Packaging Optimization to the Rescue: Inspired Relief for Warehouse Space Shortfalls

The growth of ecommerce has continued to put pressure on warehousing costs while driving down the vacancy rate. In the past decade, ecommerce has been on a steady upward march. Before the pandemic, ecommerce share in the U.S. steadily increased from about 3% in 2010 to 11% by the end of 2019. A huge yet transient COVID-related spike in early 2020 has settled back to 14% and is rising.

Dealing with unrelenting market pricing pressure on warehouse space

Despite already overwhelming market-driven price escalation, the ongoing growth of ecommerce continues to put pressure on warehousing costs, all the while driving down the vacancy rate, raising prices even higher. Even more pressure is coming from the recent rise in inflation, which has been pushing cost per square foot upward while the cost of building additional space has risen sharply (fuel, steel, lumber, copper). When comparing industrial space to office space, cost and availability are trending in the opposite direction.

Vacancy rates for warehouse space dropped so precipitously that even with extremely prohibitive costs, there’s likely to be a fresh surge in construction. However, that won’t relieve persistent demand pressures any time soon.

Attempts to relieve constraints may involve frequent head-scratching

So, how to relieve these constraints? Companies typically deal with these supply chain pressures by re-evaluating the design of their physical assets, both inside the warehouse (software and automation), and their network locations and sizes (network design projects). However, these strategies assume no change to the existing product mix.

These strategies miss an enormous opportunity because they overlook the impact of optimizing the inputs — namely, the packages and pallets of the product mix within those warehouses. If your warehouse is running at an optimal 90% full, any surge in business can drive down operational efficiency. A typical example of this drop in efficiency is that product movement is space-constrained, often requiring multiple moves to achieve what would usually have been a single move. These pressures on warehouse vacancy, and the surge in demand, mean operation managers need to use every tool within reach to cope with over-full conditions.

An exercise in packaging optimization can produce cost reductions in many supply chain nodes — from manufacturing to final mile delivery and even the amount of trash vs. recycle content.

Addressing constraints with “in-the-box” and “on the pallet” thinking

Often, large optimization projects are spin-offs of a project designed to resolve a specific issue. It may be damage reduction, maximizing intermodal capacity or reducing freight costs by driving down over-charges for dimensional weight (DimWt) vs actual weight. DimWt is an alternate way for parcel carriers to charge shippers for products that don’t meet a specific density. Ideally, you design packaging to maximize both trailer volume and weight limits. These wins often show enough value to motivate decision makers to roll out optimization efforts to the remaining products and product lines.

In a recent example, a telecom company was incurring a substantial uptick in DimWt charges from its carrier. Initially, the focus of the analysis was to determine how to re-tool the shipping over-packing process, which was executed by a contracted 3PL. There were many packing stations, and the systems included an automated over-box size recommendation function. Except for the lack of a sufficiently available variety of sizes at the pack stations, something that had a simple remedy, the over-pack process seemed mostly satisfactory despite being highly manual.

After a deeper dive, we looked at the desk telephone (telset) primary packaging and found it to be needlessly complex. The box was a modified end tuck with an overly complex internal folding requirement before packing. Each imported pallet contained 90 telsets. After a redesign, which included transit testing to prove the new design was safe for transit, the new design substantially reduced corrugated usage and provided a simpler packing process. More to the point — pallet quantity increased from 96 units to 280.

Package design opens the door to further efficiencies

After this dramatic change in product density, we were green-lit to optimize primary packaging for all models in the line. After optimizing primary packaging, the estimated impact on the global supply chain was $4.4 million per year. This was when a shipment from China to Los Angeles cost only $3,000 per TEU and warehousing space was not at a premium.

Other essential supply chain, packaging and sustainability metrics improved:

• More than 4,400 pallets removed from the system, sparing about 6,300 trees
• 19% fewer containers and trailers needed
• 320 fewer tons of corrugated used, equaling 6.5 million square feet of avoided waste
• 16.5 million tons of foam packaging waste eliminated, equaling 188,000 cubic feet
• 17,800 fewer gallons of diesel used, resulting in the emission of 200 fewer tons of CO2

Two years after the project, we checked in with the client to verify that our projections did indeed come to pass. The client enthusiastically reported that our estimate fell far short. The actual impact was more than $6 million, and that figure didn’t include the savings realized in the face of increased import container costs.

As you evaluate your current warehousing and supply chain costs, keep in mind that packaging optimization will literally change the inputs to your supply chain cost model. Optimization can lead to significant, long-lasting cost savings that will accrue to bottom-line profits.

— By Eric Carlson