Trimming excess packaging could bring 10% payoff
Packaging may not be the first place logistics professionals look when searching for savings opportunities. Maybe it should.
When Jack Ampuja gives a talk on packaging, he brings along a visual aid: a shipping carton he received that’s big enough to hold its contents several times over. His point is one familiar to most logistics professionals: Businesses ship a lot of air, driving up costs in a number of ways.
Ampuja, who is president and CEO of the consultancy Supply Chain Optimizers, says more often than not, the problem is simply lack of awareness. Companies typically select packaging based on marketing or other considerations without giving much thought to the supply chain implications, he says. As a result, they end up using more packaging than they need, creating enormous waste and unnecessary expense. He advocates with some passion that logistics professionals should become more involved in decisions about the packages their companies use to ship freight.
Package selection has taken on added importance in recent years as carriers—particularly parcel carriers—have begun imposing dimensional weight rules. Under those rules, the size of a package that’s over three cubic feet can matter more than the weight when it comes to determining the freight charge, especially if the shipment is not very dense. Shippers have learned the hard way—through chargebacks by carriers—that they’d better be as aware of package dimensions as they are of package weight.
But the dimensional weight issue is just part of the reason Ampuja urges logistics professionals to take more control of packaging. Cost enters into it too, he says. Packaging has significant effects on logistics costs well beyond the price of cartons and filler. For instance, it can have a big impact on transportation expenses. The more packages you can fit on a pallet, the more packages you can get in a truck, thereby reducing the number of trucks needed and the amount of fuel used—important issues from both a cost and a sustainability perspective.
Then there’s the issue of damage in transit. Randy Neilson, vice president of Quantronix, maker of the Cubiscan line of dimensioning equipment, adds that tighter packaging also means less shifting of goods within cartons, which reduces the potential for product damage.
There may even be regulatory compliance considerations. André Johnson, CEO of FreightScan, a company that makes cargo dimensioning products for carriers and some shippers, tells of customers who have used the dimensional data to back up their dimensional weight shipping costs as part of their companies’ Sarbanes-Oxley compliance. “Shippers have told us that their dim weight charges have been questioned by their compliance people,” he says. “They want to know how [shipping] knows the charges are accurate, since they are attesting that they are true. This is how they know.”
Some companies may even face business pressure to avoid wasteful packaging. Wal-Mart Stores Inc. has launched a “packaging scorecard” for suppliers as part of an initiative to reduce packaging across its global supply chain 5 percent by 2013, based on a 2008 baseline. Shippers are rated on several criteria, among them the ratio of the product to the package, cube utilization, and transportation—all issues directly related to the size of the box. Late last year, Wal-Mart said it will roll out the packaging scorecard across most of its markets worldwide by the end of this year.
Wal-Mart expects the initiative to take some $10 billion in costs out of its supply chain, including transportation savings, with most of that going to its suppliers. That might sound like an ambitious goal, but Ampuja thinks the Wal-Mart targets should actually be relatively easy to achieve. “They should blow through that,” he says. “I think for most companies, there is at least a 10-percent opportunity.”
Nothing to lose, much to gain
Ampuja’s own experiences with packaging optimization attest to the savings potential. He cites one customer (a retailer whose identity he cannot disclose because of a confidentiality agreement) that realized big cost reductions just by revamping its lineup of shipping cartons. Based on the results of an analysis Supply Chain Optimizers conducted over its 16,000 SKUs, the retailer eliminated nine of its 16 box configurations, then added 12 more for a total of 19. Increasing the number of options might sound like a step in the wrong direction, but Ampuja says the move actually reduced the total number of cartons used by 5 percent. In addition, the client expects to see a 5-percent reduction in outbound shipping weight, a 7-percent reduction in dim weight, a 28-percent improvement in outbound-case cube utilization, a 21-percent reduction in corrugate, and a 41-percent reduction in filler material. The net result: a 5-percent reduction in overall freight costs.
That’s just one example of the kind of savings that can be achieved through packaging optimization. Ampuja cites another customer, a company that recycles used auto parts, that parlayed a minor packaging change into a rate reduction. By redesigning the packaging for a single part, it was able to take its freight class from 250 to 150, resulting in a 40-percent reduction in rates. Of course, it’s not enough to simply conduct a packaging optimization analysis. Once you have the results in hand, you then have to do something with them. One option is to incorporate tools into the warehouse management system that ensure the right carton is used for each shipment. For example, Nielson of Quantronix suggests programming the system to determine the right carton based on the dimensions of the shipment and then convey those instructions to workers on the line.
Ampuja does not argue that packaging should be solely the responsibility of logistics; he acknowledges that there are plenty of marketing, antitheft, and other considerations that factor into packaging decisions. But he believes it is critical that logistics get involved in packaging decisions early on. “I would love companies to see it as a team exercise,” he says.
On the overall need for logistics professionals to give more thought to packaging, Ampuja borrows a quote from the famed bank robber Willy Sutton. Logistics managers should focus on packaging “because that’s where the money is,” he says.