Calculating the economic advantages of returnable plastic containers
When considering reusable plastic containers as an alternative to disposable containers or cardboard boxes, it makes sense to carry out a cost/benefit analysis. A profitability analysis (1) or profitability calculation (2) can be used to find out how economical reusable containers are compared to cardboard boxes. Of particular relevance is the calculation of the time period an investment in reusable containers will pay for itself.
What exactly is a profitability analysis or calculation?
In general, the profitability of a project or a product is determined by means of a profitability analysis. For a project or product to be profitable, it generally needs to fulfil a few conditions, the first being that it offers added value or it satisfies a need. Secondly, it should be simple, practical and economically profitable (1). Whether an investment in a project or product is worthwhile is determined with a payback, investment or cost comparison calculation. To understand its profitability, it is essential to determine exactly how the product or project is to be evaluated.
One basic definition of a profitability calculation (2) is the relationship between income and expenditure. The return of a project can also be referred to as output and the effort put into the project as the input. Simplistically, better economic efficiency can be achieved by reducing the input while maintaining the same output. Static and dynamic methods can be used in economic efficiency calculations. Examples of static procedures are calculations of cost comparison and amortisation. Dynamic procedures are the net present value and annuity calculations. The cost or profit comparison calculation compares the costs that would be incurred with different investments. The aim is to determine the investment that generates the lowest costs. The profit comparison calculation calculates the expected profits of alternative investments in different solutions. The amortisation approach calculates how long it will take until the break-even point is reached and the investment is repaid.
A calculation of the profitability of a company's projects and products is crucial for its survival and competitiveness. Therefore, whichever method is most appropriate, no business should be without one.
Procedure for calculating the economic benefits of returnable plastic containers
In the following example, the amortisation and cost comparison calculation is applied to plastic reusable containers versus disposable cardboard boxes.
A company is faced with the decision of whether to use returnable plastic containers or disposable cardboard boxes for transporting its products from A to B. The decision has to be made in advance. In order to carry out a cost comparison or amortisation calculation, important key data needs to be available.
|Cardboard boxes||Reusable containers with lid|
|Transport costs per pallet||50 Eu||50 Eu|
|Transport costs per empty pallet||50 Eu||50 Eu|
|Number of full boxes/containers that can be transported on a pallet||16||24|
|Number of empty containers that can be transported on a pallet (folded or nested)||350||68|
|Transport costs per full box/container||50 Eu/16= 3,13 Eu each||50 Eu/24= 2,08 Eu each|
|Working days per year||220||220|
|Duration of a transport cycle||/||28|
|Possible transport cycles per box||1||200|
|Price of a box/container||0,66 Eu||16 Eu|
|Costs per cycle||0,66 Eu||16 Eu/200= 0,08 Eu each|
|Costs for the retrieval of a box/container||0 Eu||0,74 Eu|
|Number of shipments per day||500||500|
|Number of shipments per year||500 x 220 (days) = 110000||11000|
The advantages of reusable containers are pretty clear in this example. Reusable plastic containers are more expensive to buy, but can be used for 200 transport cycles compared with only once per cardboard box. This means that with a purchase price of €16 and 200 transport cycles for the reusable container, only €0.08 is incurred per cycle. With the one-way cardboard box, the total purchase price of €0.66 per cycle is incurred. Apart from that, reusable containers are of course more sustainable and environmentally friendly than cardboard boxes.
As the plastic returnable containers are more stable and stackable (with lids), more full containers (24 compared to 16) can be transported on one pallet. Therefore, the transport costs per reusable container are lower (€2.08 compared to €3.13 for cardboard boxes). Of course, one-way cardboard boxes do not have to be returned, while there is a retrieval cost of €0.74 per reusable container to consider.
|Cardboard boxes||Reusable containers with lid|
|Number of boxes/containers to be purchased||110000 per year||14000 unique|
|Investment costs in 5 years||110000 x 5 x 0,66 Eu= 363000 Eu||14000 x 16 Eu= 224000 Eu|
|Assumed loss of containers due to theft, etc.||0||5 % or 700 700 x 16 Eu= 11200 Eu|
|Transport damage to boxes/containers||5000 Eu||1000 Eu|
|Number of pallet spaces used for storage||31||7|
|Costs for one pallet space||30 Eu||30 Eu|
|Number of pallets with full boxes/containers per day||31,3||20,8|
|Ordering costs for boxes/ year||5 x 150 Eu= 750 Eu||1 x 150 Eu= 150 Eu (Reordering of lost containers)|
|Costs/revenue for waste disposal or recycling||0,01 Eu pro Kartonage Kosten||-0,10 Eu (revenue per container)|
|Costs for sealing||0 Eu||8800 Eu|
|Costs for assembly/ year||110000 shipments x 0,25 Eu= 27500 Eu||0 Eu|
In terms of investment costs over a 5 year period, the plastic reusable containers cost less at €224,000 compared with €363,000 for cardboard boxes. However, it is assumed about 5% of the reusable containers are lost through theft, which results in additional replacement costs of €11,200. Since cardboard boxes can be easily damaged, this results in assumed costs of €5,000 due to transport damage. With reusable containers, this is estimated at only €1000. In addition, several other factors have to be taken into account, such as expenses for pallet spaces used, ordering costs for boxes, costs for assembling cardboard boxes and sealing reusable containers, as well as the costs for waste disposal of cardboard boxes or the proceeds from recycling reusable containers.
When do reusable boxes pay off?
Finally, all annual costs are combined in the profitability calculation or payback calculation. This then reveals the savings per year from the introduction of reusable containers for the transport of goods, which allows the payback period to be calculated. This clearly shows the better economic efficiency of (stackable) plastic reusable boxes with lids.
|Costs per cycle||Cardboard boxes||Reusable containers with lid|
|Repackaging costs (if no Pick & Pack)||0,063 Eu||0 Eu|
|Costs for box/container||0,66 Eu||0,08 Eu|
|Seals / packaging materials||0,05 Eu||0,04 Eu|
|Process costs for assembly||0,25 Eu||0 Eu|
|Transport costs to the customer||3,13 Eu||2,08 Eu|
|Transport costs for retrieval||0 Eu||0,74 Eu|
|Loss of containers||0 Eu||0,004 Eu|
|Transport damage||0,045 Eu||0,009 Eu|
|Procurement costs||0,007 Eu||0,001 Eu|
|Costs for waste disposal||0,010 Eu||0 Eu (There may even be revenue here, but this is not taken into account in the calculation)|
|Load securing costs of the pallet per container||0,125 Eu||0,021Eu|
|Storage costs||0,009 Eu||0,002 Eu|
|Costs per cycle||4,343 Eu||2,976 Eu|
|Costs per year||110000 shipments x 4,343 Eu= 477730 Eu||220 days/28 days x 14000 containers x 2,976 Eu= 327360 Eu|
|Savings per year||150370 Eu|
|Payback period||224000 Eu (investment costs)/ 150370 Eu (savings per year) = 1,49 years around years|
After calculating the respective costs per cycle for the disposable box as well as for the reusable container, the costs per year can be determined. With 220 working days and a cycle duration of 28 days, a plastic container creates approximately 7.86 cycles per working year. With 14,000 containers and cycle costs of €2.976, annual costs of €327,360 are incurred. If these costs are subtracted from the annual costs for the disposable boxes (€477,730), an annual saving of €150,370 is achieved through the use of reusable conctainers. Dividing the investment costs (input) by the savings per year (output) results in a payback period of about 1.5 years.