Automotive Packaging: Role Continues to Evolve in Global Supply Chains

As automotive assembly has become global in nature, the impact of transportation costs on return of empty reusable packaging has influenced automotive packaging selection. And while an increased reliance on expendable packaging has saved on empty packaging transportation, it has been linked to increased waste generation, product damage, increased product repacking labor, as well as a loss of cube efficiency in freight and storage.

The packaging challenges faced by the automotive industry have been well documented, as for example, by DHL:

…the automotive industry faces a number of packaging-related issues. One is that poorly packaged products do not fully utilize the capacity of sea containers, increasing the likelihood of in-transit damage. But such issues aren‘t limited to ocean voyages. Other problems include the inconsistent availability of containers and associated materials used in manufacturing, warehousing, and distribution; a lack of asset visibility; product contamination from dirty receptacles; and inefficient returns management for reusable packaging.

And as noted by Deloitte, “Industry surveys have consistently shown that suppliers and OEM’s (original equipment manufacturers) frequently face difficulty in getting the right packaging to the right place at the right time.”

Automotive industry and packaging suppliers are working at new optimization best practices in response to these changes. And related to visibility there is the additional opportunity for IoT in automotive to consider, and what role packaging will play in its deployment.

A Global Industry, More Concentrated Supplier Base

Coming out of the global recession of 2008 and 2009, the automotive industry was increasingly taking on a new look. North American suppliers have traditionally held the top supplier rankings.

“In 2001, North American suppliers took 54% of the 80 top-five spots but only 34% in 2011 — and this share has been declining year on year,” a 2015 automotive industry report from EY noted. “The market share concentration around the world has also changed dramatically as larger suppliers have bought up smaller ones. This means that, in today’s automotive industry, there is less room for small regional suppliers. This trend is expected to become more pronounced over the next five years as suppliers take further cost-cutting measures and consolidate to become more competitive.”

Regional Differences in Automotive Packaging Selection

Approaches to packaging selection have been driven by increasingly global supply chains, but there are also important differences regionally.

For example, in Europe, where space constraints are high and concern about sustainability is very high, the use of third party pooling solutions have been popular, according to Chris Buchanan Director of Sales, Automotive, CHEP North America. “Specifically, CHEP has a very large market share of that packaging,” he said during a presentation at the MODEX 2018 show.

“If you look at Asia, however, a lot of their packaging is still cardboard boxes where it is easy for disposal,” he continued. “Then if you look at the North American solutions and you see it is almost like a hybrid of all the other regions where it does a little of both. Some cardboard, some owned (reusable packaging) fleet, and some pooling.”

China has the largest automotive industry in the world, as well as the fastest growing. And it handles a lot of expendable packaging, according to Transparency Marketing Research:

The competition in packaging industry of China is focused on conventional packaging products rather than developing product specific innovative packaging solutions. Moreover, development in material science has resulted into a large variety of economic bio-degradable plastics that can be incorporated for manufacturing disposable automotive parts packaging. The automotive industry is shifting towards the adoption of disposable packaging due to its several advantages over reusable packaging.

According to Ma Zengrong, vice-chairman and head of the China Automotive Logistics Association (CALA), and reported by Automotive Logistics, an absence of overall standardisation and limited environmental standards have made the use of returnable packaging less urgent for carmakers, although there is now growing interest in pooling equipment.

The Pooling Opportunity for Reusable Automotive Packaging: Reducing Empty Packaging Transportation

The increased presence of disposable packaging has led to problems at production plants. In the case of Tenneco, a $8.2 billion global automotive tier one supplier, it previously relied on a company owned fleet as well as frequent reliance on cardboard boxes and wooden pallets when container shortages took place.

Partnering with CHEP to analyze the Total Cost of Ownership (TCO) of its existing packaging system for automotive exhaust systems, Tenneco discovered that the largest area of hidden waste pertained to single use packaging.  

Prior to its relationship with CHEP, Tenneco relied on a company owned fleet, often supplemented with additional reinforced triple ply cardboard boxes and wood pallets when container shortages were experienced. The use of expendable packaging created various inefficiencies in production and logistics.Waste generation led to disposal problems, health & safety concerns, more labor to handle packaging, a lack of containers during peak production throughput, the cost of purchasing emergency cardboard packaging, and product damage.

