Costs Uncovered

Thermal covers have proved to be a very cost-effective means of ensuring that pharmaceutical products can be transported safely. However caution is advised. The financial and non-quantifiable costs of some protective cargo cover systems can be eye-wateringly high when their total-cost-of ownership is considered.

There is an old adage which say that ‘you get what you pay for’ but at the same time no-one wants to get ‘ripped off’ and pay more than necessary for anything. Today’s pharma-logistics supply chain is more complex than ever and it can be extremely difficult to untangle the real costs of some of the cold-chain packaging solutions that are out there. This paper provides guidance on how to approach the evaluation of thermal cargo covers from a total cost of ownership (TCO) perspective in order to arrive at an optimum cost/performance balance.

When you consider the total cost of ownership of a product or asset you are considering its economic impact over a complete period of possession rather than just at the point of its initial purchase. Such an analysis can enable alternative products to be objectively compared on the basis of overall value rather that just initial cost. As many people know, the cheapest products to buy are rarely the cheapest to own in the long run. For example, everyone knows that an old car starts to cost an increasing amount as it gets older and starts to wear out.

Similarly, when determining the total cost of ownership of a thermal cargo cover one needs to consider the performance of the cover against both its initial purchase cost and costs in use. By considering in all the associated costs and benefits associated with a product over its normal life cycle, decision makers can make informed choices concerning the optimum product or solution for their specific needs.

What is TCO?

TCO = Initial Cost + Ownership Costs + End-of-Life Costs – Residual Costs

TCO vs Cradle-to-Grave Costs

On the face of it total-cost-of-ownership (TCO) and whole-life-costing (or cradle-to-grave – C2G – costing as it is sometimes called), are more or less the same thing. They both take a long-term view on the cost of owning and using
an asset. But in fact they each have different scopes and relate to different time perspectives. The TCO of a product relates to all the tangible costs incurred by the asset owner or user, both direct and indirect, including acquisition,
ownership and ultimate disposal throughout a period of ownership. A whole-life cost analysis, on the other hand, extends this to include all the costs and consequential impacts borne by third-parties that relate to the product’s use.
These include the environmental and social costs of creating and using a product which accumulate all the way from the point of raw material extraction, through product usage, to its eventual long-term disposal.

However, these environmental and social consequences can be very intangible and very uncertain in nature and the inclusion of these elements into any cost-of-ownership exercise must be undertaken with very great care to avoid
distorting the result. Environmental impacts, for example, can be extremely difficult to identify and even harder to measure accurately. Add to this the difficulty of financially quantifying these impacts and it is easy to see how some
whole-life-cost analyses can be of limited value as the basis for rational purchasing decisions.

Which suggests that unless the environmental impacts are both beyond doubt and readily quantifiable they should be left out of the equation when it comes to determining the TCO of a product or asset. This is not to say that these
factors should be completely ignored but it may be more sensible to consider these longer-term impacts separately, on a non-financial basis if necessary, and then cautiously factor the results into any subsequent purchasing decisions.

Components of Total Cost

In order to provide a fair and meaningful assessment of the TCO of a cargo cover, one that we can use as a basis for making selection decisions, we need to consider all the costs, both tangible and intangible, that are incurred from the point of purchase of the cover to its eventual disposal. This time-span equates to the operational life-cycle or ‘service life’ of the product.

Tangible Costs in Use

Prime cost

Since the initial, up-front, purchase cost of a thermal cargo cover is easy to establish and can be easily compared, it is hardly surprising that buyers and specifiers are preoccupied by this measure when it comes to selecting products. It is simply the net price paid for the acquisition of the cover.

Fitting costs

Different cargo covers can take widely differing times to correctly install on pallets. In particular, covers that are effectively fabricated in-situ from spools of insulation material, as well as only being as good as the standard of assembly are particularly labour-, time- and space-consuming.

Training costs

Most pre-shaped, factory-produced thermal cargo covers require minimal training to use correctly although with some types great care must be exercised in order to minimise the risk of cover damage from box corners, load projections etc. Spooled cover materials, however, need much skill to use and apply correctly if unacceptable risks are to be avoided and the cost of the necessary training required for this must be offset against any perceived
savings.

