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Packaging OPTIMIZATION: Route to GREEN & Efficiency. Jack Ampuja Supply Chain Optimizers Niagara University. Campus. Process History. Started at Johns-Manville Canada in 1985 Originally focused on CPG firms

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Packaging optimization route to green efficiency

Packaging OPTIMIZATION: Route to GREEN & Efficiency

Jack Ampuja

Supply Chain Optimizers

Niagara University



Process history
Process History

  • Started at Johns-Manville Canada in 1985

  • Originally focused on CPG firms

    - Kimberly-Clark, Robin Hood Multifoods, Nestle, George Weston, Canada Packers, Fort Howard

  • Used at Rich Products in ‘92 to drive $3 million cost reduction on 1st 25 products

  • Recent migration to inbound private label and retail ready packaging


Basic premise
Basic Premise

  • The shipping case or bag is the lowest echelon building block in the supply chain

    - impacts handling-storage-freight-damage

    - all which have $ & environmental components

  • Optimization considers holistic supply chain

    - opportunity comes from understanding total packaging, warehousing, transportation effect on cost and sustainability


Misdirected focus
Misdirected Focus

  • In consumer packaged goods firms, package design is typically assigned to marketing

  • In industrial firms package design is usually handled by an engineer

    • However, major costs are in logistics budget

  • Typical firm is focused on packaging without considering supply chain impact

“Packaging remains a major area of supply chain optimization opportunity for most companies.”

- Bob Delaney in ‘99 State of Logistics


Leverage point
Leverage Point

  • Packaging is typically seen as a marketing or engineering process but this is where costs go

    - packaging impact on supply chain <10%

    - warehousing impact ~20%

    - freight impact ~60%

  • Yet most clients are focused on driving down packaging without knowing full impact

    …saving nickels by spending quarters and hurting sustainability


Freight considerations
Freight Considerations

  • Density: #1 cost factor in LTL & small package ~more costly to ship 100 lbs of feathers vs 100 lbs of steel

    - Small package carriers now use dimensional weight on domestic ground shipments

    …US LTL industry moving there too

  • All LTL shipments in USA have to comply with NMFC regulations which have 150 pages of packaging rules that impact freight cost



Walmart initiative
Walmart Initiative

  • Announced Nov ‘06 by CEO Lee Scott

  • Efficiency & environmental benefit

  • Suppliers must reduce packaging by 5%

    - private label scorecard began in Nov 06

    - 60,000 other suppliers started in Feb 07

  • Projected savings in 2008: $10Billion $3.5 B to Wal-Mart & $6.5 B to suppliers


Total impact
Total Impact

  • 5% reduction in packaging will remove 213,000 trucks from the road and prevent 66.7 million gallons of diesel fuel from being burned, per year

  • Can Walmart really take out $10 billion?

    - “Real opportunity is $20 Billion”

    - Ampuja in Traffic World 12/06


Walmart example
Walmart Example

  • Liquid detergent suppliers asked to reduce bottle by reducing water

    - suppliers were reluctant so Wal-Mart offered merchandising support

    - All Small & Mighty yr 1 sales: $35M

    - Entire industry now favors smaller bottles

  • Unilever saves 500 million gallons of water and 150 million pounds of plastic each year.


Detergent impact
Detergent Impact

  • Smaller bottle uses 55% less plastic, enabling retailers to stock 3X bottles in the same space, saving on labor and out-of-stock costs.

    - Cuts 26 million gallons of diesel each year

  • Customers will save more than 400 million gallons of water, 95 million pounds of plastic resin, 125 million pounds of cardboard and 520,000 gallons of diesel fuel over three years


Process evolution
Process Evolution

  • Traditionally driven by efficiency gains

    - reduced packaging, handling labor, storage & transportation expense

  • Today many clients want to document sustainability impact

    - must report to shareholders & consumers

  • In-line with Supply Chain goal of increasing performance while reducing costs


Manufacturing users
Manufacturing Users

Food Companies

  • Nestle [8 divisions]

  • Canada Packers

  • Rich Products

  • Rosina Foods

  • George Weston [10 div]

  • H J Heinz

  • Robin Hood Multifoods

  • Pepsi Cola Foods

  • Nielsen Dairies

Non Food Companies

  • Kimberly-Clark

  • Fort Howard

  • R G Barry

  • Church & Dwight

  • Lever Brothers

  • ACCO Brands [2 div]

  • Roppe Industries

  • General Electric

  • Monroe Auto


Complexity vs efficiency
Complexity vs Efficiency

  • Single SKU in a case is a basic analysis

  • Multiple SKUs complicate situation

    - how many boxes for 10,000 items?

