5. PRACTICAL RESEARCH
5.8. Modeling of packaging optimization impacts on Total Logistic Costs
Specific optimizations have different results and impacts on total logistic costs. The purpose of the modeling is to recognize the most effective ones. Therefore, it is necessary to take the optimizations one by one as we can expect that combinations
Figure 49 – One-Way packaging cost optimizations in selected logistic flows
Category One-Way Packaging Optimization Activity
Influenced Cost
Component(s) Result(s)
1) a. Reduced packaging price > commercial negotiation Packaging lower packaging costs per part
> less packaging materials used
> standardization of material grades
> standardization of constructions
2) a. Stronger material grades for higher stacking factors > re-design for higher BCT Packaging higher packaging costs per part
> production from stronger materials Transport lower transport costs per part
> testing Warehousing less storage space
Handling less handling with more ULs
b. More packaging material for higher UL density > re-designing Packaging higher packaging costs
> packing simulations Transport lower transport costs per part
> testing Warehousing lower warehouse costs per part Handling lower handling costs per part
c. Higher loading units for higher UL density > re-designing Packaging higher packaging costs
> loading simulations Transport lower transport costs per part
> testing Warehousing lower warehouse costs per part Handling lower handling costs per part
3) a. Less packaging components for faster packing > re-designing Packaging lower packaging costs per part
> packing simulations lower packing operations time
> testing reduced number of packing personnel
b. Less packaging components for higher UL density > re-designing Packaging lower packaging costs per part
> loading simulations Transport lower transport costs per part
> testing Warehousing lower warehouse costs per part Handling lower handling costs per part
4) a. Re-designed dunnage for higher UL density > re-designing Packaging unchanged packaging costs
> packing simulations Transport lower transport costs per part
> testing Warehousing lower warehouse costs per part Handling lower handling costs per part
of those might be leading to even higher cost savings. The modeling is based on the basic model calculation from Chapter 5.6. The input parameters will be changed according to the relevant packaging optimizations covering all four categories. In the following sections, the results of the modeling are demonstrated in line diagrams.
Tables with original and modified parameters in each Category are shown in Appendix II of this work.
Category 1a – Reduced packaging price
Reduced price paid for packaging material is usually a result of purchasing department’s activity. Such activity can have different formats, such as direct negotiation, market test, tender, benchmarking, RFQ131 or an e-auction132. Price reduction offered by the supplier can come from different strategies. The most common ones are production batch optimization, supply chain optimization, margin reduction or market entry strategies. However, for this Category, only the final effect on total packaging price paid to the supplier will be considered.
The variable parameter in this model is the total price of one-way packaging. All other input parameters remain unchanged. Packaging costs per part are composed of external, internal and additional packaging material. Price reduction can come from any of these components, therefore the total packaging costs will be modified.
The observed reduction range will be between 0-20%. Higher one-time cost reductions of actual market price are not very common and therefore not considered. Figure 50 (diagram) is showing the impacts on each cost component and total logistic costs in DFLD and Figure 51 in IMWD logistic flows.
As we can see from the calculations, pure reduction of packaging costs (price) has no influence on other logistic cost components. Therefore the final impact is depending from share of the packaging costs on total costs. As we know from Chapter 5.6.1, this share is higher in DFLD and lower in IMWD. The results in this Category can be summarized as follows:
DFLD - Packaging costs reduced by 10% Total Logistic Cost reduced by 4,47%
- Packaging costs reduced by 20% Total Logistic Cost reduced by 8,98%
131 RFQ = Request for Quotation
132 e-auction = electronic auction (e.g. over the internet)
IMWD - Packaging costs reduced by 10% Total Logistic Cost reduced by 2,52%
- Packaging costs reduced by 20% Total Logistic Cost reduced by 5,04%
Figure 50 – Packaging Price Reduction impacts on DFLD logistic costs
Figure 51 – Packaging Price Reduction impacts on IMWD logistic costs
Simple reduction of packaging costs has higher impact on DFLD Total logistic flow costs.
Packaging Transport Personal Handling Total Logistic costs Basic Total Logistic Costs
0,000
Warehousing Total Logistic costs Basic Total Logistic Costs
Category 2a – Stronger material grades for higher stacking factors
In the practice, many one-way packaging solutions don’t allow any stacking. This is due to weak material compositions, or just insufficient testing or board performance calculations. Higher stacking factors in the whole logistic flow lead to more efficient processes, mainly handling, warehousing and transportation. Last two are critical in IMWDs where warehousing and transport costs represent higher shares on total costs than in DFLD flows.
