Lancaster’s second observation is that most of the sophisticated consumer goods manufacturers he visits have embraced lean methodologies to improve the quality of their manufacturing processes and products. But lean seems to stop at the end of the line before a carton is placed on a pallet
….. Pat Lancaster, the chairman of Lantech – leading manufacturer of stretch wrap equipment
“Today, green awareness means winning and keeping clients is no longer just about saving money. If you can demonstrate how you are can help be part of reducing the carbon footprint, you will have a loyal and grateful client.”
Packaging seems to be an obvious place to start but in large companies, it is a major part of the supply chain. The package does not belong to one department and can be a complex process to change. Wal-Mart reduced packaging and achieved a $3.4B savings in the first year that they introduced the program.
Case Level Optimization
Currently, many companies are shipping a great deal of air. A few quick checks to see how to reduce carbon imprint are:
With these programs, you will develop a good strategy for shipping. You will ratchet up the density of shipping, reduce your damage and find savings for yourself and clients. As a result of focus on case level optimization, Ed Rucels says his clients have achieved up to 40% savings on transport, storage and handling. This adds up to a great deal of carbon reduction and a greener happier customer.
Ed Rucels, Regional VP Supply Chain Optimizers. Edmund’s management experience during the startup and rapid growth of Northern Telecom and Sears Canada has made him the expert on delivering real time solutions for the logistics professionals wanting to drive down costs through better shipping practices.
Jacoline Loewen raises capital for growth companies with Loewen & Partners and she is the author of Money Magnet: How to Attract Investors to Your Business.
http://www.loewenpartners.com/
When business executives—especially those not directly involved with operations, such as a CFO, CEO or general manager—think about supply chain management, functions such as forecasting, procurement, inventory management, transportation and warehousing come to mind. In fact, when I teach Supply Chain Management in the classroom most textbooks identify 15 related but discrete functions. Unfortunately, packaging is usually not included in the thought process.
In my 20 years of direct experience in packaging optimization—10 as a customer and proponent followed by 10 years as an educator and heading a packaging consulting business—I have witnessed two distinct approaches:
• Consumer product companies tend to view the determination of the shipping case as a marketing responsibility since that department drives the basic retail product attributes such as shape, size, color and number of selling units in a shipping case.
• Industrial firms that sell to other businesses tend to view the determination of the shipping case as an engineering responsibility, often with no regard to whether the individual making the decision is an industrial, mechanical or electrical engineer.
What leading edge firms such as Walmart long ago realized is that shipping case selection is a multi-functional decision that reverberates through the entire supply chain. And with today’s supply chains continuing to get more complex in channels of distribution, where products are sourced and how far they have to be transported, the selection of shipping case shape, size and strength is more difficult than ever. However, if done correctly it delivers exceptional performance and cost benefits. Here are a few real world examples from our consulting files of how the lack of integration in shipping case selection can generate negative business impact.
Unjust Desserts
The CEO of an ice cream manufacturer contacted us because his customers were complaining about significant shipping case damage. Almost all the corrugated cases in the bottom tier of each pallet load suffered creasing and crushing. When we asked the CEO what he thought the root cause of the problem was, he replied that his firm must be using cheap boxes.
In-depth analysis of the client’s material handling process and shipping case specifications determined that his boxes were designed to stack only one pallet high. When outbound trucks were all loaded two pallets high to maximize freight efficiency, almost all bottom tier cases suffered damage.
As we delved into the shipping case selection process the CEO recalled that he had challenged his purchasing department to reduce packaging costs so they had responded by specifying less robust corrugate that was cheaper. The department had in fact been rewarded with a nice bonus for their efforts. When the CEO grasped the impact of what had occurred he was really upset; the lack of integration in the shipping case selection process ultimately led to both lower quality and higher total cost.
Automotive Chain Reaction
When we recently discussed the opportunity in the shipping case selection process with the V.P. of operations for a major auto parts supplier he didn’t want to take any action because he saw the responsibility as belonging solely to his contract supplier.
“They have to have the best price to get my business so let them worry about the shipping case specifications. If they don’t get it right, they won’t be my supplier,” he said.
What the vice president didn’t realize was that the low cost position for the supplier might in fact push higher cost through the supply chain to his company because they share the same supply chain. The supplier palletized all shipments to speed up its own truck loading process. And while the distributor enjoyed similar cost benefits in its receiving process the resulting increased transportation expense caused by poor trailer cube utilization negated all those savings entirely. Since the distributor paid for all transportation his total costs were much higher than necessary. It is only through a collaborative process that the lowest total supply chain cost can be achieved.