“They are vertically integrated within their business units, so they are sending those sub-components themselves to different plants to build these systems,” Buchanan explained. “In doing that they had a certain amount of their own (reusable container) fleet…When they were emptied, they couldn’t get them back fast enough to the places where they were needed to refill them the subcomponents.

“Because of those issues,” Buchanan continued, “it also required them to carry extra cardboard safety stock, and in doing that, it also put a strain on their facilities. They had significant waste.”

The previous solution also required non-value-added CAPEX and under-utilized transportation. Remaining mindful that introducing change on the shop floor can be difficult, Tenneco wanted to ensure its people were bought into the new solution process.

CHEP proposed a pooled solution of its Large Foldable Containers (LFCs). When pooling works best, containers emptied at a tier 1 or OEM facility are picked up by the provider and re-issued locally, thus saving the need to relocated empty the containers great distances.

To reduce concerns about risk, the pooling program started with a trial. “Because we wanted to mitigate risk, we did an approach of one plant at a time,” Buchanan said. The low stress introduction allowed Tenneco to assess the advantages of a pooled reusable packaging solution.

Tenneco has been rolling out its use of CHEP Folding Large Containers (FLCs) since August 2015, with the full support of shop-floor personnel. With over 26,000 containers per month shipped, the company has enjoyed the elimination of repackaging and other non-value added processes at its operations in China, Europe and the U.S. In addition to improved production efficiency, there were transportation and warehousing.  

According to CHEP, the overall system now has far greater transparency, with CHEP providing the customer with full control over its packaging planning and provision. This removal of uncertainty has resulted in greater stability not only within the plants, but also in the supply chain as a whole.

Getting Closer to Automotive Packaging Customers

As OEM facilities expand to new locations, tier suppliers as well as reusable packaging providers are also quickly responding to the shift. In the Southeast, for example, tier 1 plants are locating centrally to serve various OEMs in the region, or in the case of the Toyota model in Texas, actually locate on the OEM property. Such moves enable shorter supply chains which reduce supply chain risk for assembly facilities, and which are beneficial for reusable packaging systems.

In January 2018, ORBIS Corporation announced that it had opened a 7,700 square-foot dunnage design and prototyping center in Spartanburg, South Carolina. The facility enables ORBIS, headquartered in Oconomowoc, Wisconsin, to rapidly design and fabricate innovative ORBIShield® dunnage samples for regional customers. The Southeast location positions ORBIS closer to automotive manufacturers and tier suppliers to collaborate on part packaging designs.

ORBIShield, ORBIS’ line of custom dunnage, uses a variety of foam, sheet, specialty and fabric materials to create protective packaging for automotive parts. ORBIShield can be integrated with reusable packaging such as totes and bulk containers, to standardize parts per container, maximize pack density, improve inventory control, enhance part presentation at the assembly line and protect sensitive parts when stored and transported.

The new ORBIShield Design Center gives regional customers a closer look at the ORBIShield portfolio and time-efficient design samples to consider for their supply chain systems.  

“Expanding the ORBIShield facilities beyond the Midwest has been in the works for some time. We wanted to make ORBIShield samples easier to access in a timely manner while enhancing the design and customer experience,” said Aman Sangha, product manager for ORBIS Corporation. “We understand automotive vehicle builds and are finding new ways to support our customers through the entire packaging process.”

“The Spartanburg area is known as Hub City because of the growing automotive activity. ORBIS chose this location to make part protection more attainable for the region,” added Sean Momsen, market manager, ORBIS Corporation. “Customers can use the center to quickly and directly work through their dunnage vision with our expert design and engineering team. It’s the collaboration process we always wanted.”

“We want this facility not just to be ours, but our customers, where they can come have a meeting, review the product and bring in the parts they are trying to protect,” he continued.  “They can talk with the sample maker, talk with the designer, and talk with the sales engineer so all three functions are under one roof, in one setting.”