In one-way packaging technology there are materials (especially in cardboard) or combinations (e.g. cardboard and wood) allowing very high loads to be put on unit loads. In some cases these loads on the bottom level can reach more than 50kN (over 5 tons). These parameters require strong material compositions leading to increased material costs. In our case, the calculation works with total packaging cost increase in range 5 – 100% over the original cost calculation in order to allow 1+1 dynamic (transit) and 1+2 static (warehouse) stacking. The research question in this case can be formulated as follows: “What happens with total logistic costs, if we increase material compositions (and costs) in order to reach higher stacking factors?” Figure 52 shows us the results in DFLD and Figure 53 the results in IMWD.
Figure 52 – Stronger packaging materials for higher stackability impacts on DFLD logistic costs
Packaging Transport Personal Handling Total Logistic costs Basic Total Logistic Costs
In DFLD logistic flow, increasing the stacking factor in transit from 1+0 to 1+1 with only 5% packaging cost increase means a total logistic cost reduction by more than 22%. However, usually we need to improve the material composition much more so the total packaging costs per part grow by more than 5%. From Figure 52 is visible, that the packaging costs per part may grow until 55% (break-even level) to have still benefit on total logistic costs. In case of higher stacking factors, we will see some benefit on handling and personal costs as well.
Figure 53 – Stronger packaging materials for higher stackability impacts on IMWD logistic costs
In IMWD flows, the increased stackability in transit has much higher impact on total logistic costs. This is due to the influence of transportation costs, which are dominant. We can see from Figure 53, that with a 10% increase of packaging cost, the transport costs per one transported part decrease by 47% and the total logistic costs by more than 30%. In this case, there will be still a total cost benefit until the packaging costs have reached 131% of the original cost per one part. This means, that we have enough space to improve our current stackability of one-way packaging to achieve total cost benefit. Higher stacking factors do not have positive impacts only on transport, but also on handling and warehousing efficiency (e.g. less handling trips and storage space).
Increase in packaging costs to reach 1+1 stacking in transit (dynamic) from a real life calculation can be seen in Appendix I. There are 2 types of carton boxes for the DFLD flow (D001 and D002) and two for the IMWD flow (M001 and M002). These boxes are carrying most of the load when stacking. For each box 2 different material
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Packaging Transport Personal Handling Warehousing Total Logistic costs Basic Total Logistic Costs
compositions for each stacking factor were calculated. We will see the following price increases (at the same call-off quantities):
o D001: 7€ (1+0) 8,40€ (1+1) = +20%
o D002: 9,20€ (1+0) 14,90€ (1+1) = +62%
o M001: 8,50€ (1+0) 12,80€ (1+1) = +50%
o M002: 10,20€ (1+0) 15,10 (1+1) = +48%
When we compare the price increases with our model calculations, only the result with the box D002 in a DFLD flow wouldn’t lead to a total logistic cost saving (max.55%). Results in the sea shipping boxes (M001 and M002) are clearly showing the big advantage of the optimization leading to a 1+1 stacking in transport with max.50% increase of the packaging costs. Our previous model calculation of the optimization was allowing us to increase the packaging costs by 131%.
Category 2b – More packaging material for higher UL density
Another important area of one-way packaging optimizations is focusing on increasing the UL density. Clearly, if we manage to load more parts into a UL, we reduce the logistic costs per unit. Increasing of UL density means immediate reduction of transport, handling, personal and warehousing costs. Packaging costs development depends on the way of how the UL density was increased. In this category, a calculation of increasing UL density by re-designed internal dunnage with higher material costs is performed.
Let’s assume that the performed re-design resulted into a 10% increase of the UL.
In our basic model calculation of DFLD flow, this would be an increase from 64 parts/UL to 70 parts/UL and in IMWD an increase from 100 parts/UL to 110 parts/UL. Again, the research question in this case can be formulated as follows:
“What is the maximum packaging cost increase still allowing us to enjoy a total logistic cost benefit, if we reached a 10% higher UL density?” Result of the calculations of both logistic flows is shown in Figure 54 (DFLD) and Figure 55 (IMWD).
