Jack Ampuja Supply Chain Optimizers

Niagara University

Campus

Started at Johns-Manville Canada in 1985 Originally focused on CPG firms

- Kimberly-Clark, Robin Hood Multifoods, Nestle, George Weston, Canada Packers, Fort Howard

Used at Rich Products in ‘92 to drive $3 million cost reduction on 1st 25 products

Recent migration to inbound private label and retail ready packaging

The shipping case or bag is the lowest echelon building block in the supply chain- impacts handling-storage-freight-damage- all which have $ & environmental components

Optimization considers holistic supply chain - opportunity comes from understanding total packaging, warehousing, transportation effect on cost and sustainability

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

companies.”- Bob Delaney in ‘99 State of Logistics

In consumer packaged goods firms, package design is typically assigned to marketing

In industrial firms package design is usually handled by an engineer However, major costs are in logistics budget

Typical firm is focused on packaging without considering supply chain impact

Packaging is typically seen as a marketing or engineering process but this is where costs go- packaging impact on supply chain <10%- warehousing impact ~20%- freight impact ~60%

Yet most clients are focused on driving down packaging without knowing full impact

…saving nickels by spending quarters and hurting sustainability

Density: #1 cost factor in LTL & small package ~more costly to ship 100 lbs of feathers vs 100 lbs of steel

- Small package carriers now use dimensional weight on domestic ground shipments

…US LTL industry moving there too

All LTL shipments in USA have to comply with NMFC regulations which have 150 pages of packaging rules that impact freight cost

35%

24%

37%

38%

39%

39%

42%

45%

46%

33%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

% of Companies

Redesign aspects ofpackaging, product design

Improve waste/disposalmgmt (recycling, reuse,reverse logistics, etc.)

Focus on emission/carbonfootprint reduction strategies

Redesignprocurement/sourcingstrategy around green

Redesign aspects oflogistics/transport system

Best-in-class All others

Announced Nov ‘06 by CEO Lee Scott Efficiency & environmental benefit Suppliers must reduce packaging by 5%

- private label scorecard began in Nov 06- 60,000 other suppliers started in Feb 07

Projected savings in 2008: $10Billion $3.5 B to Wal-Mart & $6.5 B to suppliers

5% reduction in packaging will remove 213,000 trucks from the road and prevent 66.7 million gallons of diesel fuel from being burned, per year

Can Walmart really take out $10 billion?- “Real opportunity is $20 Billion”

- Ampuja in Traffic World 12/06

Liquid detergent suppliers asked to reduce bottle by reducing water- suppliers were reluctant so Wal-Mart offered merchandising support- All Small & Mighty yr 1 sales: $35M - Entire industry now favors smaller bottles

Unilever saves 500 million gallons of water and 150 million pounds of plastic each year.

Smaller bottle uses 55% less plastic, enabling retailers to stock 3X bottles in the same space, saving on labor and out-of-stock costs.- Cuts 26 million gallons of diesel each year

Customers will save more than 400 million gallons of water, 95 million pounds of plastic resin, 125 million pounds of cardboard and 520,000 gallons of diesel fuel over three years

Traditionally driven by efficiency gains- reduced packaging, handling labor, storage & transportation expense

Today many clients want to document sustainability impact- must report to shareholders & consumers

In-line with Supply Chain goal of increasing performance while reducing costs

Food Companies Nestle [8 divisions] Canada Packers Rich Products Rosina Foods George Weston [10

div] H J Heinz Robin Hood Multifoods Pepsi Cola Foods Nielsen Dairies

Non Food Companies Kimberly-Clark Fort Howard R G Barry Church & Dwight Lever Brothers ACCO Brands [2 div] Roppe Industries General Electric Monroe Auto

Single SKU in a case is a basic analysis Multiple SKUs complicate situation

- how many boxes for 10,000 items?….one isn’t enough, 10,000 is too many

Pick-pack scenario is even harder- What is optimal box count for 1 million product

configurations which is typical for large e-commerce shippers?

Most small package shippers utilizetoo few carton sizes: <10 is common- savings in purchasing are not enough to offset loss in distribution efficiency - filler & air increase costs & carbon footprint

Typical company analyzed gets <65% cube utilization of outbound cases - the remaining 35%+ = filler & air

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

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

Cost

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 This is a 40% reduction in freight cost

"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

13K SKUs - 6 million cartons/yr outbound Packaging optimization delivered:

- 8% reduction in cartons shipped- 15% reduction in cube- 14% increase in density- 20% reduction in packing materials- 14% reduction in freight

Weight reduction: 800,000 lbs 1.4 million lb reduction in dimensional weight

Clarks Companies footwear Target Stores general merchandice Mac’s Antique Auto auto parts Newark-in-One electronic parts Brookstone specialty retail Lillian Vernon mail order Fisher Scientific laboratory supplies John Deere tractor engine parts Batteries Plus batteries Office Depot office supplies Toys r Us toys

Excellent opportunity for supply chain efficiency & sustainability improvement

Real $ & environmental benefit is in freight Basis of Wal-Mart program

Typical cost reduction opportunity: - 10% for manufacturers/inbound

- 15% for pick-pack companies Adapting to change is biggest obstacle

“The greatest obstacle to discovery is not ignorance….it is the illusion of knowledge.”

- Daniel J. Boorstin: author, historian, Librarian of

Congress

“A word to the wise ain't necessary; it's the stupid ones who need the advice.”

- Bill Cosby: Comedian, Actor, Educator