The continuing trend of corporations to focus almost exclusively on shareholder value, rather than stakeholder value (eg customers, suppliers, employees, etc.), has made the cost of everything an overriding concern. My theory is that companies that ask for a 5% cost reduction per year are somewhat math impaired because at some point we suppliers would be sending them a stipend for the privilege of doing business with them. Device companies are getting into the habit of sending out RFP’s, Request For Proposals, and then carefully studying the bottom line of the meticulously returned spreadsheets that are typically submitted 7 or 8 minutes before the prescribed deadline. Some realize, most don’t, that what appears on the column 6 row 47 entry had very little to do with the actual true cost of the label. Some companies that generate RFP’s do have a sophisticated system with cost only being one part of the total evaluation of a supplier. My personal experience with this is very much like the Vikings record this year; five nicely designed and properly weighted evaluation tools, ten myopic bottom lined focused ones, and one on the fence. To calculate actual cost of a label, one needs to figure out the many elements of what it costs to get the labeled product to the shipping dock, what I refer to as the Total Applied Cost. Some of the elements of that are in the graphic above.
My favorite story of Total Applied Cost was not even in the medical field but involved re-manufactured power steering units. The units themselves were labeled with a high end PET label/resin TTR ribbon combo and moved down the line to the packaging area where another paper TTR label was generated for the shipping carton. Due to a number of reasons, including a line crew for which English was their second language, there were a number of mix ups of the units. This caused both shade tree mechanics and auto repair shop personnel serious angst, major league pissed in many instances, when the Chevy power steering unit they were about to install turned out to be for a Ford. The solution to the problem was to triple the cost of their labels. Both the actual power steering hard goods label and the shipping carton label were made out of PET and printed on one TTR printer with a split liner. That allowed the shipping label to remain adhered to the unit, removed, and applied to the shipping carton as the re-manufactured unit was inserted into the carton. When this solution was presented to the ‘purchasing agent’, a person whose yearly review was based on cost reduction of her commodities, the quick answer was that no, a tripling of label costs was absolutely not acceptable. When the proposed solution was presented to the Operations Manager however, he took a look at it, thought about it for about 60 seconds, and asked how long it would take to implement it and whether he could pay a rush charge to get it done more quickly. Mislabeled power steering units dropped almost to zero once the program was dialed in. The actual label cost tripled but the cost of failure, including mislabeling that affected both end users and distributors, plus taxed their shipping / receiving department with returns and quick replacement shipping costs, was so great that it dwarfed the label cost increase.
The introduction of labels sets for terminally sterilized device packaging was a similar situation. When demand printing increased in quality from the early dot matrix six line per inch printers to laser printers and thermal transfer printers, the label set became the commonly accepted method for labeling systems. Typically the Tyvek lid or pouch label, maybe inner and outer for double sterile barriers, the shelf carton label, a shipper, and a set of patient labels were all on one sheet. This could easily cost more to produce than the simple individual labels but once you used the Total Applied Cost theory and factored in the one invoice, one shipping doc, one inspection, one check cut, etc., the label set was far and away more economical than the individual parts. One of the more key things for this system is the quality aspect. If you have labels left on the sheet something is screwed up. Finally, the line never runs out of that one label that will shut down production, they are all on the one label set. The administrative, quality, and process interruption aspects are tough to measure and add a dollar value to but almost always exceed any savings realized from purchasing a cheaper label.
As I the power steering example, sometimes more expensive label stock is more cost effective when you look past the labels. Many device manufacturers shrink wrap their packages, typically SBS outer cartons over a two sided label. For this set up the typical construction is a lower grade paper sheet and a cheap wax thermal transfer ribbon. However many of our customers have worked with us and validated a slightly better face sheet with better scuff resistance and brightness and used a wax/resin TTR ribbon to print the variable info. They were able to pass the package using ASTM 4169 or ISTA protocols and get rid of the shrink wrap. Did they lower the total applied cost? When you figure the cost of the shrink film, labor to run the sealer and shrink tunnel, cost of equipment, scrap rate and down time, I think it’s pretty clear that there are a few bucks headed to the bottom line in that situation, not to mention the environmental/sustainability advantages of no more plastic shrink film.
Forward looking companies are able to understand and capture the real cost of their label program and actually move dollars to the bottom line by wisely utilizing that information. AWT Labels & Packaging can help with that process both through our years of expertise in doing just that as well as tools like a Dr. O Label Audit. That helps pinpoint areas where savings can be realized.
In the upcoming AWT World Tour, I will be in Anaheim for MDM West next week and then back to Albuquerque in March for Healthpack. Cautious packaging professionals that are concerned about the heavy snow in the New Mexico area can rest easy. I will be up in the mountains near Taos for several days prior, carefully checking and inventorying the snow pack for any potential flooding or avalanche threats to the greater Albuquerque area. I hope to see a few old acquaintances in both venues and would love to have you shoot me an email if you are going to be at either venue, email@example.com.