The Link Between Packaging and Distribution Center Efficiency
Distribution managers are constantly being tasked with lowering operating costs and improving overall efficiency. In one survey, nearly 80% of warehouse managers were asked to find an average of 19% cost savings from existing operations. One overlooked area where such savings opportunities can be found? Packaging.
Right-Sized Packaging Frees Up Space Inside the DC
According to the 2018 Warehouse and Distribution Center (DC) Operations Survey, 40% of warehouse and DC managers report average utilization of 85% or greater. The average peak space utilization was 86.3%, including 36% with peak utilization of 95% or higher. The survey also revealed that “insufficient space for inventory and/or operations” was a #2 issue among warehouse and logistics professionals in 2018, with 44% of respondents citing insufficient space as a major operations issues (a 4% increase from 2017). With inventory space becoming scarcer and more valuable, warehouse and distribution managers should consider how much of the space currently being utilized is taken up by air.
Eliminating empty space (air) between the product and the master outer carton can reduce the overall box dimensions, which means more products per pallet. In a case study from UPS, packaging engineers redesigned a customer’s transportation packaging for optimal cube and space utilization inside trailers and containers. In addition to eliminating oversize charges, the new packaging design allowed more packages inside inbound containers (reducing overall annual shipping expenses) and required less warehouse space.
Are You Shipping Air? Three Questions to Ask:
- Is the primary packaging “made-to-fit” the product inside?
- Can you measure empty space between the top of the product and the top of the master outer carton (MOC)?
- Do you use void fill materials to protect products from shifting inside secondary/tertiary packaging?
Packaging Designed for DC Environment Reduces Damage
Damage to SKUs is expensive, and damage resulting while a product is in a warehouse or DC can reflect poorly on the manager overseeing operations. One of the key ways to reduce product damage is to ensure that the packaging is adequately designed for the environment through which it moves and in which it is stored. For example, if products are stored in very hot or humid warehouses, the packaging should be specified with heat and humidity factors in mind. Or, if packages are stacked very high and/or stacked in non-columnar alignments, the required stacking strength should reflect this.
Some of the factors and elements to consider for “DC-optimized” packaging include:
- Temperature and humidity inside the DC
- Average stacking height and package weight
- # of manual handling touchpoints
- # of automated handling touchpoints
However, in terms of cost savings, it’s important not to make the packaging any stronger than it absolutely needs to be. The optimal packaging design is one that takes into account the actual hazards a product is exposed to along its journey from point of origin to destination, including its stop at warehouses and distribution centers in between. Lack of understanding about the distribution environment packaging is actually subjected to can lead to damage due to under-packaging, as well as waste and extra costs due to over-packaging.
Packaging Reuse at the DC Saves Millions
If packaging isn’t strong enough to make it from manufacturing facilities in Southeast Asia to DCs in North America (or if it isn’t strong enough to sit in storage once it arrives), it most certainly isn’t strong enough for the outbound trip should it survive the first leg of the journey. But considering the cost and time savings to be had, there are many reasons to become a champion for stronger, more reusable packaging—in the case of one global apparel company, there were 10 million reasons, to be exact.
One of our earliest apparel customers shipped about 18 million inbound cartons per year from Asia. The inbound packaging was Chinese-grade board that had little value once it arrived at their DC. The quality didn’t allow the boxes to be reused, so 100% of the outbound packaging was sourced locally in the US. Replacing the low-grade boxes with high-quality inbound cartons from Asia allowed the company to save the purchase of about 14 million additional cartons. The combined savings on packaging materials, labor and logistics saved the company $10 million dollars.
Beyond the Box Price: Making the Case for Better Packaging
Admittedly, DC managers may have a hard time advocating for higher-quality packaging if their procurement teams are solely focused on the unit price. Buyers who only consider the box price may be severely underestimating the bottom-line impact of packaging. DC inefficiencies, product damage and package reuse are some of the “external” packaging costs that warehouse and distribution managers can show to procurement to make a better case for better packaging.
Supply chain leaders realize the benefits of a high-performing packaging supply only after a careful, deliberate approach to finding where the greatest value opportunities lie. How is the supply chain performing along operational metrics? Is it designed to respond to external pressures and changes? Does it integrate with other parts of the business? These are questions that can only be answered after a full and careful analysis of your packaging supply chain. If you haven’t evaluated yours in a couple years, it’s time to take a look.
If you would like help showing the true cost of packaging—and how improvements in packaging design and engineering can make your DC run smoother and potentially save your company millions of dollars per year— contact us. We find savings in almost every leg of the distribution chain, and we can help you identify packaging solutions and processes that drive operational savings.