Handheld containers allow for better workstation design , including reduced travel time and better ergonomics. (Schematic from SIA automotive packaging case study)

One Stop Shopping for Automotive Packaging

Automotive packaging buyers increasingly value the simplicity of purchasing an entire solution from a single vendor, which has led providers to expand their capabilities internally or through acquisition. Case in point, ORBIS Corporation also recently acquired two different packaging companies. These include Hinkle Manufacturing of Perrysburg, Ohio, as well as Response Packaging, headquartered in Piedmont, South Carolina.

Founded in 2009, privately held Response Packaging conceptualizes, designs, prototypes and manufactures reusable custom dunnage and fabricated steel rack solutions. Included in the acquisition are design, testing and manufacturing facilities in Piedmont, and Greenville, South Carolina; Auburn Hills, Michigan; and León, Mexico.

Response Packaging will operate and be branded as a part of ORBIS Corporation. “This acquisition brings us talented people, efficient plants and strong capabilities in geographic areas where ORBIS wants to grow,” said Bill Ash, president of ORBIS Corporation. “Response Packaging is strongly aligned with ORBIS in areas like supply chain expertise, innovation and customer knowledge.”

Response Packaging has 245 employees in the U.S. and Mexico and serves the automotive and industrial markets with highly engineered custom dunnage designed for part protection. Additionally, it specializes in fabricated steel rack and dunnage systems for the safe and efficient transport of vehicle components in the supply chain.

“ORBIS has been pursuing a strategy to expand its custom business to serve customers with a broader portfolio of solutions,” said Jim Kotek, president of Menasha Corporation. “The acquisition of Response Packaging supports this objective by adding complementary capabilities and establishing a manufacturing presence in the Southeast, and expanded capabilities to meet our customers’ needs in Mexico.”

Hinkle serves the automotive market with highly engineered custom dunnage designed for part protection. Hinkle also operates a thermoforming plant in Dearborn, Michigan, where it produces trays and other plastic components.

Hinkle’s plastic and foam dunnage expertise solves unique protective packaging needs with decades of specialized design experience. Founded in 1962, Hinkle employs 125 at its two locations.

“The expertise and capabilities of Hinkle Manufacturing expand our portfolio of custom reusable packaging products and bring even more solutions to the evolving and growing needs that we are seeing in the marketplace,” said Ash. “Our commitment to providing unmatched products and services includes ensuring that our customers have the best options for their reusable packaging needs. Hinkle Manufacturing and our recent acquisition of Response Packaging will strengthen our custom solutions offerings.”

Keeping a Lid on Dangerous Goods

The topic of dangerous good packaging was the topic of a breakout session at the Automotive Logistics Europe Conference 2018.

“We immediately jumped on the lithium ion batteries, because that is what we need to be prepared for,” one meeting participant said in summarizing the session. He noted that with the growth of electric vehicle manufacturing, there is a “huge wave inbound from Asia to Europe” requiring dangerous goods packaging. “Do we have the right knowledge to ship this product according to the regulations which are both country based and global? It is a different concept than just shipping parts.”  Standardization was also one of the topics,as various OEMs use different batteries. Cross coordination among OEMs should be nurtured, he urged.

The cost of the one-way packaging was described as “insanely expensive” – not a €6 cardboard box but a €30 or €40  container, resulting in a huge amount of packaging waste inbound. “In regards to recycling it is a one way flow, it goes from Asia into Europe. There is nothing going back.”

Aftermarket was also flagged as a challenge. Shipping batteries from the shop back to the recycling facility involves a different dangerous goods regulation. Given the insurance implications for shipping lithium ion batteries, the use of sensors and other technologies to support supply chain visibility “could be a nice value ad.” Also of note, huge companies have entered the battery market, including Samsung and LG.

“It will be the tail wagging the dog here if we try to dictate to them what kind of packaging we want,” he continued. “There are people we need to talk to, also from a logistics point of view. What is a good packaging to bring lineside to the point of use for transport optimization. Do they really care?”

Tracking Technology and the Automotive Packaging Problem

A new shared platform for returnable container management was announced at the 2018 Automotive Logistics Supply Chain Conference.

