process. Sometimes that’s only primary packaging while in other cases it includes secondary packaging as well. Besides different types of packaging, some co-packer companies also offer services such as inventory management, market distribution, and fulfillment.
Outsourcing the packaging process is often done by small businesses that don’t have the capabilities to do packaging in-house. In addition, contract packaging is also suitable for bigger brands. Outsourcing various business processes gives them the opportunity to focus on what they’re good at.
Some co-packing companies specialize in certain industries. For example, they might primarily work with businesses in the food and beverage industry. Others follow the demand for eCommerce packaging solutions and focus on sustainable eCommerce packaging.
What Is In-House Packaging
Contract packaging is the main alternative to in-house packaging. With in-house packaging, the whole packaging process is done by the business that sells the products. The main benefit of in-house packaging is that businesses have better control over a variety of things like the packaging design.
Key takeaway: Contact packaging means outsourcing the packaging process to a third-party provider. Companies that offer this service often provide additional benefits such as professional packaging design or the opportunity to partner in co-manufacturing, fulfillment, or third-party logistics. Contract packaging has no initial costs and can be the optimal choice for smaller businesses.
Pros of Contract Packaging vs In-House Packaging
There are multiple reasons to outsource the packaging process to a third-party partner. Let’s examine some of them.
- No initial costs. If you decide to partner with a contract packaging vendor, you don’t need to invest in expensive machinery.
- Lower labor costs. Although there are many innovations in the field of packaging automation, the process still requires staff members. With in-house, a business needs to hire employees and train them regularly.
- Lower warehousing costs. Some types of packaging can be quite bulky. That’s why in-house packaging leads to higher storage costs. Businesses that partner with co-packer vendors don’t need to worry about warehouse packaging space.
- Better knowledge in the field. The whole business of contract packaging companies is related to this field. That’s why these vendors have excellent knowledge of the trends in the field. Whether it’s recyclable packaging or new design, co-packers can find optimal solutions for their clients.
- You can focus on other aspects of the business. The main reason why the dropshipping model became extremely popular is that it allows businesses to forget about manufacturing, packaging, and shipping. Instead, they can focus on marketing. This gives a much shorter path to maximizing profits. The same is true for contract packaging. If you outsource the packaging process to another company, you can focus and specialize in other parts of the business.
- Potential to outsource other processes as well. Vendors that offer contract packaging might also provide other services like co-manufacturing or fulfillment. That means partnering with a provider of co-packing services can open the door to successful collaboration in other fields as well.
Cons of Contract Packaging
Although co-packing is a great alternative to handling the packaging process on your own, there are disadvantages to it as well. Here are the main ones.
- Less control. The reason why a lot of companies prefer to handle packaging on their own is that they can have full control over the whole process. This makes it faster to introduce custom packaging or switch design. Outsourcing the task to a co-packing vendor might also lead to poor quality control.
- Potential delays. Contract packaging companies work with many clients. That means businesses with higher turnover might be prioritized over small companies. This can cause shipping delays or low-quality service in some cases.
- Problems with scalability. If you wish to scale your business, it’s recommended to have full control over all processes. That includes packaging. Partnering with a co-packing company can cause difficulties if you wish to rapidly increase sales.
- Higher costs in the long run. In-house packaging is an investment. Even though it’s not economically optimal for small businesses to purchase packaging machinery and hire staff, it might be necessary to do so in the long run. Contract packaging reduces the profit margins and is rarely the right choice for big companies.
- No know-how. If you decide to work with a co-packing vendor, that means you won’t get any know-how about the packaging process. That can be troublesome in the long run as your business won’t know the trends in packaging automation or combining the process with warehouse scanning.
Frequently Asked Questions about Contract Packaging
The BlueCart team has helped many businesses with useful tips and information on a variety of topics. Below you can find the answers to commonly asked questions regarding contract packaging. If you’re interested in the packaging industry, make sure you check our posts on packaging tips for shipping and sustainable packaging.
Is Co-Packing the Same as White Labeling?
No. Co-packing refers to the practice of outsourcing the packaging process to a third party. However, all processes related to manufacturing are still done in-house. On the other hand, white labeling means hiring a company to manufacture goods under your brand. That might or might not include the packaging process as well. Generally speaking, most businesses that benefit from white labeling services also prefer to outsource other processes. That’s why many providers of white-label services offer packaging and 3PL too.
How to Choose a Co-Packing Company?
Choosing a contract packaging provider should be done carefully and after thorough research. There are multiple factors to be considered when picking a partner for manufacturing or eCommerce packaging. Here are a few.
- Market knowledge. Some contract packaging companies specialize in certain fields and niche markets. Consider hiring a co-packer with experience in your specific industry.
- Scalability. All businesses strive to grow. When choosing a contract packaging partner, make sure they can keep up with your growth goals.
- Flexibility. For some brands, the quality of the packaging is a top priority. Others aim at lower packaging costs. It’s important for your potential co-packing provider to offer flexibility in this and other areas.
- Additional services. When searching for a contract packaging provider, it can be beneficial to partner with a company that offers other services as well. Shipping, handling, and fulfillment are good examples.
What is Co-Manufacturing?
Co-manufacturing means outsourcing either the full production process or part of it. It’s also known as contract manufacturing. A lot of companies that offer this service also provide contract packaging. Businesses might benefit from co-manufacturing as a way to reduce the cost of goods sold and boost production. It’s a good option for brands that wish to introduce new products to their portfolio but don’t have the manufacturing capabilities yet. Contract manufacturing can also be used to prove a concept without investing a lot in equipment.