Putting Packaging to the Test
A U.S. manufacturer of high end testing machinery asked for assistance on packaging. The test units—valued at more than $100,000 each—were being shipped to customers around the world. The manufacturer had a thriving new market in India, but the testing machinery was arriving so badly damaged it was non-functional.
The options considered by the manufacturer were: to return the units to the U.S. to be repaired and re-shipped to India in the same package that failed the first time and hope the package holds up on the second try; look for a company in India that could repair these expensive units at the customer site; or fly one of its own American experts to India to make repairs every time there was a problem.
When we inquired how the shipping case selection was determined the manufacturer informed us that the decision was made by the same engineers who designed the machinery.
To understand the root cause we got a new testing machine into our packaging lab. You can imagine the customer disappointment and concern when we showed them that their machine was unable to withstand the rigors of routine international shipping. The test unit broke in the laboratory testing process. The mechanical engineers who were so good at designing high end testing equipment had no concept of how boxes are handled and shipped once they leave the domestic market.
Key to Logistics Efficiency
As far back as the 1999 State of Logistics Report the late Bob Delaney identified integrated package design as a major opportunity for logistics efficiency. Bob’s observation was “when you do not have the package right, you pay for it every day that it moves through the supply chain.” And here we are, more than a decade later and the opportunity is to a large degree untapped in most firms.
Certainly many leading companies have tackled packaging optimization in an organized fashion. The consulting business I head has assisted on numerous complex projects. Others who “don’t get it” or just resist for unknown reasons continue to sit on the sidelines. When I speak with executives about packaging optimization I point to two keys:
• They must truly value and be focused on efficiency improvement.
• They must be able to manage change.
The first consideration is generally high on everyone’s list although I have encountered executives who don’t really give much value to efficiency improvement; it just isn’t high on their list of objectives. The second consideration has been a show stopper in many companies which just find change management too difficult to tackle. One executive told us that his company couldn’t change anything. So while we had already confirmed significant cost reduction opportunity via preliminary assessments, the process ended right there.
The Secret
So what is the secret to success on shipping case selection? The top companies have long realized two major factors.
First, while seemingly simple, this is a very complex process because so many different functions must all have inputs; typically this includes manufacturing, marketing, quality control, transportation, warehousing, purchasing, packaging engineering and may also include suppliers and customers.
Second, because the various entities have different objectives whose preference guides the process? Since business decisions are ultimately driven by dollars, getting all of the associated costs identified accurately will usually help guide the process. Companies that make poor decisions on shipping cases as outlined in my earlier examples, do so because of incomplete or inaccurate information.
In completing over 500 packaging optimization projects in the past 25 years, we’ve found that the following elements are keys to success:
• Executive sponsorship which usually means senior vice president—supply chain, COO, CFO or CEO;
• Multi-functional approach that includes all departments involved with packaging or its impact;
• Accurate detailed costs on all factors related to packaging and logistics, especially internal ones (many executives told me that since they do their own warehousing, storage and handling are done at no cost);
• Willingness to manage change. The more flexible the company, the greater the cost reduction opportunity;
• An immediacy to cost reduction. The leaders move quickly to get the savings into their pockets while others lollygag and always seem to have other priorities that keep them static;
• Resiliency to overcoming obstacles. The laggards tend to focus on the roadblocks that keep them from success (“That will never work in our firm, we tried that once before, our customers will not accept that change.”) The leaders see the same obstacles and figure out how to hurdle them. Much of that is in their mindset to business. Is the glass half full or half empty?
The Ultimate Example
The packaging optimization case that perhaps best illustrates how to deliver all of the potential opportunity inherent in packaging optimization is RG Barry, a national shoe distributor we worked with more than five years ago. The details of their project were covered by me and Matt Sullivan, former vice president of logistics for RG Barry, for national audiences at the 2010 annual conferences of the Supply Chain & Logistics Association of Canada and Council of Supply Chain Management Professionals. The basic facts are that RGB’s revenues were about $125 million and they were not profitable. Packaging optimization generated the following results:
• Cost reduction of $2.8 million for RG Barry;
• Transportation savings of $750,000 for RGB’s customers;
• RG Barry took the efficiency improvements to their two largest customers: Walmart and Target. The former gave them new business of $10 million per year and the latter rewarded them with $5 million of new business.
The message I try to impart to any company dealing with corrugated boxes, be it manufacturer, distributor, retailer or logistics service provider, is that the business improvement in both logistics performance and cost reduction is significant for everyone. Delivering results is not easy…that is why the potential is untapped in so many companies.
