Examples of supply chain innovation can be found everywhere, from the way a company sources raw materials to its handling of reverse logistics. Some of the most promising opportunities, though, exist in the most basic areas.
Take packaging. Decisions about the size, shape and color of a box are largely those of the marketing department. In the age of mega-retailers such as Wal-Mart and Target, consumer goods suppliers are primarily concerned about the way their products look on the shelf. Logistics might have a voice when it comes to ensuring the durability of product in storage or transit. "Green" concerns either take a back seat or don't figure into the decision at all.
That's not the case at PartyLite Gifts Inc., the direct seller of candles and related accessories. With the help of Chicago Consulting, the company has embraced the concept of "optimal packaging." The idea is to use the least amount of material necessary to ship an order. In addition to its obvious environmental benefits, the strategy ends up saving on supply chain costs related to transportation, warehousing and labor.
Based in Plymouth, Mass., PartyLite services U.S. customers out of a 500,000-square-foot distribution facility in Carol Stream, Ill. Order volumes run between 8,000 and 10,000 a day for most of the year, peaking at 25,000 during the Christmas season. Offering some 600 product SKUs and 200 additional promotional and sales items, the company ships around 4 million packages a year, according to Joe Salierno, vice president of distribution.
Nearly all of the shipments go to private homes, where independent "consultants" host sales parties. Items range in size from lapel pins to three-foot-high candle holders. The average order consists of 32 products shipped in 2.4 cartons, Salierno says.
Initially, the company had four sizes of cartons in which it shipped product to customers. But with more than a billion ways to cartonize a 30-item order, PartyLite started thinking about how it could optimize the process and save on corrugated material. To Chicago Consulting, it posed a number of questions: What should its ideal carton regime be? How many sizes were needed, and which dimensions? And could the company lower its transportation costs by shipping fewer cartons?
As it turned out, none of the four cartons in use at the time was optimal, based on the size, shape and quantity of items being shipped. Applying algorithms to the problem, Chicago Consulting came up with a new mix of sizes that led to an 8-percent annual reduction in PartyLite's carton use, and savings in the millions of dollars. According to the two companies, the amount of corrugated material saved annually would cover 100 football fields.
The change also had a positive impact on the environment. The reduction in cardboard not only saves trees, Salierno says, it results in fewer delivery miles and less energy needed to move product to buyers.
Chicago Consulting began its task by charting the dimension and weight of each PartyLite box, along with the percentage of space utilized. That information was fed into a simulation model which showed the cost of transportation, corrugated material and amount of "void fill," says Terry Harris, the firm's managing partner. In the end, Chicago Consulting came up with six optimal cartons for PartyLite, consisting of less cardboard and resulting in higher utilization overall.
The PartyLite engagement led Chicago Consulting to think about how it could extend the model to determine the optimal size and shape of all types of packaging. Many products, such as breakfast cereal and potato chips, come in boxes with large portions of air. That unused space carries a substantial cost, says Harris.
"The simple idea behind optimal packaging is less material, which is what you pay for, and more volume, which is what you want," he says. Corrugated cardboard costs around five cents per square foot, an expense that can add up fast, he notes.
Certain package shapes, such as tall and skinny or short and fat, are inefficient because they don't offer a lot of volume for the material used. At the same time, Harris says, there's a barrier that can't be crossed with regard to increasing volume and decreasing area. That limitation is represented by a curved line on a graph which shows package area in square feet along one axis, and volume in cubic feet along the other. The graph also shows exactly where those two factors meet for the creation of optimal cartons and cans.
According to Harris, optimal packaging formulas can yield material savings in many areas - 7 percent for a 15.6-ounce box of Wheaties, and 4 percent for a redesigned soda can, to name just two examples. In the latter case, re-sizing would save 220 million pounds of aluminum per year in the U.S. alone, he says. That translates into 5,500 truckloads, weighing 40,000 pounds each.
The implications of optimal packaging extend beyond individual units to the capacity of cases and pallets. By reducing the size of a box of macaroni and cheese to its optimal dimensions, a producer can realize a 42-percent increase in product within a pallet, and a similar level of savings on transportation, claims Harris.
All of which sounds fine in theory, but most companies aren't eager to undertake a wholesale re-sizing of packages that have been accepted by consumers for decades. Other considerations, such as the visibility and attractiveness of product on store shelves, need to be taken into account. In addition, the shape of certain containers such as shoeboxes is strictly defined by the product within.
For those reasons, "environmentally conscious companies, to say nothing of cost-conscious ones, have not widely applied optimal packaging technology," according to a summary of the initiative by Harris and Salierno. "Few are aware of the principle. A trip through the grocery store demonstrates that it's hard to find optimal packaging at the consumer pack level and even harder to find it at the case pack level."
Harris has high hopes for the idea, however. At the case level, he says, the use of optimal packaging strategies would result in no loss to labels, marketing messages or advertising. That's not necessarily so for consumer packages, even though the formula could conceivably yield a design that boosted volume as well as the amount of space available for advertising messages.
Concerns about corporate image, especially in a time of heightened environmental awareness, might prompt companies to reconsider their packaging strategies. Harris recommends the use of a label which states the producer's commitment to reducing forest consumption, CO2 emissions and landfill requirements.
The environmental angle is likely to play a stronger role in future packaging decisions. "Many companies are becoming conscious of their carbon footprint," Harris and Salierno say. "The packaging material they consume figures prominently in this footprint." Wal-Mart is measuring its suppliers against a sustainability index, 35 percent of which is devoted to packaging, they add.
"Despite its mathematical precision, optimal packaging is a simple idea," the authors of the paper say. "It has broad applicability to save costs in our supply chains and help [business] be more environmentally responsible."
PartyLite Gifts, www.partylite.com
Chicago Consulting, www.chicago-consulting.com
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