Editor’s Note the following article is provided by Lane Pence, Member, Reusable Packaging Association; and Director, Growth Strategy, CHEP USA
Many companies are reaping the financial and environmental benefits of incorporating reusable packaging solutions into their supply chain. However, every supply chain is different and this requires that a company identify and measure its own unique factors to determine whether reusables are the right solution. In some cases, one-way packaging might be the best solution; while in other supply chains, a combination of reusables and one-way packaging makes the most sense.
As supply chains evolve and grow more efficient and sophisticated, packaging decisions must be viewed holistically. The old paradigm of lowest procurement cost does not capture the true lowest economic cost of packaging. Also, packaging can no longer be viewed as the last step in product development, or simply an expense line item attached to a minimum engineering specification. Today’s decision process must incorporate all of the impacted stakeholders and variables in the supply chain in order to identify “best fit” packaging.
The implementation of reusable packaging within a supply chain can impact any or all of a company’s major financial categories including revenue enhancement, capital utilization, and operating expense reduction. This requires supply chain professionals to have some financial understanding of the potential impact of reusables before presenting the concept to management. The Reusable Packaging Association (RPA) has drawn on the expertise of its member companies to create this article to help companies conduct an initial assessment and cost benefit analysis to determine when and where reusables might benefit their supply chains. Additionally, companies can enter their data into the RPA’s Quick Calculator to do an initial assessment.
For the purpose of this article, we define reusables, or reusable packaging, as pallets, containers, and dunnage used to store, handle and move products throughout a supply chain; and then be reused repeatedly.
Reusables can enhance revenue through two ways: merchandising at the store level, and elimination of white space at the plant level allowing more units to be sold. At the store level, retail ready reusable packaging allows suppliers to place more product within the same shelf space, reducing stockouts and therefore increasing revenue. Or a supplier could choose to add a second SKU within the same space, resulting in accelerated sales.
The second area is at the plant level. Many brick–and-mortar plants and distribution networks are straining under increasing SKU proliferation. With standardized designs and automation friendly features, reusable packaging can optimize plant or warehouse space and move product throughout the supply chain faster and more accurately, with little to no system downtime.
A second area impacted by reusables is capital utilization. Making an outright purchase of reusables requires capital. If capital is limited, a company will likely rent or lease the packaging, keeping its capital free to invest in other strategic initiatives. Because the procurement cost of one-way packaging can be less expensive, this is also an option to keep capital available. And if a company is looking strictly at per unit procurement cost, expendables are less expensive than reusables, but they won’t provide a long service life and will require frequent, recurring expenses.
Operating expense reduction
Operating expense reduction is the area where reusables can have the greatest financial impact. The reduction in operating expenses range from the savings of substituting reusable packaging for an expendable single use package, to the reduced labor associated with handling reusable packaging. For these reasons, it is critical to take a holistic view of your supply chain.
The most common operating expenses impacted by reusables are:
• Total procurement costs over the life of the packaging
• Product damage reduction
• Downtime reduction
• Eliminate disposal costs
• Reduction in expendable dunnage
• Reduce costs of packaging material
• Reduced transportation costs
Total procurement costs – this equates to the cost of purchasing or leasing reusables. Although this will be a significant line item, it is important to remember to take a holistic look at the impact of reusables. If reusables are a good fit for your organization, other expenses will decrease, lowering the cost of procurement over the long term.
For example, Ghirardelli Chocolate Company had been spending $520,000 annually on 580,000 cardboard boxes for internal distribution. The boxes would get soiled and thrown in the trash, racking up an additional $2,700 in disposal costs. Switching to reusable totes has resulted in a net packaging reduction savings of $1.95 million over five years for the company and prevented 350 tons of soiled cardboard from going into the landfill. However, if you are weighing strictly per unit procurement costs, expendables will be less expensive than reusables.
Product damage reduction – a well-designed reusable pallet, tote or container can protect contents and reduce damage reduction. If a company is shipping an expensive product, the benefits of placing it in a sturdy, yet relatively inexpensive reusable container can be significant. Saving even a little bit on product damage each turn can add up.