The bottom line is that packaging optimization is not a marketing or engineering issue…it is a supply chain opportunity.
Jack Ampuja is president of Supply Chain Optimizers (www.supplychainoptimizers.com), a packaging optimization consulting firm. He’s also executive director of the Center for Supply Chain Excellence at Niagara University.
Here is a recent article that was published by KPMG. SCO (Supply Chain Optimizers) has been working with International customers to help drive cost out of their supply chain – regardless of where their product is sourced – China, India or the USA.
Manufacturers Should Look Beyond Simply Cost Minimization: KPMG
A focus on cost and risk mitigation will be critical to Canadian manufacturers looking to stay competitive, according to a recent survey from KPMG LLP. In the report Reshaping the supply chain: New opportunities for Canadian manufacturers, the accounting firm states that Canadian manufacturers should find new ways to compete with their global counterparts when faced with the reality of a strong Canadian dollar and lower cost jurisdictions.
“Canadian manufacturing executives are still pointing to cost minimization as the key factor in addressing supply chains,” said Jonathan Kallner, National Leader of Industrial Markets at KPMG. “In addition to cost management, global manufacturers are looking at their entire supply chains to establish partnerships and generate efficiencies. Canadian companies should embrace a multitude of strategies to remain competitive, including an enhanced focus on innovation and product development.”
The survey, which was conducted among 81 executives in Canadian manufacturing, revealed a number of differences between how Canadian manufacturers and their global counterparts approach their supply chains. Almost 60 percent of Canadian executives state that they have been forced to develop new business models that reduce supply chain risk, compared to only 43 percent of global manufacturers. Fifty-two percent of global manufacturers plan to shift or collaborate more with their suppliers when addressing research and development, compared to only 37 percent of Canadian companies.
The survey also found that global manufacturers are prepared to accept and manage more risk to achieve lower costs, improve supply chain efficiencies, and access innovation. Canadian manufacturers prefer to avoid high-risk jurisdictions—the same jurisdictions that would provide competitive opportunities.
“Canadian business has traditionally been very conservative and more risk averse,” said Brian Smith, Ontario and Atlantic Lead, Supply Chain Management Services at KPMG. “To succeed in the new realities of increased globalization and a strong Canadian dollar, manufacturers should develop strategies that drive innovation at home and through collaborative partnerships with supply chains abroad.”
Logistics are largely fulfilled by Canadian manufacturers at home and in the United States, while global manufacturers look to new low-cost districts such as China and India. Instead of looking for supply chain solutions abroad, 82 percent of Canadian manufacturers stated that a cost versus risk analysis has led them to adopt a strategy of avoiding geographies that have higher risk of political and regulatory volatility.
Breaking News on Food and Beverage Processing and Packaging
By Rory Harrington, 11-Aug-2011
Huge growth in demand for retail-ready packs (RRP) over the next five years will provide massive opportunities for packaging suppliers, according to a report by Pira International.
The market analysis predicts that global demand will surge from 19m tonnes in 2010 to 27m tonnes by the end of the period – a jump of 42 per cent – in what the consultants describe as a “high-growth niche in the overall packaging market”.
RRP refers to packaging systems typically made from corrugated board, solid fibreboard or rigid plastic. They include designs referred to as shelf-ready, display-ready or shopper-ready.
Their main aim is to reduce or avoid the need for in-store stock replacement of stock and provide benefits to the total supply chain, said Pira in its report The Future of Retail Ready Packaging to 2016.
Retailers and RRP trend
The growth will be fuelled primarily by retailers seeking to reach tougher bottom-line targets in an increasingly competitive market
“Under pressure from retailers seeking to improve in-store efficiencies, RRP has emerged as a system designed to reduce the amount of handling required to place products on the retail shelf whilst providing the consumer with easy access to products,” said the research which covers 14 countries and 22 end-use segments.
Stressing the prevalence of RRPs, Pira said that “most if not all of the major retailers globally have adopted or are in the process of adopting some form of RRP”.
They are turning to RRPs in a bid to cut overheads by reducing labour costs, boost productivity and reduce out-of-stock situations.
“A significant proportion of distribution costs are incurred in the final 50 metres of the journey from the distribution centre, between the store back door and the retail shelf. Streamlining this operation, for example by introducing one-touch display systems, can have a marked effect on profitability for the retailer,” explained the report.
Growth drivers
Growth potential is strongest in developing regions such as Latin America and Asia Pacific – although opportunities still remain in more mature markets found in developed economies.
Fastest expansion is forecast for China where is market share of RRPs is expected to increase from 15 per cent to 18 per cent by 2016.
