A few weeks ago, I moderated a panel discussion at Transplace's Shipper Symposium on "Reengineered Packaging and Its Impact on Transportation and Trailer Utilization." The panelists included:
• Dave Allen, Executive Vice President, Operations, Del Monte Foods
• Richard Stocking, President and COO, Swift Transportation
• Dr. Terry Tremwel, Chairman of the Board, Trem|Wel Energy LLC
• Jack Ampuja, President, Supply Chain Optimizers
• Simon Ellis, Practice Director, Supply Chain Strategies at IDC Manufacturing Insights
Since the session was only 45 minutes long, we were only able to scratch the surface on this important and timely topic. Nonetheless, several key takeaways emerged from the conversation:
• The importance of taking a "total cost" perspective. For example, there are often tradeoffs between packaging, transportation and quality that companies need to consider. As an example, Simon Ellis highlighted how a company might save money by reducing the amount of packaging material it uses, but incur higher costs in damaged product. From a broader perspective, Dr. Tremwel brought up some of the societal costs associated with carbon emissions (e.g., health issues) that companies don't take into account when designing their products or supply chains. I brought up the example of a toy manufacturer that is facing conflicting objectives from Walmart. In response to Walmart's packaging scorecard, the toy company is looking for ways to reduce packaging material. But Walmart also wants packaging changes that would allow associates to replenish store shelves more quickly, which would lead to reduced labor costs. The proposed changes, however, would require an increase in packaging material.
• The importance of creating alignment between functional groups and trading partners. Packaging serves many functions: it protects the product from physical damage; it helps maintain product quality, freshness, and safety; it facilitates product handling and transport; it promotes the brand. All of these factors have to be balanced, which means that packaging has to be a collaborative effort between manufacturing, logistics, quality, merchandising, marketing, sales, and product development. Including customers and other trading partners in the process is also important. Creating alignment requires having the right metrics in place and getting upper management involved. But some education might be required. Jack Ampuja commented on an experience he had with a client. On the day before the kick-off meeting for a consulting project, he received a call from his contact warning him that the president of the company, who would be attending the meeting, had made the following comment about the agenda: "What the heck does packaging have to do with freight spend?"
Dave Allen provided a nice overview of Del Monte's strategy and initiatives related to packaging and sustainability. Del Monte's focus on packaging efficiency has significant repercussions all along its production chain. Even slight adjustments to individual containers can result in big savings of materials, energy, and fuel when considered over millions of units. Reductions in secondary packaging can also significantly minimize waste during shipping. The company is consequently pursuing a number of packaging initiatives that focus on the following objectives:
• Remove or reduce packaging and use more effective materials.
• Enhance recycled content, recycle-ability and reusability.
• Lower emissions by reducing overall freight miles and maximizing load factor per truck with more efficient packaging.
Using 2007 as a baseline year, Del Monte Foods has set a 15-percent reduction goal in all packaging materials by 2016.
Dave highlighted a few case study examples. When Del Monte redesigned its refrigerated fruit cups this year, the company took advantage of the opportunity to improve case utilization by turning every other cup upside down, resulting in less case material and better shipping efficiency. This was first done for SuperFruit and then for 7-oz. and 8-oz. Fruit Naturals (which together account 8.2 million cases per year). The net results:
• Savings of 54,020 lbs of corrugate per year
• 23 percent less corrugate fiberboard per case
• Warehouse efficiency increased by more than 30 percent
• Annual Cost Savings $300,000+
Other success stories include eliminating 5,000,000 pounds of polypropylene (PP) from its fruit cups since 2005 and reducing the amount of steel used in its cans by an estimated 4,000 tons per year since 2004 (the company plans to take another 8,000-12,000 tons out of its cans in the next few years).
These packaging changes, along with other initiatives, have contributed to Del Monte's success in increasing truck utilization. Here are some of the statistics that Dave highlighted:
• Del Monte has taken 29.4 million miles out of its network since 2007 (using 2.95 miles/cwt sold as a baseline, Del Monte's official sustainability baseline).
• This mile reduction has saved about 5.3 million gallons of diesel.
• Del Monte has improved its truck utilization to customers. The CWT per truck has increased from 382 in F07 to 415 in F10, an 8.6 percent improvement.
• Said another way, in F07, the company left 11.2 percent of the truck un-utilized. Today, only 3.5 percent of the legal maximum is un-utilized (excludes pallets)
Richard Stocking from Swift acknowledged that these types of packaging initiatives are taking freight off the road and he expects other companies to follow Del Monte's example because it's the right thing to do. But he also cautioned that despite these initiatives, the industry still faces cost, capacity, and regulatory issues. With regards to sustainability, Richard talked about the cost impact of the California Heavy-Duty Vehicle Greenhouse Gas Emission Reduction Regulation as an example. This regulation requires all tractors and trailers that travel into or through California to use low rolling resistance tires and for trailers to be SmartWay certified or be retrofitted with aerodynamic devices. Richard raised the question: How will this regulation and others like it impact shippers and carriers? The key takeaway is that shippers and carriers need to address this question today and prepare accordingly.
What the heck does packaging have to do with transportation? If you have to ask, you're already behind the curve.
Source: ARC Advisory Group
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