Storage costs

The materials in common use for thermal cargo covers vary widely in terms of volumetric bulk and this can impact heavily on the storage costs involved. Cargo covers which employ bubble air-entrapment, for example, can be
very difficult to store since they are extremely voluminous and there is no possibility of compression storage.

Fibrous insulation, on the other hand, may provide equivalent thermal performance for a much lower volume and can generally be compressed or vacuum-packed for a significantly reduced storage requirement.

Transportation costs

Reusable covers tend to be heavy and high bulk. The volume of some thermal cargo covers in particular can make a noticeable contribution to air-freight costs due to the addition of dimensional weight charges. It also results in a reduction of the shipment pay-load which can add up to a significant on-cost especially once more with airfreight. And if it is not possible to use the cover for a reciprocal product on the return leg then, again, the product will benefit if it has good compressibility characteristics to minimise volume.

Other volume/weight considerations

Cargo cover bulk and weight does not just impact freight and storage costs. Larger/heavier covers make handling and fitting much more difficult and labour-intensive, often needing additional personnel and mechanical aids.

Transactional costs

These are another important consideration when to comes to cost. Sometimes low prices mask ‘hidden’ surcharges and unfavourable commercial terms. There may, for example, be penalties for ordering in small quantities or insufficient discounts for ordering large quantities. In some cases the credit terms attached to a low price can be disadvantageous.

Disposal costs

Most plastics such as spun-bonded polyethylene can normally be recycled 4 to 5 times before physical properties are substantially affected. However, some other plastics are not suitable for recycling and either end up in land-fill or are ‘downcycled’ into lower-grade products. It is important to note that even where a product is manufactured from recyclable materials, if it is made from different materials that are intimately connected to each, such as bubble/foil
laminations, this will almost always render the cover unrecoverable due to the cost or physical impossibility of separation. Another problem relates to the fact that the micro-contamination that tends to accrue over a multi-use product lifecycle can often render a product completely unrecycleable.

Intangible Costs

Of course, not all ownership costs and impacts can be quantified financially. As we have noted, for some ramifications of owning a product it can be fiendishly difficult to determine a valid monetary value. For these factor, such as the risk-related examples that follow, it may be possible to allocate ‘weighting factors’ based around a qualitative judgement as to their impact, positive or negative, on the overall value of the product under consideration.

Damage costs

Some materials used for thermal cargo covers are very easily damaged and the consequential costs of the resulting cover failure or impairment should always be considered. For example bubble-wrap materials are easily abraded and penetrated and any such damages will seriously degrade or destroy insulation performance. Other materials such as fibrous insulation, are much more damage-tolerant and some minor damage will, effectively, ‘self-heal’. However, handling damage is never completely avoidable so when it does occur it is important that it is visible and that the protection afforded, in minor cases, is not materially reduced.

Always ask:

Product failure costs

The determination of the quality and serviceability of a thermal cover is part of the overall risk analysis that should be applied to any product designed for pharma protection. Although a low-cost thermal cover might perform well in controlled thermal chamber tests and may sail through a limited number of qualification runs, when choosing a cargo cover consideration must always be given to the cost of failure in the event of malfunction under field conditions. Cheap covers, site-fabricated covers and blankets made from easily damaged membranes are prone to random failure. And when, or if, they do, there is not only the possibility of product loss, but also lost time, lost business, investigational costs, significant administrative and reporting hassle and potential regulatory default. It only takes a single failure for a low-cost thermal cover to become a very expensive solution.

Supplier failure costs

The stability and security of a supplier should always be taken into account when appraising a thermal cargo cover solution. The relatively low cost of entry for a company to come into this market can result in the emergence of suppliers that have little experience in this field, do not have a global reach, are poorly financed and have little in-house R&D facilities or technical resources. Such suppliers can be a high-risk option when selecting products that are designed to protect high-value health and life-significant pharmaceuticals.

For best value go TCO

Uncovering the total cost of ownership of a cargo-cover system is a necessity when comparing vendors, selecting products and in order to budget accurately and control costs. The ‘hidden costs’ of using some products will
completely overshadow the initial purchase price and there are a number of risk factors that must also be built into the value analysis. Looking at the cost over the long-haul is what most people do when they buy a car. The same logic applies to cargo covers. By doing a careful TCO assessment up-front you will save lot of time, money and aggravation further down the road.

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