Getting a Handle on Reducing Supplier Packaging Costs

06/24/20

Getting a Handle on Reducing Supplier Packaging Costs

By: William Crane, CSCP, CEO IndustryStar

As you gaze across your manufacturing shop floor at multicolored returnable dunnage, visualize dollar bills taped to each container. Within this “packaging” there are precious funds tied up that can be quickly unlocked. In fact, there are few continuous improvement initiatives that represent greater quick win results with minimal investment.

Partnering with suppliers outside our four walls to optimize inbound packaging is critical to realizing lean extended enterprise performance results. An inbound packaging optimization initiative, even at a well-run manufacturer, can reduce packaging costs by as much as 20% in as little at seven days.

Top supply chain leaders share a common trait, they are passionate about optimization insights that can be gained from detailed packaging data. Today, leaders are investing time up front to convert this often-manual disparate packaging data at their suppliers into real time digital information to accelerate continuous improvement initiatives throughout their supply chain.

Fortunately, there is a system for effectively organizing packaging information into a single collaborative place of reference – Automated Plan for Every Part (PFEP) software, and when implemented as part of a company’s broader lean game plan for success, it can help you reduce the time and costs of receiving parts from your suppliers.

What Packaging Optimization Success Looks Like

As one example, a Tier I automotive supplier of seats partnered with their Tier II supplier of mechanisms e.g. recliners and latches, to optimize inbound packaging which in turn reduced packaging costs, inbound logistics costs, plant inventory floor space and inventory levels. Input data was loaded into an Automated PFEP software tool to calculate a Current State PFEP baseline. Teams then refined input variables such as standard packs, container weights, and inbound logistics costs which in turn calculated a Future State PFEP.

The key to swiftly refining your PFEP is mastering the interrelationships between PFEP inputs and outputs. This is another area that Automated PFEP software assisted the team as a productivity tool by automatically calculating outputs- which also reduced human error. For example, the Tier I and Tier II supplier determined it best to revise their Pull Quantity from 100 pieces to 25 to ensure alignment in both company’s ERP systems of Standard Pack and Pull Quantity. Further, both organizations transitioned to a higher density returnable plastic container- moving from 25 to 50 pieces per standard pack, allowing for more parts to be delivered per full truckload shipment, which lowered inbound logistics costs per part.

These small input adjustments enabled rapid transformation. During times of sudden volume shifts, continuously reviewing and dialing in the appropriate input variables is key. Small changes add up quickly as each dollar saved goes straight to the bottom line. Typically, the Buyer, in this case, the Tier I supplier, partners with their Tier II supplier as part of a continuous improvement initiative to identify, prioritize and realize cost savings- of which are often mutually shared.

Once cost savings were added from the resulting reductions in delivery optimization, part inventory, plant floor space and total number of containers at the Tier I and Tier II supplier, net cost savings totaled $88,307, or 31% of annual total costs for these line items.

Supplier Packaging Common Challenges

• Address Reluctance to Change – At first glance, packaging might not seem like a continuous improvement intuitive worth tackling. Help your suppliers embrace change by visualizing the cost reduction opportunity. Create a simple one-page case study, like the above, that outlines the supplier’s current state and future state supply chain.
• Realize Success Then Replicate – Identify a supplier that either 1) needs immediate help fast and/or 2) is traditionally more open to new ideas. In both cases, these suppliers will more readily welcome change and thus will realize results faster. Once you have demonstrated success with this supplier, develop a case study with a testimonial and share their success. Use this powerful case study to build enthusiasm with internal team members and additional suppliers and then replicate this process with more and more suppliers to accelerate momentum.
• Align Incentives for Deeper Buy In – If you have not entered a 50/50 cost reduction sharing arrangement yet, do so. At the end of the day, people change and are motivated by facts, but if there is no economic incentive to invest time in improving your inbound packaging your requests will not be prioritized. Share cost reductions with suppliers. In addition, go above and beyond by also highlighting how best practices can be applied to suppliers’ other customers to increase their overall profitability. Actively seek ways to improve your supplier’s business throughout the process to foster stronger relationships.

Accelerate Results with Technology

• Provide Software to Accelerate Results – Empower your suppliers with access to Automated PFEP software to accelerate their results. Smaller suppliers simply do not have the same level of bandwidth and technology resources, thus automated calculations and collaboration tools can help them get faster results.
• Collaborate on Software to Compress Timelines – You will need to project manage the packaging changes needed to successfully capture cost savings in a timely manner. The resulting workload involved in packaging optimization e.g. gathering, storing, and sharing data, and tracking tasks, statuses, and next steps can prove to be a large complex project. Agile project management software, often included in Automated PFEP software, can provide a flexible tool for tracking multiple supplier initiatives at once.
• Engage a Partner for On Demand Support – In select cases, suppliers will not have the team member availability and/or capabilities need to kick off a packaging optimization initiative. Address people challenges head on by aligning with an organization that can provide on demand PFEP training and help with the day to day deployments to institutionalize lean best practices and knowledge.

Optimize Supplier Packaging Costs with Confidence

Packaging is not typically something we think much about in the supply chain, but it plays a major role in shipping and handling parts. Leveraging proven lean formulas, supply chain professionals can efficiently optimize inbound packaging in partnership with their suppliers. By making small adjustments to the way parts are packaged, it saves time and money in production, transportation, storage and return.

Automated PFEP software offers a purpose-built tool to free up your time to drive swift packaging cost reduction results with your suppliers. It also provides a platform for communication and fine-tuning operations throughout a product’s life cycle.

Pared with a broad lean game plan, PFEP can empower you, your team and suppliers to make adjustments to your supply chain faster so you can navigate a more dynamic world. These real time adjustments can not only reduce costs, but they can empower you and your suppliers with greater agility to handle whatever the future holds with confidence.

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