When is a pallet not a pallet?

Pallets and packaging have a hard life. As they carry goods through the supply chain, they bump and skid against an unforgiving assortment of lift trucks, conveyors, trailers, automated storage, racks and even floors. And if that isn’t tough enough, packaging rarely enjoys the money and attention paid to all of its assailants.

“If you sat around with 20 supply chain people and asked for their definitions of the supply chain, few would even put packaging on the list alongside functions like receiving, transportation and the like,” says Jack Ampuja, president of Supply Chain Optimizers and executive director of the Center for Supply Chain Excellence at Niagara University.

When packaging and pallets do get attention, he says, it’s often in a vacuum. “I visited a customer who was shipping one layer of pallets on trucks from the factory to minimize damage from stacking. They explained a recent effort to cut packaging costs that saved them a nickel on each carton. But they had created another 25 cents per carton in freight costs, and they couldn’t see that it was not a good trade-off.”

Despite the close connection between packaging and freight costs, two different people are often responsible for each. Packaging, pallets, forklifts and equipment of all kinds are each designed by one stakeholder, bought by another and used by yet another, says Mark White, president of White & Co. As a result, White says, we’ve been designing the supply chain one component at a time with each community focused on their specific objective. Companies structured with these silos might not even recognize that what is good for one silo can be catastrophic for another and create significant avoidable costs.

For instance, say a purchasing agent is tasked with extracting 4% from all vendors. “The pallet designer then works to pull 4% out, which changes the stiffness of the pallet deck,” White explains. “Then the packaging designer tries to shave some thickness from bottle walls, but has no idea the new, more flexible pallet will increase compression stress on the bottle.”

You might be familiar with the resulting spate of bottled water unit load failures a few years ago, but the industry has made slow progress toward a more holistic, systems-based approach to packaging design that could prevent such failures. A growing body of research is helping to quantify the opportunities, but uniting the nodes of the supply chain around packaging—arguably its least popular component—is easier said than done.

Thinking outside the silo
The biggest problem is corporate politics, White says. “Successful packaging design can only come from a team approach where all stakeholders try to understand how packaging, pallets and all shipping and storage systems interact,” he says. “Unfortunately, when they’re told they can increase the cost of the pallet to create savings elsewhere, the common response is: ‘over my dead body will we pay more.’”

Of course, that’s exactly what these companies end up doing. Ralph Rupert, manager of unit load technology at Millwood, says that an organization’s separate measures of savings and success across departments can create adversarial relationships among supposed team players. In this environment, even the well-meaning concept of sustainability can quickly go awry. He again refers to the bottled water example.

“When the packaging designer changed the bottle, it was more ‘sustainable,’ right? And the pallet was more sustainable after the pallet designer made his changes,” Rupert says. “Companies are working to make each component more sustainable, and each stakeholder did their small part, but now the system is unsustainable and doesn’t work. If purchasing is not held accountable for product damage, the poor warehouse guy is getting beat up while the purchasing agent just made his bonus.”

Ampuja says packaging has been called “the next frontier in logistics costs,” but for now the unrecognized opportunity is more like “the bastard child of corporate America.” Sometimes it’s handled by marketing, driven by the customer, folded into manufacturing or vested with engineering. “Umpteen people might be involved,” Ampuja says. “Maybe 10% of the supply chain cost is made up by packaging, and the other 90% is warehousing and transportation. Do you want any one stakeholder making a decision for the 10% that impacts the other 90%? Of course not.”

This is assuming a company even knows who is accountable for packaging costs. Ampuja cites an example of talking to a packaging executive at a big food company about revising packaging for improved logistics, and the executive said, “I don’t know why you are here, because this is a logistics issue,” Ampuja recalls. “I walked down the hall to the head of logistics and he said he didn’t know why I was there and sent me back to the other executive. Neither wanted to deal with it, and the topic of more efficient packaging sat on the table like a dead fish.”

Part of the solution, White argues, is the creation of a group of new professionals who can seamlessly cross over between the logistics and packaging divisions to reconcile their individual interests and find the best solutions for both. This position could bring together visibility of the impact of packaging throughout the supply chain.

“Marketing folks have desires for look and feel, and supply chain people have the facts on damage rates, how much will fit on a trailer, and how much they can move in a given amount of time,” says Darren Jorgenson, practice leader of the packaging optimization practice at Chainalytics. “Working on those sorts of interplays is key, but far from easy. You might readily identify that 1/8 inch off a product creates two more layers in a trailer. That small change sounds nice, but that’s a big project.”

