Total Cost of Ownership evaluation helps companies understand the full financial impact of packaging decisions beyond the purchase price. By mapping direct, operational, maintenance, risk, and end of life costs, businesses can make smarter, more sustainable packaging choices.
Summary of this article
When choosing industrial packaging, you probably look at the purchase price first. But that price doesn’t tell the whole story. Cheap packaging can end up costing you much more due to repairs, replacements, or damage to your products.
A Total Cost of Ownership (TCO) evaluation helps you identify all the costs associated with a packaging solution: from purchase to disposal, and from maintenance to downtime. In this article, we’ll walk you through the TCO analysis process step by step, so you can make informed decisions about your packaging strategy.
Total Cost of Ownership (TCO) is the sum of all costs associated with purchasing, using, and managing a packaging solution over its entire lifecycle. It includes not only the purchase price but also operational costs, maintenance, training, storage, and disposal costs.
For industrial packaging, a TCO analysis is indispensable, as the actual costs are often much higher than the initial investment. A robust flight case, for example, may be more expensive to purchase, but through reuse and lower replacement costs, it can ultimately prove cheaper than disposable packaging. A TCO analysis helps you uncover these hidden costs and identify the most cost-effective solution.
Especially in sectors such as high-tech, medical, and defense, where products are highly valuable and sensitive, the wrong packaging choice can lead to costly damage. A TCO analysis prevents you from making decisions based solely on the purchase price, while other factors have a much greater impact on your total costs.
A comprehensive TCO evaluation for industrial packaging must account for all direct and indirect costs incurred throughout the packaging’s lifecycle. These costs fall into different categories, each of which has its own impact on the total cost.
Direct costs include the purchase price of the packaging, any modifications or customization, and transportation costs for delivery. This also includes training employees on how to use new packaging, as well as any necessary tools or accessories.
Operational costs are often the largest expense. These include labor costs for packing and unpacking, storage costs for empty packaging, insurance premiums, and costs for return logistics for reusable packaging. This also includes any downtime caused by damaged products or delayed deliveries resulting from packaging issues.
Maintenance costs and replacements constitute another important category: repair costs, spare parts, and the complete replacement of packaging that has reached the end of its service life. Finally, there are disposal costs and any costs associated with recycling or reusing materials.
Calculating TCO for industrial packaging follows a systematic approach where you add up all costs over the expected lifespan and then convert them to costs per use or per period. Start by determining the time horizon, usually 3 to 10 years, depending on the type of packaging.
Start with the initial investment costs: purchase price, customization, training, and implementation. Divide these one-time costs by the expected number of usage cycles or years. For a flight case that costs €500 and is used 200 times, the initial cost is €2.50 per use.
Next, calculate the operational costs per use. Add labor costs for packing and unpacking, storage costs, transportation, and insurance. Packaging that requires 15 minutes of extra packing time at an hourly wage of €30 adds €7.50 to the operational costs per use.
Add maintenance and replacement costs by dividing the estimated lifetime costs by the number of usage cycles. Also include risk-related costs, such as the probability of product damage multiplied by the average cost of damage. The sum of all these components gives you the TCO per use or per period.
At Faes, we help companies look beyond the purchase price of packaging. A total cost of ownership evaluation requires insight into the full packaging lifecycle: engineering, production, assembly, handling, transport, storage, maintenance, reuse and eventual replacement. That is why we combine packaging development with practical knowledge of logistics, supply chain processes and technical requirements.
For companies with high-value, sensitive or mission-critical products, Faes can support the TCO evaluation by mapping direct and indirect packaging costs, identifying hidden risks such as transport damage or inefficient handling, and translating those insights into a packaging solution that fits the application. This may include custom engineering, production and assembly, system integration, testing and specification support, reusable packaging concepts and guidance around relevant standards or certification requirements.
In this way, Faes does not only supply packaging. We help companies make better packaging decisions based on cost, risk, performance and long-term value.
TCO and lifecycle cost analysis (LCA) are related but distinct approaches to cost evaluation. TCO focuses specifically on all financial costs an organization incurs during the ownership and use of an asset, while LCA has a broader scope that also includes environmental impact and societal costs.
When calculating TCO for packaging, you look at direct costs such as purchase, maintenance, storage, and disposal from your organization’s perspective. It concerns the actual cash flows your company experiences. LCA, on the other hand, examines the full impact of a product, including the environmental consequences of production, use, and disposal, even if these are not directly passed on financially.
