Contract packaging is a manufacturing service where a company arranges for another company, known as a contract packager, to package products on its behalf.

What is Contract Packaging?

Contract Packaging involves a company known as the contract packager handling various packaging operations for another company. These operations can include:

- Primary packaging - Placing products in boxes, bags, bottles or other containers at the source of manufacture.

- Secondary packaging - Group primary packages into shipping containers like boxes, bundles or pallets. This includes labeling, tamper-evident seals etc.

- Tertiary packaging - Protecting secondary packages for distribution, warehousing and transportation using materials like shrink-wrap, stretch-wrap etc.

- Kitting/bundling - Combining different products into a single multi-part unit.

- Product testing - Conducting tests for quality, durability and regulatory compliance of packaging.

- Inventory management - Storing and managing packaged goods until they are dispatched.

Benefits for Small and Medium Businesses

Contract packaging offers smaller businesses flexibility and cost savings that come from leveraging the expertise and infrastructure of larger contract packagers. They don't have to invest heavily in packaging facilities and machinery. This allows them to:

- Focus resources on core manufacturing and sales activities instead of packaging operations.

- Quickly scale up or down production volumes as demand fluctuates without expensive capacity changes.

- Access packaging technologies and capabilities well beyond what they could afford on their own.

- Ensure packaging quality, durability and regulatory compliance through the packager's extensive experience and certifications.

- Gain efficiencies of scale from combining packaging runs of multiple clients under one roof.

Benefits for Large Businesses

Even large companies find advantages in contract packaging certain product lines for various strategic and operational reasons:

- Outsourcing non-core packaging work alleviates capacity constraints at in-house plants during peak seasons or new product launches.

- Using multiple contract packagers across regions provides distributed packaging footprint and supply chain flexibility.

- Packaging innovation and R&D capabilities of large packagers help launch new products to market quicker.

- Offloading commodity or low-margin packaging to specialists improves productivity of in-house staff.

- Outsourcing non-essential packaging reduces capital costs and overhead expenses.

Key Considerations in Partner Selection

With the benefits comes the importance of selecting the right contract packaging partner. Key factors to consider include:

- Capabilities to match product and packaging requirements in terms of materials, machinery, certifications etc.

- Proximity to manufacturing sites or target markets for efficient inbound/outbound logistics.

- Quality systems and past performance track record to ensure compliance and reliability.

- Pricing models from fixed-fee per unit to variable pricing depending on packaging complexities.

- Sustainability practices around waste reduction, energy usage and certifications like being zero-landfill.

- Financial stability as disruption in packager's operations can impact supplies severely.

- Scope for future growth through their spare capacity and ability to invest in new technologies.

Advances in Automation and Technologies

Adoption of automation has enabled contract packagers to further improve throughput, reduce costs, and minimize errors and defects. Some key technologies include:

- Robotic packaging cells are commonly used for picking, packing, palletizing/depalletizing with computer vision for quality control.

- Automated guided vehicles (AGVs) transport materials efficiently within the facility without human intervention.

- Machine learning algorithms help streamline packaging design, optimize processes and attain production targets accurately.

- Internet of Things (IoT) enabled sensors gather real-time data on operations for predictive maintenance and performance monitoring.

- Augmented/virtual reality aids staff training, remote troubleshooting and facilities/machinery simulation without physical setup.


In a highly competitive business landscape, outsourcing non-core operations like packaging helps companies achieve strategic priorities faster. Contract packaging facilitates the right balancing of capital, expertise and changing production needs for businesses of all sizes. Careful partner selection aligned with short and long term goals remains key to fully leveraging the benefits of this manufacturing and sourcing model.

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