Container cost will continue to be a prime issue in beverage manufacturing. It is a major factor related to manufacturing cost and market selling price usually discussed in bottom line terms and objectives. However, when analyzing manufacturing cost per case, important details and significant issues surface for consideration.
First, define components for manufacturing cost per case and Second, determine significance in magnitude and cost. Two components are basic to beverage case direct cost: 1) raw materials and 2) packaging materials. Raw Material costs (whether CSD, beer, juices or others) are established by suppliers (providing concentrate, sweetener, grain, hops and others) which are driven by demand, availability and market prices. Some beverage manufacturers developed in-house raw material sources, but it is the exception and may not always be effective or practical. Raw material cost per case varies with the product and could be 15 to 20 percent of total case cost.
Packaging Material costs (primary, secondary and tertiary items) also are established by suppliers, technology and available sources; however, beverage manufacturers began developing in-house sources. Uniform specifications, quality, volume and availability became problems and in-house sourcing was a solution. Packaging materials compared to raw materials offer a practical opportunity for beverage manufacturers to investigate and initiate in-house sources. Because packaging materials (containers) are a volatile item, alternative sources have become a serious priority. Packaging material cost also varies with product/packaging configuration and could be 80 to 85 percent of total case cost. For this reason, packaging materials are high priority issues to bottlers. Let's look at some issues.
Package proliferation has prevailed for several years, (new products and configurations) and it has had a significant impact on container handling methods, machinery requirements and changeover frequency required to accommodate new products and marketing programs.
Product ingredient costs have increased, but they do not compare to the package increases especially in containers. The container procurement process, from competitive suppliers, or self-manufacture raises cost issues of 1) design, 2) materials, 3) compliance, 4) production compatibility and 5) losses that must be realistically and effectively resolved.
Availability, transportation, handling systems, change frequency and cost are a few challenges beverage manufacturers must address when considering the "do-it-yourself" mode of operation. Basic goals of container manufacture may be quality material, availability and cost reduction, but there are other potential operational issues that container self-manufacture presents requiring critical decisions and actions.
The first issue is physical space required to lay out and house production equipment and support systems for container production capability. In some instances, beverage producers manufacturing their own containers have separate plants dedicated to their requirements. This was the case when glass bottles were a large portion of the package mix and separate bottler-owned glass plants were in operation. The space factor is a major reason self-manufacture of PET bottles, which has existed for many years, has been on a limited basis. Currently self-manufacture has been installed by those who can justify space creation expense or alternatives.
The second issue is investment capital needed for physical facilities, machinery and equipment and personnel. The cost of injection and blow molding equipment with required support systems must be weighed against previous supply sources and costs.
The third issue is the range of container sizes projected for the self-manufacture operation. The expense for flexible equipment and mold changes to satisfy volume and package requirements could become an issue and must be economically justified. The Fourth issue involves acquisition and training of qualified personnel an absolute necessity for operation of complex self-manufacturing equipment. As mentioned, PET bottle manufacture has existed for many years; however, technological changes in containers, equipment, processes and knowledge have occurred.
The container may justifiably be classified as the most expensive packaging item in the beverage case cost equation. A few of the major cost issues and factors have been discussed; however, specific detailed items such as container finishes, closure sizes, material light-weighting, custom design and dependable, economical sources of supply will continue to challenge beverage manufacturers to produce a practical, safe and user-friendly container. The beverage industry must ensure that containers, the life line conveyance to the consumer, must serve a multi-purpose environment. BW
John Peter Koss, a beverage operations advisor, has more than 40 years of beverage business experience associated with General Cinema Beverages, Inc., Carling Brewing Company and Pepsi-Cola Company. He was an assistant professor of industrial engineering at Kent State University. Contact him at +1 305/829-3631. Fax: +1 305/829-2484. E-mail:
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