Packaging finished goods for shipment typically has been seen as a necessary but mundane part of the supply chain. That view rapidly is changing, however, thanks to an explosion of corporate sustainability initiatives. Suddenly packaging is getting renewed attention with an eye toward helping achieve sustainability goals.
"Sustainability and material optimization are the biggest trends in packaging right now," says Patrick Smorch, manager of packaging technology at Georgia-Pacific Innovation Institute, Atlanta. "Sustainability is largely focused on packaging because the consumer is very close to it and it is generally viewed as waste."
As with many supply chain trends, the prime catalyst for this movement is Wal-Mart, the world's largest retailer. Late in 2006, Wal-Mart CEO Lee Scott committed Wal-Mart and Sam's Club stores to a 5 percent reduction in supply chain packaging by 2013. The company expects this initiative to prevent 667,000 metric tons of carbon dioxide from entering the atmosphere. Dollar savings are projected at $10.98bn, with Wal-Mart realizing about a third of that.
To reach this goal, the company devised a new scorecard to evaluate suppliers based on their packaging performance. The scorecard was piloted in 2007 and officially went into use Feb. 1 this year. Wal-Mart buyers now use the scorecard as a tool when making purchasing decisions.
The scorecard evaluates the sustainability of product packaging based on several key metrics, including greenhouse gas emissions, product-to-package ratio, space utilization, innovation, the amount of renewable energy used in packaging production and emissions related to the distance packaging materials are transported. Suppliers receive a score in each category and can view how they rate overall compared to their competitors.
"The packaging scorecard helps everyone make better decisions that are good for business, our customers and the environment," said Matt Kistler, senior vice president of sustainability at Wal-Mart, in a statement issued in conjunction with the Feb. 1 start date. "It's important to us that our suppliers see the intrinsic value behind sustainability, both for their business and the environment."
As of Feb. 1, more than 97,000 products had been entered into the scorecard by 6,371 vendors. "It is a key responsibility of our suppliers to input new products and update packaging changes on an ongoing basis," Kistler said.
Some changes already are evident on the retail shelf. Driven largely by the Wal-Mart initiative, major manufacturers like Procter & Gamble and Unilever have reformulated their laundry detergent to be more concentrated so that bottle sizes can be reduced by almost half. The concentrated versions will fully replace existing products by the end of this year. This change has both sustainability and business benefits. With a smaller bottle, retailers can fit more bottles on shelves, meaning fewer out-of-stocks and less employee time spent replenishing product. Retailers and manufacturers save on transportation costs because more of the smaller bottles can fit on a truck. And manufacturers, which will bear the brunt of the considerable upfront costs, will save on petroleum-based plastic packaging, the price of which has been soaring due to high oil prices.
Overlooked No More
Those involved in packaging say that many such opportunities exist and they welcome the spotlight that sustainability is shining on what often has been an overlooked area of the supply chain.
"Since the advent of the Wal-Mart sustainability scorecard and the visibility that it has given to smart package design, we have had numerous requests from existing customers as well as opportunities to talk to new companies that we had tried to see in the past, with no luck," says Mark Matthews, vice president of marketing for packaging at xpedx, Loveland, Ohio. Xpedx, an International Paper company, provides logistics and distribution services as well as packaging design and optimization solutions. In its packaging engagements, Matthews says, the company typically uses a formal survey process to identify opportunities in a client's operation for more sustainable and more efficient packaging. "We look at the entire operation because it is important to make sure that anything we do in terms of package design also works in the production environment," Matthews says. "We also look for opportunities to automate functions that might in the past have been manual."
Tom Blanck, packaging solutions manager for Adalis Corp., a global packaging and supply chain solutions company based in Vancouver, Wash., says his company also has worked with Wal-Mart suppliers to help them determine how their current package designs score and how those numbers can be improved. "Often times, we can redesign a package so that it is more environmentally sensitive and also achieve cost savings," he says.
