This article originally appeared in the 2018 September/October issue of PARCEL.

It’s a rough time to be a shipper. Costs are mounting thanks to lower free freight minimums, higher package volumes, rising accessorials, shrinking dimensional factors, and increasing tariffs. Complexity is also rising from the selling of a wider variety of products, larger warehouses footprints, omni-channel supply chains, and scattered inventories.

To survive in today’s competitive environment, companies need to make the case that investments in packaging and shipping are solid, quantifiable must-do initiatives. Focusing on the tactics discussed here will bring you back to the path of savings.

The Basics

Packaging is the first thing a customer sees, so naturally, this is something that should generate visceral excitement. Good packaging sends a strong message around what your brand represents and its commitment to sustainability. Poor packaging contributes to damage, raises costs, and dilutes any other positives.

Prior packaging recommendations have focused on minimizing the number of cartons shipped per order to avoid the fixed costs associated with each carton and optimize the picking and packing labor. While still valid, this needs to be reexamined in light of increasingly punitive dimensional surcharges and accessorials. Now, more than ever, it may make sense to split an order into multiple cartons.

Other recommendations have encouraged companies to segment their products by size, weight, sales, and margin contribution. Non-strategic items that cost more to ship than their margin contribution should be purged, or freight adders should be charged to make these items profitable.

Process

Our experience has found that 30-40% of overall order cost can be attributed to the methods that guide the picking, packing, and shipping processes. These processes need to be repeatable, consistent across locations, and efficient. Process improvements should be viewed as a quick win.

Embedded in the shipping process is the concept of cartonization. Defined simply, cartonization is the mechanism that determines what cartons should be used, how many cartons should be used, and what items should be put in each carton. Cartonization can be manual or automated, done pre- or post-pick, and should consider specific goals such as decreasing the number of cartons or minimizing total order cost.

Companies can quickly assess their cartonization processes by ordering the same items from a single location, across locations, or over time. Things to look for are consistency in the selection, whether items are packaged in a similar fashion, what the billable weight is, and what accessorials are incurred. While consistency doesn’t mean optimality, it does show your company is disciplined and in control.

Likewise, outbound packages should be spot-checked for efficiency. Questions should be routinely asked around what costs that order incurred and how could those costs have been reduced.

Process steps should absolutely include “boot camp” training pickers, packers, and shipping department employees. These employees are a vital first defense against preventable charges. Topics should include how parcels are rated, how dimensional surcharges are incurred, ways to identify unusual orders, and how to spot recurring dimensional opportunities.

Many leading companies are also inserting a process gate step where new products are first vetted by a packaging and shipping team to assess how they will integrate with legacy products. As a result of this input, large oversized items may have their primary packaging beefed up to “shipalone” without an overbox. Other flagged items may be reworked to improve SKU density or bundled with other complimentary items at the factory.

Finally, there should be a process step to periodically review the cartons used and their effectiveness. Cartons and shippers that have low usage or impact should be phased out. Newer, more efficient cartons and shippers should be phased in. This process step prevents cartons from multiplying out of hand and leverages your purchasing volumes with your corrugators and shipping supply providers.

Packaging

Packaging and packaging decisions are the easiest, most correctable inputs a shipper can deal with. We’ve said it time and time again, but simple, up-front packaging decisions ripple through your warehouse and influence throughput, warehouse labor, warehouse storage, and freight costs.

Shippers should develop a “regime” of cartons, bags, and other containers that would be used to contain an order. This should be specific to the location and include material, dimensions, construction method, and grade. Depending on the industry, the regime might include returnable containers.

There are several options that a company has to select a regime. Here is the continuum (see Figure 1):

Figure 1

There are several steps towards evaluating a regime. The most robust involves modeling and rating an order pattern (orders, items, quantities, modes, destinations) against various carton regimes. Total costs of each regime would be captured and used to determine the best solution.

Efforts should be made to include the sustainability of each item in the regime incorporating material used, recyclability, carbon footprint, etc. Reports should be made periodically to aggregate this information and present a scorecard to management.

Prioritization

One of the biggest new opportunities out there is having shippers “turn the dial” on dimensional charges. Warehouse labor resources can be directed to rework packages up to the point where their time investment equals the dimensional improvement.

To make this decision, several pieces of data (parcel discounts, mode, surcharges, as-packed dimensions, contents, and weight) need to be integrated and analyzed. Here is a simplified matrix (Figure 2) to explain how this prioritization could be applied. The most benefits would come from the areas in red.

Figure 2

On busier days, only those packages that have the highest dimensional impact would be reworked or optimized. Packages with low dimensional impact would receive little to no effort. On slower days, more packages would be reworked. This maintains a facility’s throughput while correcting the worst offenders.

Please note that this table is highly dependent on a shipper’s actual data.

Putting It All Together

Efficient packaging requires making the right tradeoffs in terms of throughput, cost, and brand image. While many companies struggle to make the right choices, simple adjustments do exist that will help bring your small package spend back in line with your budget.

Jeff Haushalter is Partner, Chicago Consulting, where he focuses on decreasing costs and improving service via warehouse operations, parcel spend management, and optimal packaging practices, among others.