Packaging for cost optimization
This article, written by Harshvardhan Singh of Ficus Tegatai Packaging India Pvt Ltd, is based on his automotive packaging presentation made in December 2020 at the DISHA 2020 virtual conference hosted by the Indian Institute of Materials Management (Mumbai Branch). It originally appeared in the DISHA 2020 event souvenir book.
Key Market Trends for Automotive Packaging
Automotive Industries and its complex supply chain…The automotive industry has evolved into an industry of complex supply chains and networks, requiring many activities to be streamlined and error-free to avoid abnormalities. Returnable transport packaging is aiding supply chains in the automotive industry by providing secure and eco-friendly methods to manage the flow of materials and information.
Gross Turnover of the Automobile Manufacturers in India for 2016–17 was (In USD Million) 67,724.
The Indian returnable transport packaging market was valued at USD 531.4 million in 2018, and it is expected to reach a value of USD 846.5 million by 2024.
Due to the increase in raw materials cost for expendable packaging like wood & paper, environmental pressures to eliminate waste from manufacturing as well as supply chain and government regulations are anticipated to make returnable transport packaging an attractive and profitable option in the region over the forecast period.
The rising cost of packaging, damage to goods in transit, availability of packaging material, and cost of disposing of the packaging material has now brought the attention of companies to sustainable packaging, and hence, businesses are realizing the importance of having a sustainable and low-cost packaging system in place.
Factors involved in returnable automotive packaging
1. Capital investment into packaging materials and reusable dunnage
For any returnable packaging project, we need upfront investment on all packaging items included large foldable containers, inner dunnage, and layer pads. The quantity of packaging items will depend on the number of box sets required per day X the number of cycle days of the specific project.
Factors to be considered in capital investment:
- Try to increase no of parts per pack to reduce no of packaging required per day.
- Try to reduce/optimize cycle days of flow to reduce no of packaging set required in system.
- Try to go with market available standard packaging to avoid project-based sizes which will invite dedicated investment.
- Try to understand project life precisely to decide on packaging selection to avoid low or over life packaging selection for better packaging amortization.
- Collapsible packaging box to be considered for optimizing return logistics cost.
2. Return management cost for empty packaging materials
a. Include logistics cost for the issue of empty packaging to the component manufacturer (T1),
b. Collection of empty packaging from end-user (OEM) to local warehouse
c. Relocation of all empty packaging materials to issue location service center.
- Try to design foldable, nestable, or collapsible packaging to optimize return logistics cost and warehousing space cost.
- Try to go with full truckload return movement to reduce per packaging set return logistics cost – consolidation of packaging for full truckload.
We required a warehouse near the issue location (e.g. T1 component manufacturer) and a collection location (e.g. OEMs) to manage the flow of packaging materials. This warehouse will enable us to clean packaging equipment running in the pool, repairing of damaged packaging equipment, protection of packaging equipment from the open atmosphere like direct sun, rain, dirt, etc, as well as theft and loss.
It will also help us in the consolidation of empty packaging to achieve FTL movement of empty boxes to improve optimization of transportation cost
4. Manpower cost
Manpower is required to manage this packaging equipment through the supply chain – for damage repairing, cleaning – conditioning of these empty packaging at every cycle.
Manpower is also required for stock audit at each and every stage including customers as well as OEMs and reconciliation, including the loading and unloading of these packaging at issue, collection and relocation points.
Favorable Conditions for Reusable Packaging
Under What Conditions does reusable packaging offer the greatest advantage?
When companies have conditions such as those listed below, they may be in a good position to take advantage of the savings offered by reusable packaging.
Such conditions include:
- High-volume shipments
- Frequent deliveries
- Shorter distances
- Dedicated delivery provider
- High volumes of solid waste
- Significant need for cleanliness/hygiene
- Frequent shrinkage or product damage
- Expensive expendable packaging
- Underutilized trailer space in transportation
- Inefficient storage/warehouse space
- Worker safety or ergonomic issues
- Need for unitization
Concerns about Reusable Packaging
Worldwide, the supply chain is still dominated by expendable packaging. Reusable packaging can be difficult to cost-justify when:
- Return logistics costs are high due to extensive distance or low volumes.
- There is an experience of a significant pallet and container theft issue.
- Reusable packaging and pallet loss is a barrier to success.
- Upfront high capital investment in returnable packaging by any company is a challenge.
- There is a lack of product life and volume visibility due to volatile market conditions.
- There is a diversion of focus by any manufacturing company from there core activity to return management of packaging.
- There are multiple delivery destination points.
Precautions to be taken in returnable packaging
- Returnable packaging will be efficient if we will keep on rotating the packaging. If we use these returnable packaging for storage, warehousing over and above the agreed time, then it will affect flow badly, resulting in a shortage of packaging materials at the supplier location, as well as incurring expedited logistics costs for the fast movement of underutilized return transportation vehicle to fulfill packaging shortage in the system.
- Avoid sophisticated packaging design, as it will increase handling time and repair, replacement frequency due to increase in damage rate.
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