Packaging OPTIMIZATION: Route to GREEN & Efficiency

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Packaging OPTIMIZATION Route to GREEN
Efficiency

• Jack Ampuja
• Supply Chain Optimizers
• Niagara University

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Campus
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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

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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

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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
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Leverage Point

• Packaging is typically seen as a marketing or
  engineering process but this is where costs go
• - packaging impact on supply chain lt10
• - 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

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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

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What Will They Do?
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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

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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

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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.

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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

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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

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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

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Complexity vs Efficiency

• Single SKU in a case is a basic analysis
• Multiple SKUs complicate situation
• - how many boxes for 10,000 items?
• .one isnt 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?

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Pick-Pack Observations

• Most small package shippers utilize
• too few carton sizes lt10 is common
• - savings in purchasing are not enough to offset
  loss in distribution efficiency
• - filler air increase costs carbon footprint
• Typical company analyzed gets lt65 cube
  utilization of outbound cases
• - the remaining 35 filler air

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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

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Case Study ? Situation

• Packaging costs spiraling
• To minimize damages, product over-packed
• Transport costs rising
• Inefficient use of bulk shipping options

Supply Chain Expenditures
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Automobile Light Assemblies
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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 carriers claims
  manager national account rep

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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

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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

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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

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Pick-Pack Users

• Clarks Companies footwear
• Target Stores general merchandice
• Macs 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

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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

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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