Blanck says the perception that sustainability will increase costs is wrong. "Our view is 180 degrees from that," he says. "We believe that companies can find sustainability improvements by simply packaging better to get more products onto a pallet and more pallets into a truck trailer or container." With that, he says, "you decrease your shipping costs, which also decreases fuel consumption and emissions, and you get more throughput in the warehouse. Tactical, simple changes to a package can ripple through the whole system."
Blanck cites an example in which an Adalis customer-a consumer packaged goods company with offshore manufacturing-was able to decrease the size of its container from 40" x 18" x 18" to 39.5" x 18" x 16. "That small change enabled this customer to increase the number of units per ocean container by 18 percent," he says. More importantly, most of their product was distributed via small-parcel carrier and the original carton was subject to oversized rates. The smaller box saved them 45 percent in domestic delivery costs. "A small dimensional change can make a significant impact on logistics and freight costs," Blanck says. "And the reality is, that is where the big dollars are."
A lot of companies focus on decreasing package material costs, he says, but they would get a much bigger impact by looking at how packaging affects the cost of freight and distribution. "In most companies we find that these costs are five to 10 times the cost of materials," he says. "Packaging optimization is not about getting a cheaper box, it is about optimizing weights and dimensions and getting the proper packaging for maximum cube utilization and throughput."
Such opportunities abound because companies generally "grossly over-package" products in order to avoid damage, says Matthews. That problem is exacerbated when domestic companies manufacture overseas, he says. "Many times an offshore manufacturer is charged back for any damaged product received in the U.S., yet the U.S. manufacturer pays for packaging material," he explains. "You can see the incentive-the offshore company naturally will over-package so as to avoid damage. Meanwhile, the U.S. company will experience higher unit costs because the product is over-packaged." The extra cost is not just related to materials, but also to the additional labor required, he says. "We can help companies reduce labor costs as well as material costs."
Blanck agrees that over-packaging is a common mistake. "People tend to use too much cushioning or put more strength in a package than is necessary," he says. "This works against efficiency because it results in cube utilization being less than it could be," he says.
Zero claims are a red flag that there is a problem with over-packaging, Blanck says. "Companies need to find the balance between the right amount of packaging and an acceptable amount of damage," he says. "Finding that equilibrium is a big part of what Adalis's consulting services focus on."
Of course, too much damage also is a red flag and a sign that packaging is insufficient. These situations often result when a purchasing or packaging group is told to cut expenses, says Jack Ampuja, president of Supply Chain Optimizers (SCO), Buffalo, N.Y., a supply chain and packaging consulting and solutions provider. "To meet the cost-cutting requirement, they downgrade the packaging material, but anything they save and more is lost in damages to the product during warehousing and transportation," he says.
Ampuja cites an example of an SCO customer that makes ice cream sandwiches. "When the company double-stacked its pallets in the truck, everything on the bottom got crushed," he says. The problem was that its boxes were not designed to be stacked, says Ampuja. "Once again, this was a case where the purchasing guy had reduced the strength of the box when told to cut costs. And, much to the CEO's chagrin, he got a bonus for that," Ampuja says.
In this case, as in many others, Ampuja's team was able to increase the strength of the box while also reducing materials costs. "If you size the box down to fit the product tightly all the way around, you save money and get a better box out of the deal," he says. "A smaller box is typically cheaper and stronger."
But there are other factors that also must be taken into consideration. For example, says Ampuja, the pattern in which boxes are stacked on a pallet impacts carton strength. "An interlocked pattern gives better stability but 40 percent less compression strength than column stacking," he notes. "And just a one-inch misalignment of box corners reduces compression strength by 43 percent." Carton strength also is impacted by such factors as the length of time it is in storage and environmental humidity, he says.
Being able to stack cartons and pallets in a trailer or container is important for optimal cube utilization, says Robert Kelly, packaging engineer at the Jay Group, Lancaster, Pa. The Jay Group's fulfillment division provides contract packaging and package design as part of its service offering. To employ stacking it sometimes is necessary to increase the structural strength of the box and that can require "some interesting economic equations," says Kelly. "You have to compare how much additional money is needed to beef up the box versus the savings you would get by filling that extra head space in a trailer." With today's trend in oil prices, the added materials cost usually is less than the transportation savings, he says. "As a package engineer, we routinely try to look at the total system costs for producing and shipping that package."