This area is especially significant for perishable goods. Reusable produce containers offer improved ventilation that removes field heat faster, and reduces product spoilage. Tosca helped bring this benefit to the spinach industry as it moves product from the field to processor. Reusable containers have helped reduce spoilage as well as improve product safety.
Downtime reduction – at some businesses, downtime and inefficient operations can cost thousands of dollars per minute. PBR Columbia South Carolina LLC, a leading brake manufacturer supplying major automotive corporations, hauled a lot of materials from staging areas to line operations on the plant floor. The company was actually spending more time hauling the containers housing the brake components rather than moving the actual components themselves. To address this issue, PBR purchased a customizable, collapsible bulk container from Buckhorn. The end results were better than PBR could have imagined – a cleaner workspace with the removal of more than 100 outdated conveyers, a reduction of required storage areas, improved workflow with batch sizes cut in half, fewer injuries, waste reduction and improved product quality.
Eliminate disposal costs – the elimination of disposal costs for expandable products is an obvious gain. Companies that don’t have local systems in place for recycling, or don’t have the ability to collect used packaging, might be paying substantial fees to dispose of expendable packaging.
Huhtamaki, one of the world’s leading consumer goods packaging companies, produces high-quality plastic cups, bowls, plates and other food packaging for leading food and retail companies. Prior to considering reusable pallets, it used single-use pallets to ship cartons of cups and lids from its facility to its customers in standard 53’ trailers. At the customer site, the product was off-loaded and sent to production to be used in the packaging process. Huhtamaki worked with ORBIS to evaluate and implement reusable pallets for their system. In addition to reducing automated system downtime, Huhtamaki’s plastic pallet program reduced waste associated with one-time use pallet disposal and repair.
Although reusables can save retailers millions of dollars annually in the purchase of expendable boxes for pick items and tipping fees to dispose of them, an inability to execute a cost-effective reverse logistics network and collection program would make reusable pick totes operationally impossible.
Reduction in expendable dunnage – dunnage is necessary for product protection, but it often ends up in the landfill after a product arrives at its destination. Some reusable containers are sturdy enough to eliminate the need for dunnage. At other times, the dunnage itself is reusable.
For years, Lyons Magnus, shipper of cased goods, looked for a less expensive way to protect its heavy freight. The company was using several 4” corrugated panels in the nose of trailers for spacing, and then loading the product up against them. Lyons Magnus found that they could reuse the panels two to three times before they were crushed, and then had to be disposed of in solid waste landfills. Then Lyons Magnus began using Paylode® reusable plastic dunnage. The interlocking units withstand up to 20,000 lbs of force without crushing, and they are reusable.
Reduce labor – many companies want labor taken out of the systems and moved upstream, and reusables can help accomplish this. Companies can automate packaging by putting consumer goods directly into retail ready reusable containers right at the manufacturing site. Other companies hire third-party poolers to repack to reduce store labor. Food Maxx wholesale grocery outlet in Alameda County reports that displaying carrots in reusable produce containers saves time compared to unloading and stacking bags of carrots by hand.
Reduce cost of packaging material – Although buying reusable packaging can require a significant capital investment, it can reduce the overall cost of packaging material in the long run. At John Deere, the biggest savings resulting from reusable packaging has been in packaging material. The company estimates that they are saving about 85% in packaging. For example, instead of packaging lighting brackets in two heavy duty 24” x 24” x 36” cardboard boxes ($21 each) on an $8 wood pallet, the material can be packed in a 45” x 48” x 34” reusable container that costs less than $20 to cycle.
John Deere uses reusables in about 95 percent of its worldwide operations.
Reduce transportation costs: With increasing fuel costs, companies are seeking to maximize the amount of product they ship, and the standardized design and efficient footprint commonly found with reusable packaging offers companies better ways to optimize 53’ trailers for outbound and inbound shipments. One of the world’s largest office products companies ships a wide range of office products from its retail distribution centers (DCs) to its stores throughout the nation. Product returns and empty pallets were returned on a daily basis. The company was seeking to increase its trailer cube utilization while making it easy for store associates to unload the trailers at the retail stores. They collaborated with ORBIS and implemented a reusable pallet program that had a return ratio that enabled them to capture freight savings when empty pallets were returned to their regional DCs. The pallet program significantly increased cube utilization and provided the durability and load capacity ratings required in their distribution environment.
