Including packing and handling labor in TCO reveals the true cost of packaging operations beyond materials alone. By factoring in direct and indirect labor, companies can make smarter decisions about efficiency, automation, and long-term cost savings.
Summary of this article
When you consider the total cost of your packaging operations, do you only think about materials and machinery? Many companies make this mistake and overlook one of the biggest cost factors: labour. Only a comprehensive Total Cost of Ownership (TCO) analysis gives you a true insight into what packaging actually costs.
For companies in the high-tech, medical and defence sectors, this can mean the difference between profit and loss. Let’s take a look at why labour costs are so important in your TCO calculation.
Total Cost of Ownership in packaging operations encompasses all direct and indirect costs associated with your packaging process throughout its entire lifecycle. This goes beyond just the purchase price of materials and machinery.
A comprehensive TCO analysis looks at material costs, labour costs, machine maintenance, energy consumption, storage costs, waste disposal and even the costs of quality issues. For industrial packaging, transport costs, return logistics and compliance costs are also added to the mix.
The difference from traditional cost calculations is that TCO also takes hidden costs into account. Consider the time employees spend searching for materials, resolving packaging issues or dealing with damaged goods. These costs are often substantial but remain invisible in standard accounting.
Yes, labour costs for packing and handling must definitely be included in TCO calculations. Labour often accounts for 30–50% of total packaging costs, but is regularly overlooked in cost analyses.
Labour costs go far beyond just the salaries of your packaging staff. You have to factor in direct labour costs, such as wages and social security contributions, as well as indirect costs, such as training, supervision and the time spent by other departments on packaging-related tasks.
For companies transporting complex or sensitive products, such as medical equipment or defence equipment, labour costs can be even higher. These products require specialist knowledge, extra care and often longer packing times. Without including these costs in your TCO, you are making decisions based on incomplete information.
The most commonly overlooked labour costs are indirect activities, such as material preparation, quality control, rework due to packaging errors and administrative tasks. These ‘invisible’ working hours can account for 20–40% of total working time.
Many companies overlook the time employees spend searching for and preparing packaging materials. Time spent resolving issues, such as repackaging damaged goods or correcting incorrect labels, is also often not factored in.
Training and induction time for new staff is another cost item that is regularly overlooked. Particularly in sectors with strict compliance requirements, such as the medical industry, it can take weeks before an employee is fully productive. Supervision and quality control also cost time and money, but are rarely listed as separate items in the accounts.
Start by measuring the total time employees spend on all packaging-related activities, multiply this by the fully loaded hourly labour cost, and add indirect labour costs, such as training and supervision.
Start by timing all packaging activities over a representative period. Measure not only the actual packing time, but also preparatory work, checks and finishing touches. Use a time-recording system for this, or carry out manual measurements over several days.
Next, calculate the fully loaded hourly labour costs. This includes not only the gross wage but also social security contributions, holiday pay, sick pay and other staff costs. In the Netherlands, this averages 1.3 to 1.5 times the gross wage.
Don’t forget the indirect labour costs either: training new staff, time spent by supervisors and team leaders, and the costs of quality control staff who check packaging. You can allocate these costs based on the percentage of time these people spend on packaging-related tasks.
Calculating labour costs is only useful if it helps you make better packaging decisions. In many operations, labour is not lost in one obvious place, but in a series of small, repeated actions: folding materials, adding loose foam, taping boxes, checking whether the right parts are included, correcting packing mistakes or preparing the same shipment again for a return flow. These steps may only take a few minutes each, but when they are repeated every day, they can become a significant part of the total cost of ownership.
This is where packaging design has a direct impact on TCO. A custom case, insert or reusable packaging solution can reduce the number of handling steps, make packing more intuitive and create a more consistent workflow for operators. It can also help prevent errors, damage and unnecessary repacking, especially when products are fragile, valuable or shipped repeatedly. At Faes, this is often where the real business case becomes visible: not by comparing the purchase price of one packaging solution with another, but by looking at how packaging changes the time, effort and reliability of the complete operation.
Direct labour costs are the wages of staff who actually pack products, whilst indirect labour costs cover all supporting activities, such as supervision, training, quality control and administration.
Direct labour costs are relatively straightforward to calculate. These are the hours that packaging staff spend on the physical packing process, from gathering materials to sealing the packaging. These costs can be directly allocated to specific orders or products.
Indirect labour costs are more complex, but often substantial. Consider the time spent by a team leader monitoring packaging processes, a quality control officer carrying out spot checks, or a logistics officer restocking materials. Training, process improvements and problem-solving also fall under this category.
This distinction is important for your TCO calculation, as indirect costs are often spread across multiple activities. Without correct allocation, you get a distorted picture of what packaging actually costs. A rule of thumb is that indirect labour costs amount to 25–40% of direct labour costs.
Automation shifts labour costs from direct to indirect activities and requires new calculation methods that take into account higher initial investments, lower operational labour costs and new skill sets for maintenance and operation.
With automation, your direct labour costs fall significantly, as machines take over the physical packing work. However, you will face new cost items, such as machine operation, technical maintenance and programming. These staff members often have higher wage costs than traditional packaging staff.
Your TCO calculation must also account for the depreciation of automation equipment and the costs of downtime. A faulty machine can bring your entire packaging line to a standstill, resulting in high costs for emergency solutions or outsourcing.
For a fair comparison between manual and automated packaging, you need to look at the total labour costs over a longer period. Automation often has higher initial costs but lower variable labour costs. The break-even point depends on your volumes and the complexity of your packaging process.
Would you like more insight into how you can optimise your packaging costs? At Faes, we help companies with comprehensive packaging management solutions that look not only at material costs, but at the full TCO of your packaging operations. From labour optimisation to sustainable automation solutions: we ensure you have a clear overview of all costs.
You should recalculate your packaging TCO at least annually, or whenever there are significant changes in labor rates, processes, or volumes. For companies with volatile production schedules or seasonal variations, quarterly reviews are recommended to ensure your cost calculations remain accurate and relevant for decision-making.
Implement a time-tracking system that captures all packaging-related activities across departments, including quality control, maintenance, and administration. Use activity-based costing methods to allocate these indirect costs proportionally. Regular workflow audits can help identify previously untracked activities that impact your true packaging costs.
Look beyond current labor rates to include projected wage increases, benefits escalation, and recruitment costs. Factor in consistency gains, reduced error rates, and scalability benefits. Many companies find that automation pays for itself within 2-3 years when all indirect labor savings are properly calculated, especially in high-compliance industries.
Labor costs typically represent 30-50% of total packaging TCO, with indirect costs adding another 25-40% on top of direct labor. However, benchmarks vary significantly by industry and product complexity. Focus on measuring your labor cost per unit packaged and compare this internally over time rather than against generic industry averages.
Include the full hourly rate charged by staffing agencies, plus any additional costs for training, supervision, and potential quality issues. Temporary workers often have higher hourly costs but lower indirect costs. Calculate the total cost including agency fees, training time, and any productivity differences compared to permanent staff.
The biggest mistakes include using only base wages instead of fully-loaded labor costs, ignoring setup and cleanup time, not accounting for training and supervision costs, and failing to track rework and error correction time. Many companies also overlook the labor impact of material handling and quality control activities that support packaging operations.
Thijs Canjels is Business Innovation Manager at Faes and specializes in packaging management and supply chain optimization. In his blogs, he shares insights on efficiency improvements, cost savings and the strategic role of packaging in modern supply chains.
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