This gets more complicated when the supply chain is global, says Paul Sandhu, executive director of PMC Corp., Dearborn, Mich. "Many manufacturers serve international as well as domestic markets and they don't want to input two different types of packaging styles into their operation," he says. "So you have to work on finding an optimum solution that will satisfy both markets while minimizing costs."
Think Inside the Box
Compressing box sizes sometimes can be achieved by changing supporting materials inside the box. Xpedx worked with Hewlett-Packard to redesign packaging for two of its desktop computer towers. Foam accessories used inside the box were re-engineered to provide more stability in a smaller footprint, making it possible to shrink the size of the box without altering the design of the product. The result was a smaller package, less material used and lower freight costs, says Matthews.
Craters & Freighters, Denver, often helps companies redesign their packaging to use less internal material, says CEO Diane Gibson. C&F provides packaging, crating and shipping services through franchise operations nationwide. Products like highly sensitive electronics need foam stabilizers, she says, "but often less foam is better, if you use the right foam product." In other products, air-filled plastic pillows can sometimes be used to replace foam peanuts, "which can stay in the environment for a thousand years," she says. "These choices are product-specific. What works for one product may not work for another."
Another way to save on packaging expense is to rationalize carton inventories. This is needed at many companies, says Matthews, because a common mistake is to use too may different sized boxes. "When companies rationalize and consolidate the number of corrugated SKUs in their system, they are able to leverage their spend more efficiently," he says. Xpedx uses a proprietary software tool, called Global PKG, to help companies with this task. "We can load all of a company's corrugated into Global PKG and ask the software to determine the common box sizes within a 1-inch variance in each dimension," he says. "We recently used this tool with a company that makes tools for a major retailer and we took 93 box sizes down to 30, just by using that program."
Global PKG also helps companies manage all their packaging items across their global facilities and monitors total spending on packaging, Matthews says. In addition it enables collaborative package design. "One of the key features of global PKG is that it is internet based, he says. "For companies that are manufacturing in Asia, for example, U.S. package engineers can collaborate with Asian engineers 24/7. This ensures that the package that comes into the U.S. meets all the specs and testing protocols that have been determined for domestic use and eliminates concerns about getting damaged or over-packaged products."
The flip side of having too many box sizes is having too few-a problem that Ampuja says is common in pick-and-pack operations. "In the pick-and-pack arena we see companies that have maybe 50,000 different products in a warehouse and millions of order combinations, but they typically have only five to seven different sized boxes. The result is that customers get a box the size of a breadbox with maybe one item and lots of plastic, shredding and peanuts." Most pick-and-pack operations have cube utilization rates of under 65 percent on outgoing boxes, he says. "We just did an analysis of an e-commerce operation of a big retail company. It had less than 40 percent cube utilization on outbound boxes, so it was shipping more than 60 percent air. It's impossible to make a value proposition out of that."
The right number of boxes is "that magic number where efficiency and complexity cross," says Ampuja. Supply Chain Optimizers uses its own optimization application to help companies determine the right number and size of boxes to use in any operation, he says. A built-in algorithm also can tell a picker which box to pull for any order, based on the dimensions of each item.
Regardless of how many boxes are used and how much material is eliminated, at some point shipping cartons become waste. Often that point is the warehouse dock. In fulfillment operations, inbound goods typically are unpacked for individual picking. Additionally, some customers require products to be repackaged before being shipped and may have restrictions on allowing packaging material to be reused. "Some of our customers require us to package everything into a new cardboard box before shipping out," says Mike Honious, vice president of engineering at OH Logistics, a 3PL based in Nashville, Tenn. "If something is going direct to their customer, they really want consistency of presentation."
Last year OH Logistics started a national recycling program in partnership with the Traylor Group, a recycling company, to ensure that the corrugated waste at its facilities does not end up in a landfill. "Over the last year, we implemented this program at four of our campuses and already we have recycled 830 tons of waste," says Honious.