Figure 54 – More expensive packaging for higher UL density in DFLD flow
This calculation starts at 10% total packaging price increase due to the re-design activity. At this level the possible total logistic costs saving reaches more than 4%.
The calculation also shows a maximum packaging price increase in DFLD flows of 20% (break-even level). Any higher increase of packaging costs without further increase of the UL density will have a negative influence on total logistic costs.
Figure 55 – More expensive packaging for higher UL density in IMWD flow
We can clearly see that a 10% higher UL density in IMWD flows brings more cost reduction potential than in DFLD. This is mainly due to high transport costs, on which the UL density has a major positive influence. Here a 10% UL density
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Packaging Transport Personal Handling Total Logistic costs Basic Total Logistic Costs
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Packaging Transport Personal Handling Warehousing Total Logistic costs Basic Total Logistic Costs
increase at 2% packaging cost increase already brings almost 8% total logistic costs reduction. If the re-designed one-way packaging needs to cost more, it can be up to 37% over the original costs with original lower UL density and still brings a little saving (break-even level). All packaging costs increase over 37% must bring higher UL density than 10%, otherwise not worth the efforts.
Category 2c – Higher UL for higher UL density
Another optimization in Category 2 focuses on increasing the height of the UL in order to increase the UL density by one additional level. The main condition for this kind of optimization is that there is enough room to increase the ULs in the loading space. In many real life situations, the external UL dimensions are not optimized to the actual logistic flow and the available loading space. May it be due to historic development of previous projects, changed logistic flows or inefficient packaging design and development. This calculation will show us, what cost impacts it may bring if we load one level more into a UL as a result of improved packaging.
Packaging improvement in this case can come from different activities, such as:
simple increase of UL height and additional level of internal dunnage
reduction of the height of the pallet (to reduce the UL height)
completely omitting pallets between ULs inside a trailer or container
using a mega-trailer instead of semi-trailer or high-cube container instead of normal FEU.
In some cases, due to higher UL weight, higher material grades with higher compression strength parameters due to stacking will be needed. All of these changes will most probably lead to increased costs of one-way packaging. The main research question (similar to the previous Categories) will be: “How much packaging costs increase is still bringing some total logistic costs reduction, if we increase the UL density by one additional level of parts inside the UL?”. To see the impact purely of this optimization, the stacking factor will remain at 1+0.
In case of DFLD, the original model calculation used internal packaging with 4 levels à 16 parts per level (UL density = 64). In this Category 2c calculation, we increase the UL density by one additional level. The final UL density will then be 80 parts (5 levels x 16 parts). The results of this calculation are shown in Figure 56.
Figure 56 – Higher ULs for higher UL density in DFLD flow
We can see that with additional level in this UL, total logistic costs at 10% higher packaging costs drop by more than 15%. Transport costs drop immediately by 20%.
The break-even level of this optimization is at 54% of one-way packaging costs increase over the original level.
In the original IMWD logistic flow calculation, the UL density was 100 parts over 5 layers (5x20). What will happen with the transport costs and total logistic costs, if the one-way packaging optimization brings another level of parts in the UL (120 parts = 6 x 20)? The result is shown in the Figure 57.
Lower share of packaging costs in IMWD logistic flows brings more room for packaging optimization at higher packaging costs. In this case, at 10% packaging costs increase the total logistic costs decreased by 13,45%. The lower share of packaging costs in IMWD shifts the break-even point to 74% of one-way packaging costs increase and thus gives more room for packaging optimizations to increase UL density by additional layer of parts.
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0% 10% 15% 20% 25% 30% 35% 40% 45% 50% 54% 60% 65% 70% 75% 80% 85% 90%
Packaging Transport Personal Handling Total Logistic costs Basic Total Logistic Costs
Figure 57 – Higher ULs for higher UL density in IMWD flow
Category 3a – Less packaging components for faster packing
This category of packaging optimizations results into lower packaging and also other logistic cost components. In this case, less packaging components (internal dunnage) lead to a faster packaging preparation packing and closing times. At the same time, it will save personnel in the packing process. Assumption in this calculation will be the following:
less packaging components resulting into a 10% packaging cost reduction
less packaging components resulting into faster packing related operations between 10-50%
less packaging components resulting into immediate reduction of the packing personal by 50% (1 instead of 2).