A solid, but not rigid, foundation
One way to reduce the scale of such a project is to involve all stakeholders early. Bob Petersen, vice president of product management for Orbis, says it’s a lesson some have learned the hard way but often don’t repeat. “Customers on their third or fourth automated storage and retrieval system, for instance, are definitely bringing in a couple different packaging people earlier in that process,” he says. “Maybe it’s still not early enough, but it’s earlier than their first. It’s typically not until much later in the process that they are thinking about the pallet footprint in that system.”

Petersen says he often hears from companies bumping up against the limitations of their packaging and finally feeling enough pain to call a doctor. “They usually have a very specific challenge they’re looking to solve,” he says. “The solutions will have an impact throughout the supply chain, but they might be so in the weeds on that small project that it’s important to help them get as many supply chain players involved as they can, since small tweaks here and there can really add up.”

Adjustments to racks or conveyors at the manufacturing site can have a huge impact on logistics, but few operations are keen to make a habit of such changes. This is why it’s essential to understand that a few millimeters of pallet width could cost 15% cube utilization in a trailer. Petersen cautions against taking the precision of packaging design too far.

“Keep in mind how often primary packaging can change given SKU proliferation and rapid business changes,” he says. “It might seem like a big savings to take that quarter pound out of a pallet or crate, but you might reduce how many different items can fit in there. Whereas if the crate were heavier and not as item-specific, you’d have the flexibility to adapt going forward.”

Petersen suggests a 25% increase in upfront packaging costs—which many customers might immediately dismiss—could ultimately avoid an entire packaging conversion in the future, the cost of which will certainly dwarf that initial investment.

The phrase “it’s just a pallet” is thrown around all the time, Rupert says. At $20 apiece, they aren’t often the first concern in a multi-million dollar automated facility. But when you do the math, he says, that building might house $3.5 million per year in pallets.
It’s the same story with corrugate packaging, whose design is often divorced from the systems it touches. Strangely, in this case, Rupert says many clients will actually default to spending more in an effort to minimize failures.

“If a client sees damage and uses corrugate, they will immediately go to more packaging,” he says. If they instead looked at how they handle those cartons elsewhere in the facility, they could actually reduce packaging and solve the problem at the root cause.
“That’s the part that’s usually overlooked. A carton-friendly, 100-foot conveyor system could cost me $50,000. But if I can cut 20 cents on every package, I can pay for it in a few months,” Rupert adds. “This is challenging if the person buying corrugated or the packaging engineer doesn’t have the leverage to tell operations how to change their system.”

Ampuja emphasizes the benefits of also collaborating upstream. Packaging improvements tend to start with the supplier, he says. “Don’t get hung up on one stakeholder appearing to get more savings, since those will be passed along,” he says. “Others worry that they are just one of 10 retailers who buy from a certain manufacturer, and probably can’t get them to make a change to suit just them. The manufacturer says everyone else is happy, so why rock the boat?”

It is still possible to make the case to a manufacturer that a change is possible and mutually beneficial. Ampuja says a given rectangular retail unit, if packaged 12 to a box, offers 325 potential configurations of that box and its positioning on a pallet. “If a company finds one that works, they will usually never question it,” he says. “But what money did you leave on the table by not going with a more optimal solution?”

Making an impact
Starting at the beginning is important, but Jorgenson says those decisions must still consider impacts all the way down the supply chain. Take a product like a lawnmower, for example. If partially assembled, it will fit in much smaller packaging and more units will fit in a trailer, Jorgenson says. But this will place the burden of assembly on a dealer, retailer or consumer.

“It’s critical to design packaging for all the environments it will experience through the supply chain,” he says, “and that includes measures of labor and customer sentiment in addition to mechanical forces.”

In the case of the chemical, food and pharmaceutical industries, close tracking of conditions at each step is either mandated or an important competitive factor. Peter Schmidt, head of sales, palletizing and packaging for Beumer Group, says these applications illustrate the near future of packaging disciplines.

“In a smart factory, what some call Industry 4.0, smart products can be in constant communication with the production facilities,” Schmidt says. “The connection of people, objects and systems creates dynamic, self-organizing networks that increasingly connect production and logistics to an Internet of Things. A data network from the supplier to the manufacturer to the retailer to the customer becomes essential. Providing reliable and fast data helps improve packaging efficiencies and optimize packaging processes.”

White offers cautionary advice to those who have already begun capturing valuable data, creating new positions and breaking down silos to create a systems-based approach to packaging design. “What happens is the new, optimal design gets cast in stone. It doesn’t change, doesn’t evolve,” White warns. “People who implement these changes have to be continuously working to improve, and specifications should continuously evolve. Once you fix a component in stone, you’re right back to component-based design.” 

Companies mentioned in this article
Beumer Group
Chainalytics
Millwood
Orbis Corp.
Supply Chain Optimizers
White & Co.