After an analysis from the Traylor Group, OH installed machines to bale used cardboard. "Before we would have put this is a trash compactor, but now it goes to the baler," Honious says. Traylor picks up the baled material for recycling and OH even earns a return based on its recycled volume.
OH Logistics recently expanded its relationships with Traylor and announced that it would add 10 to 12 more sites to the national recycling program this year. The company said it expects to recycle between 25 and 30 tons of corrugated materials each month just in the newest Memphis location.
Noting that approximately one third of all new business inquiries request information about sustainability initiatives, the company said it expects this recycling program will help it convert more prospects to customers.
While everyone wants to reduce unnecessary corrugated material, cardboard is hard to beat from a sustainability standpoint. "Paper and paper board are probably the best sustainability story out there because of their high and growing recycling rates," says Kelly. "There is a good recycling infrastructure to keep these materials out of the waste stream and turn them back into more useable paperboard products." While it is true that corrugated comes from trees, which some would regard as environmentally unfriendly, Kelly notes that many paper manufacturers grow their own trees and manage them as a renewable resource. "The important thing is that it can be recycled, which some plastics cannot," he says.
Innovations in recycling continue to be developed. Craters & Freighters is testing equipment at its New Jersey location that perforates corrugated scrap in such a way that it can be used as inner pack material, says Gibson.
One problem on the horizon may be that China has recognized the value of old corrugated cartons (OCC). "OCC shipments from North America to China have increased due to the manufacturing growth and the lack of natural resources in China," says Smorch.
For a while, China was drawing so much OCC and paying so much for it that it was economically better to sell old boxes overseas than to put them back into domestic mills, which caused the price of paperboard to shoot up," says Kelly. This could again become an issue, he says.
Even companies that have their own in-house packaging group sometimes outsource special projects to contract packagers. Others are looking for a full outsourcing partner. To help meet customer demand for a turnkey solution, OH Logistics recently partnered with the Alliance division of Rock-Tenn, the largest in-store display and promotional packager in the U.S.
"Promotional packaging is becoming more important to retailers as changes in mass media make traditional types of advertising less effective," says Dean Metter, vice president of business development at Alliance. "Retailers like Wal-Mart are segmenting their stores and designing promotional displays to appeal to specific demographic groups," he says. By partnering with OHL, "we are able to provide customers with a one-stop-shop," he says. We are able to design and manufacture the material, contract pack it and ship it. Our services complement each other."
The combination of supply chain and packaging solutions also is one of xpedx's value propositions, says Jeff Neely, director of sales, distribution strategy and solutions. "One of the interesting things about xpedx is that we have a core competency in packaging and also in the supply chain with our 3PL work," he says. "What that means for the customer is that they can go to one place and get everything from packaging design and sourcing, to kitting and assembly, and ultimately to distribution. We can take costs out and add efficiency to all those different elements."
PMC approaches packaging from a different perspective, offering it as a complement to its simulation and optimization services in such areas as supply chain design and lean implementations. "We optimize such areas as labor, material flow and logistics," says Sandhu. "We saw gaps in the packaging area so we added packaging to our profile about a year ago. Our goal is to be the turnkey operations improvement firm."
One of the problems Sandhu sees at companies is that packaging or logistics experts are brought into the picture only after the product and marketing strategy have been developed. "If companies involved the packaging and logistics groups up front they wouldn't run into some of these problems after they have launched the product."
Ampuja agrees. "When I go into a company that wants to make a change to a box or introduce a new box, I ask the logistics guys how much input they had; they usually say none at all," he says. "Somebody else made the decision and handed the box to them and said 'get this shipped and delivered as cheaply as possible.' What they don't realize is that the freight costs would almost certainly have been much lower if they had talked to the logistics guys first rather than last. That's something companies need to change."
Supply Chain Optimizers, www.supplychainoptimizers.com
The Jay Group, www.jaygroup.com
PMC Corp., www.pmcorp.com
Craters & Freighters, www.cratersandfreighters.com
OH Logistics, www.ohlogistics.com
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