03 juin 2007
Logistics Issues in Returnable Packaging
Written by: MHM Staff
Returnable packaging is not appropriate for every product or logistical system. It requires a well-managed supply chain.
by Diana Twede, Ph.D., Michigan State University School of Packaging
One
of the most interesting trends in logistical packaging is the use of
returnable containers. Over time, returnables can cost substantially
less than expendable corrugated fiberboard boxes--saving both purchase
and disposal costs. On the other hand, theuse of returnable containers can significantly raise logistics costs because of the need to control the return cycle.
The
use of returnable packaging upsets the traditional cost allocation
balance. It requires a large investment in containers, additional
transport costs and an infrastructure for empty container sorting, as
well as systems for management and quality control.
The
obvious benefits are the elimination of disposal costs and the need to
repeatedly purchase packaging. There are also operational benefits.
Returnable packages can be designed to make products and packages
easier to pack, handle, stock, and unpack. They can facilitate the use
of automation. Sometimes they can even reduce logistical operation
costs since they are designed to optimize transport and storage cube.
A
system-wide packaging change, where a set of suppliers and/or customers
have jointly agreed to participate in the program, is more complex than
the "closed loop" type of delivery system.
These
supply chain applications require a great deal more management and
coordination. The empty packages may be interchangeable, and are often
distributed to be refilled in a separate logistical system from that
which delivered them. The number of empty packages supplied is based on
forecasted need rather than one full swapped for one empty.
By
minimizing the number of days in the inventory replenishment cycle,
supply chain trends such as just-in-time (JIT) delivery also minimize
the number of returnable containers required for a system. The JIT
trend is usually accompanied by strategies to consolidate the number of
suppliers and reduce their geographical distance from the customer.
These factors also favor the use of returnable packaging because they
increase control, reduce transport cost, and reduce the required safety
stock of containers.
The
continuing trend to tighten supply chains is favorable for returnable
packaging applications. A well-managed supply chain will look for the
lowest system cost, not just the cost for one channel member.
Consideration of returnable packaging requires such a systems approach.
Container management
Managing
a fleet of returnable containers is harder than it looks. Companies
which excel at inbound and outbound logistical arrangements have not
been nearly so successful when it comes to managing their container
fleets. Containers are routinely misdirected or lost, and they are
rarely tracked in system-wide information systems. Yet it is vital to
control such a large and constantly moving investment, to make it match
supply and demand. The number of containers needed can be increased by
several factors: longer stockholding by the receiver, reuse of the
packages by the receiver, the receiver passing packages to another
user, and failure to collect the empties and get them into a condition
for reuse.
Tracking
systems need to have real-time container counts from every point along
the channel--every staging, replenishment, and cleaning location--not
just shipping and receiving docks. This requires accurate counting,
reporting, and a shared computer database.
Most
logistics management information systems use automatic identification
to register movement of product and packages. Bar codes require a
direct line of sight and only one can be read at a time. Radio
frequency identification (RFID) overcomes this problem. A whole roomful
of RF tags can "call home" simultaneously. As the cost of RFID comes
down, returnable containers are expected to be a good application. The
tags are durable, small, and can operate in harsh environments.
Financial evaluation
Most
firms that choose to invest in their own returnable container system
base the decision on some kind of financial evaluation. They usually
compare the costs associated with returnable packaging to the expenses
for their existing disposable packaging.
This
may be done on an item-by-item basis or on the basis of an entire
supply chain. Evaluating each single part or supplier separately
results in more attention paid to details that are specific to the
part, supplier, or package. Specific container styles and systems can
be optimized, and a corresponding reduction in piece price can be
assigned.
With
this method, however, the larger investment is not considered as a
whole, nor are the system-wide cost implications. Returnable packaging
is considered an expense (and compared to expense avoidance) since the
threshold for investments in most companies are larger than the cost
for packaging to meet the needs of a single supplier.
