All Boxes Are Not Created Equal: Packaging Optimization Is Key to Big Supply Chain Benefits
By Rich Thompson, managing director of supply chain & logistics solutions for the Americas at Jones Lang LaSalle
Omni-channel strategies are helping chain stores compete with pure-play e-commerce retailers, but it is also driving major changes in their e-commerce logistics models. In an omnichannel strategy, which seamlessly integrates sales channels such as the store, web and/or mobile, consumers can choose the most convenient way to order, receive and return their purchases. To help meet aggressive delivery commitments, chain store retailers are looking to squeeze all possible efficiencies from their supply chain. An often overlooked opportunity to help achieve this goal is packaging optimization.
In today’s data-driven world, there are now ways to analytically assess and optimize the size and shape of boxes that are shipped around the world. Understanding the optimal size and shape required has multiple positive impacts. First, it reduces the amount of corrugate required. Second, it reduces excess space (“air”) in the box which results in less damage. Third, it improves the density of the goods being transported (e.g., more packages in a truck) which results in few trucks and therefore lower freight costs. And lastly, less corrugate, less filler, and fewer trucks equals sustainability benefits.
However, packaging engineering is not typically part of most supply chain organizations’ strategy and physical distribution is not taken into consideration when designing consumer packaging. Traditionally, the focus is on consumer appeal, as expected, but retail supply chain specialists should be taking a closer look at packaging design as another way to optimize the supply chain.
Cost Reduction Opportunities
Consumer product firms often view packaging as a marketing responsibility while industrial businesses see it as an engineering function. We believe that packaging design should be determined by both marketing and supply chain practitioners because the shape, design and strength of the “box” can have a significant impact on operating costs.
In an effort to reduce corrugated costs, we have seen many companies push their warehousing and transportation costs higher. However, saving nickels in packaging by spending quarters in logistics reduces the bottom-line profit.
Shipping density, meaning the weight per cubic foot, is a critical cost factor. Shipping 100 pounds of feathers can be more expensive to transport than shipping 100 pounds of ball bearings. By designing shipping cases to fit more on a pallet or in a truck logistics expenses will decrease. In fact, the average total cost of corrugate, warehousing and transportation can be reduced as much as 10 percent using a packaging optimization strategy.
Complexity Versus Efficiency
Companies that ship multiple products face the basic trade-off of complexity and efficiency. Using the same box size for all products generates the least complexity, while a unique shipping case for each product means the highest efficiency. Realistically, neither extreme is valuable. Determining the optimal number, size and shape of shipping containers for the lowest total cost is the exact point where complexity and efficiency meet – and it’s different for each company. There are consulting firms that specialize in this area and packaging design has now become a science.
Global retail giant Wal-Mart has demonstrated the significant cost, sustainability and efficiency opportunities resulting from packaging optimization. For example, a few years ago Wal-Mart redesigned the shipping cases of 200 products. The packaging case redesign eliminated 727 ocean containers per year that transported the products between Asia and North America. This translates to savings of more than $2.5 million annually (assuming each freight container costs $3,500, a conservative estimate).
Lee Scott, the former Chief Executive Officer of Wal-Mart, announced that a five percent reduction in packaging will save Wal-Mart and its suppliers $10 billion. This five percent reduction in packaging translates to removing 213,000 trucks from the road, eliminating 66.7 million gallons of diesel fuel and generating $34 billion in savings across the extended supply chain.
A recent IBM survey of supply chain executives found that “packaging design and optimization” was the number one supply chain-related sustainability initiative. This is not a surprise as implementation is under your complete control and the benefits are proven.
Other examples and success stories are plentiful, but it is our experience that only a minority of companies have dedicated the time to explore the potential. Thinking outside the box as it relates to your packaging design is only going to grow in importance as retailers continue to realize the cost savings, supply chain efficiencies and sustainability benefits of employing a smart packaging optimization strategy. As U.S. chains increasingly focus on international markets for growth, looking for ways to streamline their in-country supply chain will be another tool to compete with local competitors and capture some of the online retail sales that are expected to exceed $1.2 trillion* globally this year.
For more information on packaging optimization, click here.
Rich Thompson is managing director of supply chain & logistics solutions for the Americas at Jones Lang LaSalle. He can be reached at [email protected].
*data from Emarketer
GBT to build Middletown Commons
Louisville, Ky. — GBT Realty Corp. has closed on the purchase of approximately 32 acres along Shelbyville Road at I-265 for the development of Middletown Commons in Louisville, Ky. Plans call for the first tenants to open in late 2014.
The mixed-use power center will include more than 225,000 sq. ft. of retail space and six outparcels ranging from 0.6 acres to 1.88 acres. According to GBT Realty, total development costs will likely exceed $50 million.
A major sports retailer will anchor the development. Additional signed tenants include Hobby Lobby, Liquor Barn, Rack Room Shoes, Ross Dress for Less, Chick-fil-A and Texas Roadhouse.
“We are 80% leased before starting construction, with a long list of additional tenants for the remaining spaces,” said Fraser Schaufele, VP of leasing and brokerage at GBT.
Construction will begin immediately. GBT will provide development, leasing, construction management and property management services. The development team includes MJM Architects and Gresham Smith and Partners as the project engineers. Louisville Paving & Construction will handle the site work. PNC Bank is providing construction financing.
Middletown Commons is one of two shopping centers GBT is developing in Louisville. The second is Jefferson Commons located on 27 acres next to the Jefferson Mall. Construction there is slated to begin in January.
FSI activity continues to trump digital
Digital coupons may get all the publicity, but SmartSource isn’t buying the hype as evidenced by what it said was arecord-setting coupon droponSunday, January 5.
Parent company News America Marketing said the Sunday, January 5 edition of its SmartSource publication was thelargest in itshistory with up to three inserts required in some markets to deliver up to 136 pages of coupons.
“’Save more money’ is an almost universal New Year’s resolution,” said News America Marketing EVP Martin Garofalo. “We’re happy that we can help make that resolution possible with a gigantic assortment of coupons delivered right to consumer’s homes through their local newspaper or publication.”
Even with much being written recently about digital couponing trends, coupons contained in free-standing inserts (FSIs) continue to dominate all other forms of distribution, accounting for 88.8% of all coupons distributed in 2012, according to News America Marketing.
Taking into consideration the number of newspapers and publications that carriedSmartSource, on January 5,combined the page count of the issue, there were more than5.7 billion pages of coupons distributed compared to5.3 billion on the same Sunday last year. The Dallas Morning News hadthe most coupons of any publication with a total of 136 pages and an estimated value of $197. The Philadelphia Inquirer, Houston Chronicle, Phoenix Republic, Chicago Tribune and Los Angeles Times each had more than125 pages of coupons.
“We’ve worked very hard to pack as much value as we possibly can into this date,” said Garofalo. “It’s thanks to our long-lasting relationships with the consumer packaged goods community that we can deliver savings like these right after the holidays when consumers need it most. With total coupon distribution down the past two years, News America Marketing is proud to be bucking the trend with a record-shattering number of coupons in this issue.”