In today’s packaging industry there is a lot of grey area concerning the roles of packaging businesses. What exactly is the packaging company doing in-house and what are they hiring others to do for them? How many middle men are in the equation? It can get confusing for a packaging buyer to determine what the packaging company they hired is actually doing themselves and what they are brokering (outsourcing). And should it even matter to the packaging buyer?
The truth is that packaging companies will either occasionally or regularly broker any aspect of their customer’s packaging needs that they can’t normally supply in-house, whether the customer is aware of it or not. In today’s complex packaging world, everyone, to varying degrees, is a packaging broker!
However, the most important thing for you, the packaging buyer, to bear in mind is whether you are getting what you need, at a good price with attentive service.
Let me Explain…
Everyday packaging buyers contact some type of packaging company because they need some type of packaging or related service. The goal, from the packaging company’s perspective, is to judge whether the buyer is a big enough fish, then if so, net the fish. This often includes brokering (outsourcing) any or all aspects of the packaging job.
It all comes down to money. No one wants to give away a decent-sized fish.
Reasons that non-broker packaging companies behave as brokers are:
- purely monetary gain (they add a % mark-up to what they broker)
- to offer extra service to a valuable customer
- they fear the customer will go to another company if they can’t supply everything they need
- some combination of the above three.
A Few Examples of How Different Packaging Businesses Behave as Packaging Brokers:
Packaging Manufacturers act as packaging brokers to provide other types of packaging that they do not make in-house in order to complete an order and/or satisfy their customer.
For instance, let’s say a packaging buyer is using a folding carton manufacturer to supply a box for them. If that same packaging buyer also needs a foam insert to go inside the folding carton, most likely the manufacturer will attempt to fulfill this need. So, the folding carton manufacturer then acts as broker for the foam portion of the order. They would probably have a standing relationship with a foam company that they use on a regular basis.
Like manufacturers, distributors will also “broker” custom items in order to satisfy their customer’s needs. For example, if a distributor sells plastic bottles and their customer also needs custom labels to go with the bottles, but doesn’t know where to get them, the distributor might “broker” the labels and resell them to their customer.
But this all depends on whether or not the distributor has the connections and working relationship with a reliable manufacturer who can provide labels. And it also depends on whether the distributor feels that their customer is worth the effort that brokering requires. If not, at the very least, they will generally refer their customer to another business that can help them with their additional packaging needs.
Does Brokering Increase the Cost of Packaging?
Nope, the differences in cost of packaging are determined by many other factors such as:
- type of materials used
- volume (number of units ordered)
- geographic location of the packaging company
- freight / shipping
- size of the packaging company
And it is important to compare apples to apples when comparing price quotes. For example, are you comparing pricing being produced in China vs USA? If so, you should really only compare pricing within the same countries.
A Closing Thought about Packaging Businesses and Brokering
The packaging industry is often a nebulous one; confusing as to who is doing what. But for packaging buyers, the good news is that you don’t really need to worry about all of that. The only concerns should be price, quality, and services. If the price is good, the services provided are exactly what you need, and the quality is good, that is what matters most, not what is being brokered vs done in-house.
In the end, there are limits to the amount of mark-up that can be applied to any type of packaging and still remain competitive. How packaging businesses in the industry divide that up is ultimately up to them. The more middlemen involved in the equation, the smaller the piece of the pie they receive, it doesn’t mean the packaging will be more expensive.
This has been a part of my tutorial series called How to Buy Packaging 101. So click the link below to head back if you haven’t finished reading it yet. 🙂