Jack Ampuja Supply Chain Optimizers Niagara University · Jack Ampuja Supply Chain Optimizers...

Jack Ampuja

Supply Chain Optimizers

Niagara University


Founded in Toronto in 1985

Completed 500+ packaging projects

Staff of logisticians + packaging engineers

Partner with Logistics Service Providers to deliver efficiency & sustainability to their clients

SCO supports them with packaging expertise

Both Green Provider and Green Award Winner in USA…clients have won similar awards


• The shipping case or bag is the lowest echelon building block in the supply chain

- impacts handling-storage-freight-damage

- all which have $ & environmental impact

• Optimization: holistic supply chain

- opportunity comes from understanding total packaging, warehousing, transport effect on cost & sustainability

Partial ownership by marketing, purchasing, logistics, manufacturing, quality, engineering

- focus on different goals

- supplier & customer can also influence

Understanding all cost and environmental parameters will help in decision making

- problems occur when results aren’t fully accounted for in packaging decisions

“Packaging remains a major area of supply chain optimization opportunity for most firms”

Bob Delaney in CSCMP’s‘99 State of Logistics

Not much significant progress in past 15 years

Dimensional weight pricing has added major cost & complexity to small package shipments

Packaging is typically seen as a marketing or engineering process

- packaging impact on supply chain <10%

- warehousing impact ~20%

- freight impact ~60%

Yet typical client has focused on driving down packaging costs while logistics costs increase

…saving cents on boxes by spending nickels in transportation


Typical box supplier or packaging engineer cannot resolve package - freight cost issues

Try to protect one product [lamp shade] or packaging many units of one product [cereal boxes]

Software can be a major assist

They do not understand freight details or costs

Commercial packaging software cannot do pick-pack operations because of many different items shipping together


Easiest box to make is a square

Provides good strength to contents

But square box is not a good solution for logistics


Easiest box to make is a square

Provides good strength to contents

But square box is not a good solution for logistics

Logistics world = rectangular

…..does he optimize engineering or logistics

For optimal solution, detailed knowledge of both parcel & less-than-truckload costs and efficiencies is required …plus packaging science


Construction of box will impact cost

Example: 10” x 5” x 10” = 500 cu in

25” x 5” x 4” = 500 cu in

Box #2 uses 20% more paper material

There are 10 different ways to construct each box and costs of each may vary

Reality: in a 12 count box of rectangular units there are 324 possible combinations of case pack arrangements / different shipper sizes

Single SKU in a case is a basic analysis

Multiple SKUs / box complicate situation

- how many boxes for more than 1 million combinations of weight & cube which is typical for large e-commerce shippers?

….one isn’t enough but 10,000 is too many

SCO completed 800 million analyses to optimize one client

Traditional manufactured product

Multiple units of the same product in a box

Imported product – especially from Asia

Little application of packaging science

Pick-pack operations in e-commerce

Many ship 1 million+ combinations of weight & cube each year

“Changing package characteristics and packaging practices can remove cost. A simple step such as reducing box height by two centimetres may save money on the box, transport, warehousing and possibly even on damaged goods. Packaging optimisation almost always contributes positively to reduce climate and environmental footprint.”

Erling Nielsen - Global Head of Supply Chain Development


Cost Comparisons*

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

CURRENT OPTION A

$4,407 $3,565

$3,013

$2,477

IB OCEAN OB TRUCK

American Retailer - Shoes

Observations

• 12 pairs (boxes) in one carton

• Carton Dimension (ID): 31.75”x16.25”x14”• Carton Piece Count: 12

Suggested Carton Dimension

• Carton Dimension (ID): 28”x16.375”x15.75”• Carton Piece Count: 12

Recommended Carton/Stacking

• Change case pack arrangement from stack

of 2 x 6 to stack of 4 x 3

• Eliminate slack

* Transport costs only

$1,378

Reduced

* Tra


OPERATIONAL RESULTS

Item Cost/Benefit

- Reduced corrugate spend 15% (COGS savings)

$ 200,000

-Reduced inbound freight spend 20% (600 fewer containers /COGS savings)

$ 1,580,000

-Reduced warehouse storage requirements 25%(storage & handling / SG&A savings)

$ 1,000,000

-Reduced miscellaneous expenses(damage, pallets, shrink, labels, etc.)

$ 100,000

+ SCO fees ($ )

+ Miscellaneous Internal project costs(temp labor, travel & IT)

($ 50,000 )

Total Savings $ 2,800,000

The “knowledge” transfer of is difficult to quantify....


