Tuesday, July 5, 2016

Small Changes Can Bring Big Supply Chain Savings

Packaging Consultant
by Rich Lindgren, CPP
Chainalytics


In the world of Consumer Packaged Goods (CPG) there is an eternal struggle between the demands of marketing, operations and optimizing your packaging for the supply chain.  As an everyday consumer, you probably see packages all over the grocery store where you wonder why there is so much air around the product or food in the packages you purchase.  For the most part, air is waste and below you will read why!

There are a few reasons for this air.  The first is driven by operations and that is the functional air space so they can run their automated filling equipment at speeds which maximize efficiency and profitability.  For the most part this is a good thing, this ultimately contributes to you getting the products you want at your local stores at a fair price.  Secondly and usually the larger driver for the size of the packaging is due to marketing billboard space.  When you walk down the aisle at Target or Walmart, almost every package is a mini billboard of sorts trying to call your attention much like driving down the interstate in your car.
Packaging on the shelf
Aisle of "Packaging Billboards"
The bigger the packaging face the larger the product image or area that can be used by marketing and graphics teams to inform you and entice you to put it in your cart.  Packaging size also has an inherit suggestion to the amount of product inside said package.  Consciously or subconsciously if you see two pizza boxes next to each other for the same price, you may select the larger one without actually reading the ounces labeled in small print at the bottom of the carton, thinking you are getting a better value. Sadly, not very often is a larger package an indication of amount of product or food inside and even can be consider non-functional slack fill, which can lead to fines on companies.

Typically the process works as follows, a leading brand owner will launch a product into the market with a large billboard area so they can "be heard" on the shelf to tell you what is new and great about the new product.  If the product is successful, it is natural for competing brands to launch their "me too" versions into the market to grab a share of the new market.  When those "me too" products launch they often copy the size of the current market leader for that product category whether they need the space or not, so they can look the same size wise on the shelf.

As a packaging engineer the trick is to balance the concerns of marketing and operations while delivering an optimized packaging system that will serve the company's bottom line.  Below I will outline a case study for a project our team delivered for a past frozen foods customer.  This particular frozen pizza item was the follower or the "me too" in the market.  Even though the product was a different shape and size then competitor, they launched product in a paperboard carton the exact dimension of the competitor.

We proposed a sensitivity analysis showcasing the range in cost savings, while maintaining a similar size graphic facing. The key was finding the sweet spot for this packaging system while meeting the needs of the marketing team.  Even though there were other options with larger supply chain savings, marketing would not support the billboard reduction.  The selected option is what we labeled as "Visual Indifference".  Basically it was the smallest change I could find that would still make a big impact.  Such a small change, that it would be impossible to perceive it in a freezer case.
Paperboard Carton Packaging
Small changes to the retail carton leading to big savings!

By reducing the length and width of the carton by just an 1/8" in each direction and reducing height or riser panel by a 1/16" we made a huge impact.  The 1/8" reduction allowed us to add a whole row of cases along a 53" Dry Van trailer as well as one additional row at the back of the trailers.  The 1/16" reduction allowed for pack out ratio change on the freezer shelf.  Getting more pizzas in a freezer leading to less out of stock.  This also helped propel a change going to 14 count shipping case from 12 count.  In the end, this also allowed one additional row of pizza cases along the top of the trailer as well, in the end the customer got an additional 6,848 pizzas on each truck shipped.

Packaging Case Study
Click Images to Enlarge
In the end, with an annualized savings of $600K, the time to payback was only 7 days.  Adding on top of that, there was a great sustainable story to tell as well.  On top of the hard savings, the reduced out of stocks, reduced touches and many other soft benefits throughout the supply chain.
Packaging and Operations Map
Total Supply Chain Impacts

Does it make you wonder what products in your company's portfolio could have a similar opportunity for greater efficiency and supply chain savings?

The packaging team at Chainalytics focuses on packaging cost reduction efforts that lead to a chain reaction of savings across the entire supply chain for their customers.

1 comment:

  1. Thanks Rich, you have shared an amazing post. Yes, packaging matters! We all usually choose to buy attractive and large quantity packets, if we have options. It's all about packaging. Keep sharing.

    ReplyDelete

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