Developing a cost estimation model for packaging material - Based on a multiple-case study within the food packaging industry

Abstract: Background: Historically, the use of packaging has often been regarded as a necessary evil, associated with unnecessary costs, but needed to enable distribution of goods. Today many companies have begun to realise that the packaging can have a major impact on the supply chain. For Tetra Pak, it is of great importance to be able to offer deeper insights to the costs incurred by their packages, thus being able to increase the value proposition towards their customers. Problem description: As of the current situation, Tetra Pak has limited insight into the costs that their packages incur for their customers in terms of the material used in the packages. The models in use at Tetra Pak today cannot be used to identify the costs incurred by Tetra Pak’s products specifically in the material inventories of their customers. Purpose: The purpose is to develop a material inventory cost estimation model for packaging material used for liquid food and beverages, which is able to estimate the cost of handling and storing 1000 units of packaging material in material inventory. Objectives: The objectives of this thesis are to identify and define the process undertaken in material inventory, map the process to visualise and create an understanding of the material flow, develop a general cost estimation model and to draw conclusions from the findings of the study. Method: The study is performed as a descriptive qualitative multiple-case study where mainly quantitative data has been used. The inductive approach was used, i.e. empirical data collected through observations during the case study. Conclusions: The cost estimation model can be used to calculate the total cost as well as the cost per activity for 1000 units of material, enabling the user to identify which activities have greater or less impact on the total cost. However, when calculating the cost per 1000 units the consumption period of 1000 units is not taken into consideration which could lead to a misleading result. Another factor that affects the result is the usage of different measurement units of the materials which make some of them hard to compare. The multiple-case study has also shown that the activities’ impact on total cost differs both when comparing the same activities between cases and between different activities within the same case. Since the study is based on three cases the model cannot be used to draw statistically significant conclusions. However, since the model is to be used within the same context as the conducted case studies, chances are increased that the level of transferability is sufficient to fulfil its purpose. The authors believe that the cost estimation model can assist Tetra Pak in getting deeper insights into the costs incurred by their own packages in material inventory, enabling them to increase the value proposition towards their customers.