Marketed Benefit to Key Customerso

Presented to Wal-Mart

15% reduction in corrugate

20% reduction in freight

25% reduction in distribution

Presented to Target

15% reduction in corrugate

20% reduction in freight

25% reduction in distribution

Recaptured national distribution

$10 million

Awarded men’s volume

$5 million

LKQ Corporation

Industry leader in recycled automotive parts

Annual revenues of $1.6B

Refinishes headlight & taillight assemblies

Extensive variety of assemblies for all makes & models of cars

Packaging costs spiraling

To minimize damages, product over-packed

Transport costs rising

Inefficient use of bulk shipping options

Supply Chain Expenditures

Q1 Q2 Q3 Q4

Co

st

Used 6 different boxes

Protected lights with foam-in-place product

Poor case fit on pallets

- inadequate height in trailers

Used scrap pallets to “save money”

On site cooperation from LTL carrier’s claims manager & national account rep

Identified a handful of operational changes

Added more boxes to selection

Secured tighter product fit & less corrugate

Recalibrated foam machine for flexible output

Increased shipment density

Purchased solid used pallets for outbound

Carrier was able to get more product on trailer

LTL freight class declined from 250 to 150

"HHL and its partners delivered tremendous results -- a 40% reduction in transportation costs, reduced packaging and streamlined warehouse operations. 'Greening' our supply chain has lessened our environmental impact while benefiting our customers, employees and investors.“

- Mike Lahr, Director of Logistics &

Environmental Compliance, LKQ Corp

Most small package shippers utilize

too few carton sizes: <10 is common

- savings in purchasing are not enough to offset loss in distribution efficiency

- air is most expensive commodity to ship

Typical company we have helped gets 65% cube utilization of outbound cases

- the remaining 35% = filler & air

Thousands of new shippers

No science applied to packaging

Many daily shipments of one box per destination

Lots of residential deliveries

Has changed cost profile of couriers which traditionally managed by weight

UPS & Fedex attempting to get proper cost back to shipper

If you are inefficient…you will pay more


Multiply case dimensions in inches and divide by divisor…examples:

12” X 12” X 12” = 1,728/139 = 12.4…billed as 13#

24” X 24” X 24” = 13,824/139 = 99.5…billed as 100#

UPS and FedEx will weigh and laser scan dimensions of each package automatically at their terminal and apply higher of weight or cube charges

Box bulges will add to size as lasers are precise

September 22, 2016

September 22, 2016

Known in the trade as "dim weight" pricing—sets the transportation price based on package "volume," or the amount of space a package takes up in a truck in relation to its actual weight

Applied to all air freight shipments for years

Implemented in 2007 for ground shipments larger than 3 cubic feet by FedEx, UPS, USPS

September 22, 2016

Jan-2015 applied to all orders regardless of size Divisor reduced at same time from 194 to 166

Divisor reduced to 139 effective Jan-2017

2014: 194 divisor = 8.91 lbs/cu ft

2015: 166 divisor = 10.41 lbs/cu ft [+14%]

2017: 139 divisor = 12.43 lbs/cu ft [+16%] Density requirement up 40% in 24 months

“The shift is cataclysmic. It is paralyzing to many shippers not under custom contract “

…..Rob Martinez – CEO, Shipware

September 22, 2016

3 cables weighing 1 lb

shipped via UPS Ground

Dim weight: 15 lbs

(16” x 14” x 11”)

Product: 54 cu in

Package: 2,464 cu in

Cube utilized: 3%


September 22, 2016

Effective Jan, UPS and FedEx now charge $10.50 "additional handling fee" if the longest side of the shipment exceeds 48 inches.

Old maximum length was 60” [25% greater]

Old surcharge was $9.00 [14% lower]

This most recent change is the 7th price increase of some type applied by UPS in the past 18 months, and the 6th imposed by FedEx

‘Street rates’ are up 60% since 2006

US freight classes have been based on density but charged by weight since 1935

Difficult for carriers to verify weight

No easy way to assess density

Many use scales on every forklift to check weight of each pallet of freight

Scales verified for accuracy every four hours

Will assess re-weighing charge if shipper weight is incorrect


Brad Jacobs CEO of XPO:

We don’t want inefficient freight – light density product, susceptible to damage, doesn’t fit pallet, tough to handle - but if you tender to XPO we will charge accordingly

We will install pallet dimensioners into all cross-dock operations to verify shipment density

All major LTL carriers use pallet dimensioners

Cost: $65,000…paid back within 90 days

Product cube = 5.42 cu ft

Density of 44.83 lbs / cu ft freight class: 55

Pallet cube = 11.62 cu ft

Density of 20.93 lbs / cu ft freight class: 70

Freight cost of class 70 = 30% higher than 55

4 chair mats shipped via FedEx Ground

Each package dimensions are: 50”x14”x14” = 9,800 cu. in

Actual Wt. = 17 lbs. each

Billed Wt. = 60 lbs. each or 240 lbs total

All four chair mats could have been shipped in one box of 50”x14”x14” @ 68 lbs.

Proper packaging can reduce freight cost by 70%


Packaging science is different than other engineering disciplines

Aeronautical, Facility, Industrial, Paper engineers are not trained in packaging issues

Knowledge of packaging performance in real world operations is critical

Must also understand handling, storage and transportation costs

Software alone cannot provide solution

Operations experience is difference maker


E-commerce is not really a packaging issue …more freight & math problem

Packaging decisions require logistics input before box is created

Sustainability needs a corporate champion to gain traction

Packaging optimization is all green

Improves sustainability & profitability


Smart people learn from their mistakes.

But the real sharp ones learn from the mistakes

of others.

-- Brandon Mull, writer


Jack Ampuja, President

Supply Chain Optimizers LLC

Email: [email protected]

Phone: 716 689 4601

Website: www.supplychainoptimizers.com

Executive in Residence @ Niagara University

Website: www.niagara.edu/supplychain


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