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Supply Chain Challenges, Contract Packaging

How Packaging Optimization Can Reduce Freight Costs

Jack Ampuja | December 14, 2014

This blog post comes the president of Supply Chain Optimizers, Jack Ampuja, a KANE partner and a specialist in packaging optimization -- http://www.supplychainoptimizers.com

When it comes to designing or selecting shipping cases, the marketing, manufacturing, quality, advertising, engineering, packaging and logistics functions all want input, as do some suppliers and customers.  CPG manufacturers tend to view packaging as a marketing function.  Because of its multi-functional nature, shipping carton selection should always be a supply chain responsibility and must include input from logistics practitioners. 

Many packaging decisions are based on keeping freight costs down but ignore the impact on warehousing and freight efficiency. Consequently, total cost for the enterprise increases. What many companies don’t realize is that packaging is the smallest cost segment in the supply chain, comprising less than 10% of each supply chain dollar. In contrast, warehousing is about 25% of cost and transportation 60%.

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Here’s a typical example of what can happen.  Recently, a CPG company contacted us because its boxes were creasing and crushing during shipping.  Our analysis found that all the boxes were designed to stack only one pallet high and damage always occurred when they were double stacked for shipping.  When we presented our findings, the company’s president confided that the purchasing director had specified cheaper boxes in a cost reduction move.  By increasing shipping case strength, damage and customer complaints subsided and total costs declined significantly.   

We estimate that packaging changes can deliver an average 10% reduction in the total cost of packaging, warehousing and transportation.  In today’s lean supply chains, few initiatives can yield this degree of savings.  For some companies, the opportunity can be even greater -- one large food products processor cut its costs by $100 million through packaging optimization once they fully recognized the relationship of contract packaging to logistics operations. 

Is your logistics team involved in shipping carton selection?  

Integrating contract packaging into logistics operations