After
years of converting one supplier after another on the basis of
expensing the savings, some assembly companies have made a huge
investment in an asset without ever having consciously made the
decision to make such a large investment and without reaping the
attendant tax credits. What is worse, the decision-makers never get the
satisfaction of knowing--or touting--the profitability of their
investment.
For
evaluating such an investment, Net Present Value (NPV) is the preferred
technique because it includes the time value of money and all cost
flows. It gives a profitability estimate. It is much better than the
payback period evaluation method used by most returnable packaging
decision-makers
The
payback period approach is attractive because it is intuitively
logical. When the day-to-day cost of using expendable boxes (purchase
and disposal) is compared to the cost of the returnable fleet and its
operations, after a certain period of time the investment has paid for
itself. However, this approach vastly underestimates the benefits (and
sometimes the costs) of a returnable packaging system. There is no
profitability estimate as there would be for other large investments,
nor is there an indication of how long the savings will occur nor how
valuable those savings will be in the future.
The
NPV approach, on the other hand, results in a profitability estimate.
It considers the initial investment, the cash flows in subsequent years
(including savings from not repeatedly purchasing and discarding
expendable packaging as well as new operational costs), the time value
of money for those years (including a stipulated interest rate), and
the length of the container life.
The
NPV profitability estimate has three distinct advantages over the
payback approach. First, it makes the decision-maker look good:
profitability is the goal of all business, and here is an opportunity
to show how logistical packaging can contribute to that goal.
Second,
NPV lets you compare packages with different lifespans. For example, a
more expensive package that will last for a long time can be compared
to a less expensive one that will have to be replaced more often. The
less expensive package will have the shorter payback period, but the
one with the longer life represents a more profitable decision.
Of
course, this means the decision-maker has to estimate the container
life (using test results and/or previous experience), a decision that
makes some packagers uncomfortable. In the experience of the automobile
manufacturers, most returnable plastic shipping containers have a
longer life than originally anticipated. Many packages have been in use
for more than 10 years.
The
third advantage is that NPV's profitability estimate gives the firm a
good basis for comparing alternative investments. A notable example is
Harley Davidson's evaluation of returnable packages for finished
motorcycles. Using an NPV approach, and mathematically modeling the
number of packages needed, they found the packaging investment would be
far too large compared to its benefits. The same funds could be more
profitably employed in building additional production capacity.
It
should be noted that the various "return on investment" (ARR, IRR)
methods also consider the time value of money, but most result in a
rate of return rather than a profitability estimate. Although they can
be useful for determining whether an investment meets a hurdle rate,
they are not the most preferred method of financial evaluation because
they do not emphasize profit.
Initial investment
The
first cost to consider is the initial investment in containers, which
depends on a number of factors such as the length of the shipping
cycle. This includes the amount of time the container is at the
shipper's facility, in transit, at the receiver's facility, and in
return transit, including any sorting and cleaning operations in
between. An important element is the degree of control, since active
management and control can reduce the cycle time. The shorter the
cycle, the lower the investment.
An
important element of cycle time is the amount of variation. Cycles with
little variation are best because there does not need to be an extra
inventory of containers to cover peak periods. High cycle variability
has been key in some projects where returnable containers were deemed
not cost justified.
The
investment also depends on whether containers are standardized or
specialized. Standardized containers, which are interchangeable and may
be used by a number of shippers and receivers, minimize the number
needed by using a common safety stock to cover demand variations
between users. Standardization of containers can add further efficiency
when it goes across an industry. For example, the Automobile Industry
Action Group, the UK's Institute for Grocery Distribution, and the
Material Handling Institute's Produce Task Force on Returnable
Containers are organizations attempting to standardize returnable
containers for their industries so suppliers to firms in these
industries can plan for uniform sizes and shapes of packages.
The
size of the investment also depends on how many parts are shipped
during the cycle time periods and how many parts fit in a package,
which may be different from the number in a corrugated box because of
different interior dimensions.