Macroeconomic factors such as population growth, as well as microeconomic influences such as printing technology developments and the use of white-top liners are highlighted as key growth drivers.
Segment breakdown
Food accounts for 78 per cent of the RRP total, with beverage a further 16 per cent. Non-food item make up just six per cent, although the research authors predict this will rise over the review period to 7 per cent. Beverage products will capture 18 per cent of the market by 2016, with food dropping slightly to account for 75 per cent.
Consumption of food and drink in the countries surveyed is expected to climb from 6bn tonnes last year to almost 9bn by 2016. Food products make up 63 per cent of primary packaging used in their distribution, while beverages account for 25 per cent. The analysts predicted that food’s share of this segment would rise to 66 per cent. For secondary packs, food is expected to grow two per cent to hold a market share of 68 per cent in five years.
Corrugated designs account for almost 75 per cent of RRPs with technology enabling improved graphics and performance. However, the materials share will slip by 0.5 per cent over the period.
Conversely, plastic RRPs are expected to grow to almost a quarter by 2016, with gains made against mainly shrink-wrapped trays.
Within corrugated segments, diecut boxes are expected to see major growth – thanks to the need for designs that are both more complex both in appearance and performance. These will account for 45 per cent of all RRP shipments by 2016, forecast Pira.
Here is an example of the decision making most retailers miss on private label products. The photo has two different retail packages of bagged tea..each carton holds 48 tea bags.
If both retail cartons are optimized for master shipper count, these are the differences:
So….which product has the lowest total cost? Actually almost even-steven. So if two manufacturers offer comparable pricing per retail package, the retailer should select the product which is 24% cheaper in warehousing & freight expense since that difference will go right to their bottom line and deliver higher profit. Furthermore there is a good chance the shipping cases will not be optimized by the manufacturer so the buying decision will be even more complex.
How many retailers do you suppose go through this kind of analysis? The answer is almost none. JTA
How the retail giant is leading the industry into sustainable practices
Food processing companies are under increased pressure to become more sustainable to satisfy supply chain requirements. In a speech at the American Bakers Association annual conference in San Antonio, TX, Wal-Mart’s former president and CEO Lee Scott warned food processing companies that they need to become more sustainable.
“We simply cannot make and sell goods the same way we have for the past century,” he said. “We have to be more efficient, using fewer raw materials and less energy. Our products also have to last longer, and when they have outlived their usefulness, they need to be recycled back into the value chain. This should not be about philanthropy. Make sustainability about your core business and your customers, and it will last.”
That comment highlights the fact that Wal-Mart, along with many other large distributors and retailers, expect their suppliers to adopt sustainability as a core tenant of their operations. An active sustainability program demonstrates supplier-management excellence as well as a lower cost structure that can be passed along to customers.
Wal-Mart, which is by far the world’s largest retailer with more than $400 billion in sales, found that 90% of its carbon footprint is accounted for by its suppliers. That led Wal-Mart to adopt an aggressive program for improving sustainability at its suppliers. In early 2010, Wal-Mart announced its intention to cut 20 million tons of greenhouse gas emissions from its supply chain by the end of 2015, or the equivalent of removing more than 3.8 million cars from the road for a year. Food products are one of the categories identified by Wal-Mart as having high carbon intensity, meaning that food processing companies are key targets for Wal-Mart in its supplier sustainability goals.
One of the key components of Wal-Mart’s supplier sustainability program is a focus on energy efficiency. The retailer encourages its suppliers to conduct energy audits, which almost always highlight low-hanging fruit projects that can be done to save energy and reduce carbon footprints with relatively short payback periods for the capital investment. A Wal-Mart executive tells suppliers that energy efficiency programs “can only make you more profitable — that’s it. And you get an environmental benefit at the same time.”
Going further, food processing companies that have achieved Energy Star recognition for their operations have a jump on the competition by proving that their operations are energy efficient. Dave Van Laar, CEO of Oak State Products, a Wenona, IL-based cookie and bar producer, was quoted by BakingBusiness.com as saying that when large customers ask about its energy plan, “we just show them we’re an Energy Star partner,” and no more questions are asked.
August 01, 2011
Results published today by the Canadian General Freight Index (CGFI) indicate that the cost of ground transportation for Canadian shippers increased in May when compared to April due to increases in both base rates and fuel surcharges assessed by carriers.
The CGFI Total Freight Cost Index rose by 0.8 percent in May when compared to April, its third consecutive monthly increase. The Base Rate Index, which excludes the impact of fuel surcharges assessed by carriers, increased 0.4 percent during the same period. In addition, average fuel surcharges assessed by carriers increased from 19.9 percent of base rates to 20.3 percent.
