By Rich Thompson, managing director of supply chain & logistics solutions for the Americas at Jones Lang LaSalle
Omni-channel strategies are helping chain stores compete with pure-play e-commerce retailers, but it is also driving major changes in their e-commerce logistics models. In an omnichannel strategy, which seamlessly integrates sales channels such as the store, web and/or mobile, consumers can choose the most convenient way to order, receive and return their purchases. To help meet aggressive delivery commitments, chain store retailers are looking to squeeze all possible efficiencies from their supply chain. An often overlooked opportunity to help achieve this goal is packaging optimization.
In today’s data-driven world, there are now ways to analytically assess and optimize the size and shape of boxes that are shipped around the world. Understanding the optimal size and shape required has multiple positive impacts. First, it reduces the amount of corrugate required. Second, it reduces excess space (“air”) in the box which results in less damage. Third, it improves the density of the goods being transported (e.g., more packages in a truck) which results in few trucks and therefore lower freight costs. And lastly, less corrugate, less filler, and fewer trucks equals sustainability benefits.
However, packaging engineering is not typically part of most supply chain organizations’ strategy and physical distribution is not taken into consideration when designing consumer packaging. Traditionally, the focus is on consumer appeal, as expected, but retail supply chain specialists should be taking a closer look at packaging design as another way to optimize the supply chain.
Cost Reduction Opportunities
Consumer product firms often view packaging as a marketing responsibility while industrial businesses see it as an engineering function. We believe that packaging design should be determined by both marketing and supply chain practitioners because the shape, design and strength of the “box” can have a significant impact on operating costs.
In an effort to reduce corrugated costs, we have seen many companies push their warehousing and transportation costs higher. However, saving nickels in packaging by spending quarters in logistics reduces the bottom-line profit.
Shipping density, meaning the weight per cubic foot, is a critical cost factor. Shipping 100 pounds of feathers can be more expensive to transport than shipping 100 pounds of ball bearings. By designing shipping cases to fit more on a pallet or in a truck logistics expenses will decrease. In fact, the average total cost of corrugate, warehousing and transportation can be reduced as much as 10 percent using a packaging optimization strategy.
Complexity Versus Efficiency
Companies that ship multiple products face the basic trade-off of complexity and efficiency. Using the same box size for all products generates the least complexity, while a unique shipping case for each product means the highest efficiency. Realistically, neither extreme is valuable. Determining the optimal number, size and shape of shipping containers for the lowest total cost is the exact point where complexity and efficiency meet – and it’s different for each company. There are consulting firms that specialize in this area and packaging design has now become a science.
Global retail giant Wal-Mart has demonstrated the significant cost, sustainability and efficiency opportunities resulting from packaging optimization. For example, a few years ago Wal-Mart redesigned the shipping cases of 200 products. The packaging case redesign eliminated 727 ocean containers per year that transported the products between Asia and North America. This translates to savings of more than $2.5 million annually (assuming each freight container costs $3,500, a conservative estimate).
Lee Scott, the former Chief Executive Officer of Wal-Mart, announced that a five percent reduction in packaging will save Wal-Mart and its suppliers $10 billion. This five percent reduction in packaging translates to removing 213,000 trucks from the road, eliminating 66.7 million gallons of diesel fuel and generating $34 billion in savings across the extended supply chain.
A recent IBM survey of supply chain executives found that “packaging design and optimization” was the number one supply chain-related sustainability initiative. This is not a surprise as implementation is under your complete control and the benefits are proven.
Other examples and success stories are plentiful, but it is our experience that only a minority of companies have dedicated the time to explore the potential. Thinking outside the box as it relates to your packaging design is only going to grow in importance as retailers continue to realize the cost savings, supply chain efficiencies and sustainability benefits of employing a smart packaging optimization strategy. As U.S. chains increasingly focus on international markets for growth, looking for ways to streamline their in-country supply chain will be another tool to compete with local competitors and capture some of the online retail sales that are expected to exceed $1.2 trillion* globally this year.
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Rich Thompson is managing director of supply chain & logistics solutions for the Americas at Jones Lang LaSalle. He can be reached at [email protected].
*data from Emarketer