When considering packaging for an assembly plant, distribution center or warehouse, companies need to carefully analyze their system to determine when reusable packaging or one-time use packaging makes sense. Some key considerations to weigh include:
• Reverse logistics costs.
• Risk of significant potential for loss or theft.
• Supply chain collaboration. Reusable packaging programs can strain trading partner relationships if one partner is not executing the program efficiently, adding cost.
• Seasonality: reusable packaging may not make sense if there are significant seasonality swings that require a large float of assets; or product lines switch frequently and the payback period is too short.
• Marketing or branding requirements.
• Existing equipment requirements: Reusable packaging may not make sense if it does not interact well with existing equipment.
• Supply chain control: Are there closed shipping loops to ensure reusable packaging can be efficiently returned for re-use?
Balancing Benefits and Complexities
When implementing a reusable program, there are many factors to consider that do not come into play when using expendable packaging. Decisions must be made about buying, renting or leasing reusable products; and outside services like pooling or washing containers might be required. Most importantly, reusables require new and adequate operational controls for outbound as well as reverse supply chain logistics.
For example, repositioning transportation and labor are necessary to get reusables back to the original point to reuse them. This requires new systems as well as labor to get the asset into the right truck, to the right place and moving again within a distribution network. As companies invest capital to build new facilities or install new automation, it is important to consider how packaging will interface with the equipment. It is a good best practice to consider reusable tote and pallets early in the planning process, so the system will perform seamlessly when complete. Often, decisions about the type of transport packaging are not considered until the product is ready for production. At that point, marketing, operational and trading partner considerations might limit packaging choices. For example, I worked with a company that wanted to eliminate expendable boxes, but the new multi-million dollar production and high speed case erectors already in place would not work well with reusable packaging. In that case, reusable packaging would have caused downtime.
Lastly, one of the number one cost drivers of reusables is shrinkage. Systems can help you track your assets, but operational controls are the number one way to help reduce shrink. Misplacing a corrugated box is not a significant loss. However, losing $25 totes will become costly over time. So you need to consider whether you can build adequate operational controls into your supply chain. Although creating the infrastructure to support reusables requires considerable time and effort, it has been the experience of our many RPA member companies that the returns well outweigh the exertion.
The purpose of this article was to provide an overview of the pros and cons of reusables. To go into more depth on this decision-making process, the RPA has created a Quick Calculator. The calculator, a basic model populated with your individual data, is intended to be directional and give companies some direction on whether a particular application is a reusable candidate. The RPA developed the model to help supply chain professionals understand and gauge the potential financial impact of reusables, and to document the hard numbers that are necessary for decision making.
In addition, the RPA is developing a four-part curriculum that will explain indepth the challenges and processes of implementing a reusable program. The curriculum for the first stage, called “Concept Understanding” is almost complete. In this phase, end users are in an investigative mode seeking basic information on reusable packaging to help them better understand the products and services provided by the reusable packaging industry.
Once they have made this decision to implement a reusable solution, they move into phase two which we call “Concept Acceptance”. In this phase, users will learn the importance of “Internal Stakeholder Alignment”, the process of making sure that everyone in the supply chain understands how this change will impact their function. From management to the shipping dock, a reusable solution must have strong alignment through all core function areas to be successful.After securing alignment, users are guided through the process of answering a number of important questions including which is the right type of reusable product or service for their particular operation, how they will finance the assets, and whether they should outsource logistics, packaging and/or container management. The content for this second phase will be delivered at PACK EXPO this year.
After a company has completed the first two phases, they can move on to phase three, “Concept Implementation” and then phase four, “Concept Refinement” of the reusable packaging solution process. The entire curriculum will be available at the end of 2012.