In practice, both analyses complement each other. TCO helps you find the most cost-effective solution for your business, while LCA provides insight into sustainability aspects. For industrial packaging, TCO is typically used for investment decisions, while LCA helps in making sustainable choices that can also be financially beneficial in the long term due to regulations or reputational benefits.
Collecting accurate data is the foundation of a reliable TCO evaluation. Start by documenting current costs through analyzing invoices, labor records, and operational data from existing packaging processes. This provides you with a realistic baseline for comparison with new solutions.
For new packaging solutions, gather data from multiple sources. Ask suppliers for detailed cost breakdowns, including maintenance contracts, spare parts, and training. Benchmark comparable implementations in your industry or request references from other users for realistic experience-based data.
Collect internal data by involving various departments. Logistics can quantify transportation costs and storage space, HR provides labor costs and training time, and finance has data on insurance and depreciation. Operational teams can estimate packing times and usage frequencies.
Validate your data by conducting pilot projects or tests where possible. A short trial period with a new packaging solution provides concrete data on labor costs, ease of use, and any unforeseen costs. Also document risk factors such as seasonal fluctuations, volume variations, and potential regulatory changes that could impact your TCO.
The most common mistake in a TCO analysis is underestimating or overlooking operational costs. Many organizations focus too much on the purchase price and overlook labor costs for handling, storage costs for empty packaging, or return logistics costs for reusable solutions.
Another common mistake is using overly optimistic assumptions about lifespan and usage frequency. Packaging that can theoretically be reused 500 times may not reach that number in practice due to loss, damage, or changing needs. Use conservative estimates and build in margins for unforeseen circumstances.
Ignoring indirect costs also leads to incorrect conclusions. Downtime caused by damaged products, additional insurance premiums, or costs associated with quality claims can drastically impact the TCO. These costs are harder to quantify but are often significant.
Finally, many organizations make the mistake of treating TCO as a static calculation. Costs change due to inflation, regulations, or changing operational conditions. Schedule regular reviews of your TCO analysis and adjust assumptions based on actual experiences. At Faes, we help organizations conduct realistic TCO evaluations, thanks to our experience with packaging management across various sectors, so you can make informed decisions about your packaging strategy.
Review your TCO analysis annually or whenever there are significant changes in operations, volume, or supplier pricing. Market conditions, inflation, and regulatory changes can impact costs substantially. Additionally, conduct reviews after implementing new packaging solutions to validate your initial assumptions with real-world data and refine future analyses.
A meaningful TCO evaluation typically requires at least 3-5 years of data projection, though this varies by packaging type. For reusable packaging like flight cases, consider 5-10 years to capture full lifecycle benefits. For high-turnover disposable packaging, 2-3 years may suffice. The key is ensuring your timeframe captures multiple usage cycles and potential replacement needs.
Calculate risk costs by multiplying the probability of damage by the average cost of that damage. For example, if there's a 2% chance of product damage per shipment and average damage costs €1,000, add €20 per shipment to your TCO. Use historical data, insurance claims, and supplier damage rates to establish realistic probabilities.
Yes, include current and anticipated environmental compliance costs such as recycling fees, waste disposal taxes, and potential carbon pricing. Many regions are introducing stricter packaging regulations that can significantly impact costs. Factor in both current compliance costs and potential future regulatory changes to avoid underestimating long-term expenses.
Normalize comparisons by calculating TCO per unit shipped or per usage cycle over the same timeframe. For reusable packaging, divide total costs by expected uses; for disposables, calculate per-unit costs including disposal. Consider operational differences like storage requirements, handling time, and return logistics to ensure you're comparing equivalent service levels.
Supplier reliability significantly impacts TCO through potential downtime, emergency sourcing costs, and quality issues. Include risk premiums for less reliable suppliers, factor in costs of backup suppliers, and consider the financial impact of delivery delays. A slightly more expensive but reliable supplier often delivers better TCO through reduced operational disruptions.
Present TCO findings with clear financial projections showing payback periods and long-term savings. Use specific examples of cost avoidance (reduced damage, lower labor costs) and include sensitivity analyses showing TCO under different scenarios. Highlight non-financial benefits like improved product protection and operational efficiency that support the business case.
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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