In the calculation, the packaging costs will be decreased by 10% as a result of packaging re-design (mainly of the internal dunnage). The re-design (=optimization) will lead to 10-50% faster processes and also help to eliminate one person in the packing process. The results of this calculation in both logistic flows are shown in Figure 58 and Figure 59. Under modified conditions in the DFLD flow we can see that the potential logistic costs reduction is again more depending from the packaging cost themselves, than from the impact on packing times and number of packing personnel. An immediate 10% packaging price reduction with a 10%
reduction of operation times results into a 7% total costs reduction and changes only by another 0,92% if the packing operation time reduces by 50%.
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0% 10% 15% 20% 25% 30% 35% 40% 45% 50% 57% 60% 65% 70% 74% 80% 85% 90%
Packaging Transport Personal Handling Warehousing Total Logistic costs Basic Total Logistic Costs
Figure 58 – Less packing operations time and personnel in DFLD flow
Similar results are reached in IMWD flow. Due to the fact, that these re-design and cost reduction activities have no impact on the biggest cost component in IMWD, the transport costs, the main cost reduction is coming from the lower packaging costs.
Faster packing operations have no major influence here. The potential savings are between 4-5%. This confirms that for a successful total logistic costs reduction the main focus must be on the cost components with the highest share.
Figure 59 – Less packing operations time and personnel in IMWD flow
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Packaging Transport Personal Handling Total Logistic costs Basic Total Logistic Costs
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Packaging Transport Personal Handling Warehousing Total Logistic costs Basic Total Logistic Costs
Category 3b – Less packaging components for higher UL density
Second calculation in this category in also based on a re-design of internal packaging (dunnage). Unlike in the previous example, this time the re-design will result into a higher UL density. The first assumption is that the re-design activity resulted into a 10% reduction of total packaging costs (mainly coming from the internal packaging reduction). The variable parameter will be UL density showing the potential increase up to 10% as in the Category 2b calculation. In DFLD, this increase in UL density will be from 64 to 70 parts and in IMWD from 100 to 110 parts. This will also enable to compare the optimization impacts between calculations 2b. and 3b. The results are shown in the Figure 60 and Figure 61.
Combination of reduced packaging costs (-10%) and increased UL density (up to +10%) in DFLD flow allows to save over 12% on total logistic costs. This is due to the fact that this re-design activity has an impact on both major cost components in the analyzed logistic flows.
Similar result comes with this calculation for the IMWD logistic flow. The reason is that we apply a 10% variable to both major cost components. In order to save more on total logistic costs in IMWD, it is necessary to concentrate on those optimizations, which have major positive impact on transport costs. In DFLD flows, this weight lies more on packaging costs showing higher cost shares here.
Figure 60 – Less packaging for up to 10% higher UL density in DFLD flow
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64 parts 65 parts 66 parts 67 parts 68 parts 69 parts 70 parts
Packaging Transport Personal Handling Total Logistic costs Basic Total Logistic Costs
Figure 61 – Less packaging for up to 10% higher UL density in IMWD flow
Category 4a - Packaging re-design for higher UL density
This is the last of the four packaging optimization categories defined in Chapter 5.7.
In some cases, optimization of current packaging solution has no impact on total packaging costs per UL but brings savings from other major cost components. In this calculation, the internal packaging re-design brings higher UL density without adding another layer to the UL. This means that the total packaging costs per UL will remain unchanged but the higher UL density will reduce the packaging costs per part. Assumption in this calculation will be the following:
re-designed internal packaging has no impacts on total packaging costs per UL and will
allow to increase the UL density without adding another layer.
In both logistic flows, the calculation will go from the original UL density up to adding another layer. In case of DFLD, it will be from 64 parts up to 79 parts and in IMWD from 100 parts up to 119 parts. Figure 62 and Figure 63 are showing how much total logistic costs savings this optimization may bring.
This example is showing that even at stable packaging cost per one UL, the costs per part are being reduced thanks to increased UL density. This effect can be observed at all other cost components as they all are depending from the UL density. In DFLD flow, 79 parts are +23,4% higher UL density bringing up to 19%
reduction in total logistic costs per one part.
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100 parts 101 parts 102 parts 103 parts 104 parts 105 parts 106 parts 107 parts 108 parts 109 parts 110 parts
Packaging Transport Personal Handling Warehousing Total Logistic costs Basic Total Logistic Costs