Most
projects show the greatest financial benefit in the savings from
eliminating expendable packages, including purchase and disposal costs.
The benefit is less when there is some income from recycling expendable
materials such as corrugated board.
Operational costs
The
cash flows dealing with operational costs are more difficult to
estimate. Clearly there will be return transport costs directly related
to the distance. If the distance is too far, a returnable packaging
system may not be cost justifiable. Many automobile manufacturers
require returnable packaging only from their nearby suppliers and
package parts from overseas in expendable containers. In some cases,
especially when suppliers are far away, a consolidation center near the
assembly factory is required to consolidate inbound deliveries, and the
same facility can be used to sort empty packages for return .
The
cost can vary greatly depending on the terms of transport contracts
with carriers. When the same carrier is used for both legs of the
journey, the cost is rarely double the inbound cost.
Return
transport costs also depend on the configuration of the packages. Some
are designed to nest or collapse when empty, which can minimize
transport cost depending on whether or not the returning trailers or
boxcars are full. If containers are simply swapped on a one-for-one
basis, nestability is not an advantage and may even present a cube
utilization problem if the box interior is not square.
The
number of containers to be returned at one time is an important
consideration. If containers need to be returned at LTL
(less-than-truckload) rates, the transport cost can be very high. On
the other hand, it may not make sense to stockpile empty containers
until a full truckload can be shipped because this requires more
containers.
Similarly,
the inbound cost of transporting full containers may be different from
that for corrugated boxes because of differences in cube utilization
and/or stackability. For many users of returnable containers, inbound
transport costs are lower because the containers are more easily and
safely stacked in trailers.
All
operational costs that will change due to the switch from expendable to
returnable containers should be considered. Use activity based
costing--estimated or measured--to show the effect of changes in cost.
The activities include container sorting, marshalling, washing, and
repair. Also account for the extra space required.
Operational
benefits should also be considered. These may include the ability to
automatically sort inbound product once it is packed in uniform
containers, modular stacking, better housekeeping, less damage, and a
more uniform way of presenting items to the people who empty the
package.
So
the answer to the question, "Do returnable containers save money?" is
"It depends." It is important to do the math and consider system-wide
costs. A spreadsheet study sponsored by the corrugated fiberboard
industry found the following limited situations financially favor
returnable packaging:
� Periods of high corrugated fiberboard prices;
� Short return distances, low backhaul costs;
� Little or no washing;
� Long container life;
� Consistent demand;
� Comparable inbound/outbound payloads.
Most
firms do financially evaluate a returnable packaging system before they
invest. Many users, however, admit the decision to invest was not based
on an economic evaluation but is part of an operational strategy.
It
is rare for firms to perform an ongoing financial analysis as a
returnable packaging program progresses. This is probably a mistake
because future decisions can be more reliable if based on historical
data. As returnable packaging programs grow, there is much to be
learned from experience.
20 avril 2007
China's demand for commodities phenomenal
China's demand for commodities "is just phenomenal" and prices might
increase for the next few years, Charlie Sartain, the chief executive
for copper at Xstrata, said yesterday.
Demand for copper in the Asian country might rise 8 percent to 10
percent this year compared with last year, said Sartain. "We do see,
across all commodities, phenomenal growth."
China has spurred a five-year rally in commodity prices as
manufacturers use more steel, nickel and tin. The price of copper on
the London Metal Exchange rose to a record $8 800 (R64 000) a ton last
May.
"The Chinese economy will keep growing strongly and so will commodities
demand, including copper," said Chen Yue, an analyst at Guotai Junan
Securities. "We are bullish on copper prices."