The platform is being widely deployed and is expected to move into an AIAG committee to form industry standards. Founding members of the Automotive Data Ecosystem Design Group and AIAG Committee include Fiat Chrysler Automobiles, General Motors, Honda North America, Nissan North America, Toyota North America, Adient, Denso North America, MAHLE North America and Yanfeng Automotive Interiors.

According to a report in Automotive Logistics, the five OEMs are currently joined by “12 medium to large tier suppliers, two logistics providers and the Automotive Industry Action Group (AIAG) on the  initiative for a data system providing accurate visibility over returnable containers at every stage of their movement between supplier and OEM.”

“Basically we all came together because we all have a common problem,” said Dana McBrien Associate Chief Advisor at Honda. He spoke at the Automotive Logistics Conference on May 22. “We don’t manage our reusable containers very well. We have varying severity of problems, but it all comes down to not managing our returnables very well. We started some conversation around September last year and got a lot of participation.”

“Most automotive companies struggle to reduce supply chain costs year over year,” said William Wappler, Surgere CEO and the brainchild of the digital ecosystem. “We conservatively predict the participants in our digitized ecosystem can achieve double-digit cost savings through highly accurate visibility into the supply chain and through the collaborative power of shared information and analysis across OEMs and their supply base,” he said.

“Really, what we were trying to get to was getting the right container to the right place in the right quantity, in the right configuration, in good condition that we could protect our parts being delivered from our tier 1 suppliers,” McBrien continued.

“We looked at this as being one of the big problems in the auto industry. I don’t think there would be any of us who have annual meetings with suppliers where this doesn’t come up. There are very few venues where this doesn’t come up as being one of the problems.

“We looked at creating a data ecosystem that we shared having an input into,” he said, acknowledging that current management shortcomings lead to production delays, repacking, and the use of expendables. “If we can eliminate those issues we are going to be way ahead of the game.

A common solution to container management

“One of the things we didn’t want to do was to tear our supply base apart,” McBrien continued. “We didn’t want the tier 1s to have to work through multiple solutions. We wanted to get to that common solution so that there were standards, or at least a best business practice document that everyone could operate from.”

“The tiers were really adamant about using RFID, even more than we were, truthfully,” said Doug Adams, General Manager at Toyota. “And they were really pushing us to make sure we were going to use that data to solve all the problems that are in the supply chain.

“We ended up with a system that will allow us to visualize packaging both with parts and returnables in it. Starting from the supplier, using a common platform, through the Surgere software, that we are able to visualize that inventory going through the supply chain both from the supply base and the OE individually. So now we have the data to problem solve this habitual problem we’ve had forever about how to manage returnables.”

The initiative will come out later as an AIAG best business practice or case, McBrien said. “It is still being developed a little bit, but one thing I want to leave you with is isn’t the end of it. It is just the first foundational piece to what can happen next.”

McBrien said that the collaboration did not signal a loss of competitive advantage. “Absolutely not…How we operate in that environment is really what becomes the competitive advantage. There will likely be some some of the group who will adopt 100% of it, some that will likely adopt a portion of it…”

The importance of integrating people into the management process

While the promise of technology for achieving better reusable container management is tantalizing, the value of dedicating people to the process should not be underestimated, either from inside the company, or through a third party provider. When it comes to managing reusables, whether in food, pharma, or industrial, having people directly involved repeatedly been proven to make a difference. For example, as outlined in a recent CHEP OEM case study, it utilized a team of 35 people across 17 North American plant locations to achieve some remarkable results. These improvements included:

  • 48% reduction of expendable packaging claims
  • 53% reduction in repack costs
  • 36% reduction in lost container replacement

Based on its work with top OEM and tier 1 brands globally, CHEP was named as the 2018 Environmental Awareness Award recipient at the Automotive Global Awards. Held in the heart of Motor City, the awards gala celebrated the industry and recognized companies and individuals who have pioneered a new way of thinking or working.

Automotive packaging continues too often to be portrayed as a problem, rather than an opportunity. Continued exploration of collaborative approaches to  tracking technology, investment in management, pooling and product innovation will help in that shift.