Of note is that fuel surcharges increased for the eighth consecutive month, and have reached their highest point since November 2008.
“In May we saw the second successive month of increases in base rates,” said Doug Payne, President & COO of Nulogx, a provider of transportation management services, and sponsor of the CGFI. “When added to the increase in fuel surcharges, this has a notable effect on ground transportation costs for Canadian shippers.”
All sides agree: Cube is as efficient as can be
We have an opportunity in the packaging industry to create an environmentally friendly pack by maximizing the surface area to volume ratio via the cube.
For any given paperboard container, a surface area to volume ratio, or SA:V, can be determined by dividing the surface area of the material by the volume inside the container. Essentially, this number tells us how efficiently the package uses the material to contain the volume inside.
Material savings: If we take this same principle and apply it to an existing product package, we can calculate actual material savings. Since many products come in paperboard boxes, my research focused on one product category in particular that has the potential for significant material savings with minimal changes: granola bars and cereal bars.
Some of the dimensions on these cartons are related to the product shape, such as the depth, but let’s take a look at the potential savings if we use a more cube-like approach.
In the example shown, we simply change the arrangement of product from 1×10 into a 2×5 arrangement. Without changing the actual product shape, the new carton will still maintain the same height as the old one. Even by changing just the width and depth, the improved design uses 20 percent less material per carton.
Current standard granola bar package 1.6×5.75×7.9 in.
Volume: 72.68 in.³ Material Used: 134 in.²
Improved granola bar packaging 3.2 x5.75×3.95 in.
Volume: 72.68 in.³ Material Used: 107.5 in.²
Marketing: It’s safe to say that, in packaging, almost nothing happens to the packaging without approval from marketing. Reducing the primary display panel of a folding carton can actually improve the shelf presence if two products now fit where only one would before.
Another benefit from the new environmentally friendly package design is the opportunity for an environmental rebranding to boost product awareness and sales. In the past decade, consumers have become more nutritionally aware than food companies ever imagined, and it is only a matter of time before consumers demand a better environmental package.
Manufacturing: The simplicity behind this concept is that it requires few changes to be made to an existing production or filling line. The new design can use the same paperboard material and the same printing method already in use. The primary pouch remains unchanged as does the product itself. This keeps customers familiar with the product shape and loyal to the product.
A manufacturer may even choose to reduce the thickness of the paperboard since the cube shape will be structurally stronger than the current rectangle carton. The improved design, paired with a thinner-gauge paperboard can result in savings of more than 30 percent material per carton.
In addition, a CAPE™ palletizing evaluation also showed that the new design yields better pallet efficiency while accommodating nearly 100 more units per load—which means distribution is also improved.
We need to be more proactive and make changes in our products that will complement our environmental efforts. Sooner or later, companies will learn that it’s hip to be square.
Craig E. Densmore
Director of Packaging Innovation
Supply Chain Optimizers
| Panalpina commits to sustainable, profitable growth |
| 06/30/2011 |
In a corporate strategy outlook to 2014, Panalpina has affirmed its role as a leading provider of global Supply Chain Solutions. Air Freight and Ocean Freight remain the core business. They are to be consequently complemented by Supply Chain Services and Value Added Services in Logistics. The Group has clearly committed to sustainable, profitable growth. It is striving to outperform market growth in Air, Ocean and Logistics and achieve an EBITDA-margin of 20%. |
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| At an investor relations meeting in Zurich on June 30, 2011, Panalpina CEO Monika Ribar stated the company’s vision: “We deliver reliable supply chain solutions that provide value to our customers – every time.” She added: “Our sharpened focus will deliver profitable volume growth and with a set of performance initiatives we will achieve a remarkable productivity increase.” For 2014 Panalpina targets an EBITDA-margin of 20% (adj. 14% in 2010) and a net working capital intensity of 2% or below (adj. 2% in 2010). |
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| Panalpina’s core service offering, Air and Ocean Freight, is to be consequently complemented by Supply Chain Services (SCS) such as supply chain optimization or order management as well as Value Added Services (VAS) in Logistics such as inbound to manufacturing, postponement or after market services. “We are far more than a freight forwarder,” explained Ribar. “All of these services allow us to offer our customers global and tailored end-to-end supply chain solutions.” Panalpina will increase its in-house logistics capabilities in the coming years, but as Mike Wilson, Global Head of Logistics pointed out, “position logistics around Value Added Services rather than running stand-alone warehouses.” In summary, Panalpina has specified its asset-light model. |