Cost per Good Pack: A More Useful Measure Than Nameplate Speed

Two machines can carry the same nameplate speed and still cost very different amounts to run, because the plant pays for every hour but sells only the packs that pass inspection. The decision question is how to compare scenarios on the thing that matters: what each sellable pack cost to make.

The short answer is cost per good pack: cash operating cost for a period divided by good packs produced in that period. Downtime, changeovers and rejects enter through the denominator, and equipment investment gets its own labeled line rather than being mixed into monthly cash cost.

The formula

period cash operating cost
  = labor + packaging materials + energy + maintenance
    + other non-duplicated operating spending

cost per good pack
  = period cash operating cost / good packs produced in the same period

cost per 1,000 good packs
  = cost per good pack x 1,000

“Other non-duplicated” means any operating item that is not already counted in one of the first four lines, such as consumable supplies or line-specific quality checks. The word “non-duplicated” is the point of the next section.

Four rules that prevent errors

• Same period and same currency for everything. A month of costs divided by a quarter of output, or euros divided by a dollar-denominated cost, gives a number that means nothing.
• If your packaging-material spending already includes material lost to scrap and setup, do not add scrap cost again. Material purchases or issues to the line normally include the film or pouches that ended up in rejected packs. Adding a separate “scrap cost” line counts that material twice.
• Downtime, changeovers and rejects affect cost through fewer good packs. They do not need a separate “lost output” cost line on top. Wages and overhead are paid for the hours either way; the good-pack count falls and the division does the rest.
• Use good packs actually produced, from counters or records, never nameplate speed multiplied by hours. Nameplate times hours is capacity, not output.

Where the good-pack count comes from

For the worked example, the good-pack count is built from the same logic as Why Faster Machines Do Not Always Increase Line Output. The bottleneck stage of the line, a case packer, delivers an effective rate of 35.64 good packs per minute (50 rated x 0.80 availability x 0.90 performance x 0.99 quality).

good packs per hour  = 35.64 x 60 = 2,138.4
planned hours/month  = 22 shifts x 8 hours = 176
good packs per month = 2,138.4 x 176 = 376,358 (376,358.4 before rounding)

In practice you read this number from your own counters. Deriving it here shows readers where it comes from.

Worked example: one month, two scenarios

Illustrative numbers, not a quote, benchmark or customer result.

The “improved changeovers” scenario assumes shorter changeovers raise the case packer’s availability from 0.80 to 0.85. Its effective rate becomes 50 x 0.85 x 0.90 x 0.99 = 37.8675 good packs per minute, which is 2,272.05 per hour and 399,881 per month (399,880.8 before rounding), 6.25% more than the current scenario.

Labor, energy, maintenance and other costs are held at the same level, because the same people and the same hours are paid either way. Packaging materials rise in proportion to output, because each additional pack uses film and cartons: $52,000 x 1.0625 = $55,250.

Line	Current	Improved changeovers
Labor	$24,000	$24,000
Packaging materials	$52,000	$55,250
Energy	$2,400	$2,400
Maintenance	$3,000	$3,000
Other operating spending	$2,600	$2,600
Cash operating cost	$84,000	$87,250
Good packs produced	376,358	399,881
Cost per good pack	$0.2232	$0.2182
Cost per 1,000 good packs	$223.19	$218.19

The arithmetic: $84,000 / 376,358 = $0.22319, or $223.19 per 1,000. And $87,250 / 399,881 = $0.21819, or $218.19 per 1,000. Cash cost per 1,000 falls by $5.00, about 2.2%.

Total spending went up by $3,250, yet the cost of each good pack went down. That is the effect of spreading fixed hours over more good output. If the extra packs cannot be sold, the improvement is not worth having, which is a demand question this measure does not answer.

Equipment investment is a separate line

Do not fold equipment cost into the monthly cash operating figure. A purchase is a one-time outlay, and mixing it into a month distorts both numbers.

When a comparison needs it, add a separate, labeled line using an explicit allocation assumption. For example, an installed cost of $60,000 spread straight-line over 60 months is $1,000 per month. This is an illustrative allocation, not depreciation or accounting advice.

Measure	Current	Improved changeovers
Cash operating cost per good pack	$0.2232	$0.2182
Allocated equipment cost per month	$1,000	$1,000
Cost including allocated equipment	$85,000	$88,250
Including allocated equipment, per good pack	$0.2258	$0.2207
Including allocated equipment, per 1,000	$225.85	$220.69

The two numbers answer different questions. Cash operating cost per good pack shows what the line costs to run. The figure including allocated equipment shows what it costs to run and to own, under one stated assumption. Report both and label which is which.

For what belongs in the installed figure, see The True Installed Cost of Packaging Automation. For how running hours affect whether the investment pays back, see How Equipment Utilization Changes Automation Payback.

What the measure is good for

• Comparing scenarios on one basis: a changeover change, a material change, a different crew size.
• Comparing manual, semi-automatic and automatic setups at your real monthly volume, not at the volume on a brochure.
• Spotting where money leaks. If cost per good pack rises while spending is flat, good output has fallen, and stop logs and reject counts will show why.

Where it misleads

• Very low volumes. With few packs, a small change in setup time or one bad batch moves the figure sharply, so a month of data may not be representative.
• Mixed product portfolios. A pouch of 100 g and a bag of 1 kg are not the same unit. Weight packs by a common basis, such as product weight or standard time, or calculate per product family.
• Unusual periods. A month with a long breakdown, a one-off recall, a start-up ramp or a holiday shutdown does not describe normal running. Mark it, or exclude it with a note.

Checklist for collecting inputs

• Pick one period, such as a calendar month, and one currency.
• Take labor from payroll and hours records for the people assigned to the line, including benefits. How these cost lines feed an investment decision is covered in Automation Payback, ROI and TCO.
• Take packaging materials from purchases or issues to the line, including material that became scrap.
• Take energy, maintenance and other items from invoices or work orders for the same period.
• Take good packs from end-of-line counters or pallet records, not from planned schedules.
• Write down any item you left out and any allocation you assumed.

Keep reading

• Why Faster Machines Do Not Always Increase Line Output: explains how the good-pack count behind this measure is limited by the bottleneck.
• How Equipment Utilization Changes Automation Payback: shows how running hours change the payback of the same equipment.
• Automation Payback, ROI and TCO: What Each Metric Tells You: sets out which metric answers which investment question.

Assumptions and limits

• All figures are illustrative. Your labor, material and energy costs will differ.
• Costs other than materials are held flat between scenarios. In practice, overtime, extra cleaning or higher wear can move them.
• The equipment allocation is a straight-line assumption for comparison, not a depreciation schedule. Financing, taxes, residual value and the time value of money are not included.
• The good-pack count assumes the case packer is the only constraint and that all packs produced can be sold.
• Product mix, seasonality and ramp-up are ignored.
• This is a comparison tool and does not replace financial, legal, safety or engineering review.