    ….one isn’t enough, 10,000 is too many

  • Pick-pack scenario is even harder

    - What is optimal box count for 1 million product configurations which is typical for large e-commerce shippers?


Pick pack observations
Pick-Pack Observations

  • Most small package shippers utilize

    too few carton sizes: <10 is common

    - savings in purchasing are not enough to offset loss in distribution efficiency

    - filler & air increase costs & carbon footprint

  • Typical company analyzed gets <65% cube utilization of outbound cases

    - the remaining 35%+ = filler & air


Case study
Case Study

  • LKQ Corporation

    • Industry leader in recycled automotive parts

    • Annual revenues of $1.6B

  • Refinishes headlight & taillight assemblies

    • Extensive variety of assemblies for all makes & models


Case study situation

Cost

Q1 Q2 Q3 Q4

Case Study  Situation

Packaging costs spiraling

  • To minimize damages, product over-packed

    Transport costs rising

  • Inefficient use of bulk shipping options

Supply Chain Expenditures



On site observations
On Site Observations

  • Used 6 different boxes

  • Protected lights with foam in place product

  • Poor case fit on pallets

    - inadequate height in trailers

  • Used scrap pallets to “save money”

  • On site cooperation from LTL carrier’s claims manager & national account rep


Outstanding improvement
Outstanding Improvement

  • Identified a handful of operational changes

    • Added more boxes to selection

      • Secured tighter product fit & less corrugate

    • Recalibrated foam machine for flexible output

      • Increased shipment density

    • Purchased solid used pallets for outbound

      • Carrier was able to get more product on trailer

  • LTL freight class declined from 250 to 150

    • This is a 40% reduction in freight cost


Customer comment
Customer Comment

  • "HHL and its partners delivered tremendous results -- a 40% reduction in transportation costs, reduced packaging and streamlined warehouse operations. 'Greening' our supply chain has lessened our environmental impact while benefiting our customers, employees and investors.“

    - Mike Lahr, Director of Logistics &

    Environmental Compliance, LKQ Corp


E commerce example
E-commerce Example

  • 13K SKUs - 6 million cartons/yr outbound

  • Packaging optimization delivered:

    - 8% reduction in cartons shipped

    - 15% reduction in cube

    - 14% increase in density

    - 20% reduction in packing materials

    - 14% reduction in freight

  • Weight reduction: 800,000 lbs

    • 1.4 million lb reduction in dimensional weight


Pick pack users
Pick-Pack Users

  • Clarks Companies footwear

  • Target Stores general merchandice

  • Mac’s Antique Auto auto parts

  • Newark-in-One electronic parts

  • Brookstone specialty retail

  • Lillian Vernon mail order

  • Fisher Scientific laboratory supplies

  • John Deere tractor engine parts

  • Batteries Plus batteries

  • Office Depot office supplies

  • Toys r Us toys


Summary
Summary

  • Excellent opportunity for supply chain efficiency & sustainability improvement

  • Real $ & environmental benefit is in freight

    • Basis of Wal-Mart program

  • Typical cost reduction opportunity:

    - 10% for manufacturers/inbound

    - 15% for pick-pack companies

  • Adapting to change is biggest obstacle


Closing thought
Closing Thought

  • “The greatest obstacle to discovery is not ignorance….it is the illusion of knowledge.”

    • Daniel J. Boorstin:

      author, historian, Librarian of Congress

  • “A word to the wise ain't necessary; it's the stupid ones who need the advice.”

    - Bill Cosby: Comedian, Actor, Educator


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