Full Article
07 avril 2007
Supplier relationship management: Pathways to convergence
At the heart of any good supplier-relationship management
(SRM) process is a belief in exacting metrics, open communication and a
laser-like focus on finding and nurturing suppliers who are willing and
able to bring new technologies and other innovations that have a
positive impact on the bottom line of both companies. In fact, at world-class companies competing in a global marketplace,
SRM is the way to do business. And it is a good example of the growing
importance of the purchasing function in such companies. Highly skilled
purchasing professionals lead SRM processes that involve top management
and cross-functional teams of representatives of business units and
such groups as R&D, quality, engineering and supply chain. SRM begins with sound strategic sourcing practices that identify
those suppliers that are critical to the company's success. Here is a
close look at how purchasing uses SRM to drive success at four
world-class companies.
Full text: Purchasing.com
25 mars 2007
Want a More Flexible Supply Chain?
I've read the article about the flexibility of the supply chain. As complexity and demand for new products grow, companies are realizing that their supply chains need to be more flexible. Yet while they realize the importance of flexibility, they struggle with how to accomplish this difficult task. The key elements, according to an A.T. Kearney study, are reducing cycle time and implementing a pull-based replenishment process.
Full text: SCM Review
21 mars 2007
Cheap sourcing may not live long
Global retailers could soon stop procuring from low-cost sourcing
bases like India and China. The Deloitte 2007 Global Powers of
Retailing report says a combination of political and economic forces
will increase the cost of, and reduce the access to, imports coming
into the US, Japan and Europe, forcing retailers to search for
higher-cost domestic sources.
“China, Mexico, Brazil, India and even Vietnam are places that run large trade surpluses with the rest of the world that in the aggregate are no longer sustainable,” says the report
In a bid to keep costs down, retailers have scouted for sourcing
bases across the world. China alone accounts for about $60 billion
worth of goods sourced by retailers, with Wal-Mart procuring about a
third of it. Indian manufacturers supplying to global retailers believe
India has no cause for worry as of now.
“India has barely scratched the surface. It is China which has run a
huge trade surplus, driving corporations to spread their sourcing
across the world. India continues to enjoy the preferred destination
status,” said Orient Craft MD Sudhir Dhingra. Orient Craft is one of
the leading suppliers to foreign brands like Gap and Banana Republic.
In fact, Wal-Mart has been using the sourcing plank to garner
support for its India entry for long. While emerging markets could
stand to lose their preferred sourcing destination status in future,
they would become more attractive retail destinations as consumer
spending declines in developed markets, says the Deloitte report.
Factors like the housing market slowdown in the US, higher interest
rates in western Europe and greater political control over the industry
in Russia could become areas of concern for retailers.
With an ageing population, the developed markets are also expected
to see a shift towards greater spending on services like health and
travel, compared to goods.
Source: DEEPSHIKHA MONGA, TIMES NEWS NETWORK
10 mars 2007
Supplier Relation Management
Supplier
relationships are critical to any firm. Suppliers can directly impact the
financial performance and profitability of a buying enterprise, as they
influence product development costs, inventory levels, manufacturing schedules
and the timeliness of delivery of goods and services.
Many leading
companies have realized that it is worthwhile investing to make sure these
relationships are managed effectively and efficiently. In recent years,
companies have invested in supply chain management (SCM) software to automate
procurement processes, improve delivery times and reduce the cost of doing
business. Now, market trends, such as increased global competition, shorter
product lifecycles and a move to outsource business processes, require organizations
to improve collaboration with their supplier base and to examine methods of
further reducing the costs associated with supplier relationships.
The objective
of the SRM is to make it possible for a company to improve the communication
with its various suppliers, to share information with them and to have a better
knowledge of each other in order to optimize the process of purchases. At the
same time it is also a way for the suppliers to know the core business
activities of a company and its various products in order to obtain an adapted
purchase.
In today’s highly
competitive environment finding competitive edge is a critical success factor not
only to expand its business, but also to survive. Some companies tend to work
on price, other on quality or service, but in the end they are all pursuing the
same goal;
To go a step further
in the creation of added values, some companies are also taking in account
their customer’s customer e
xpectations and try to offer services which can help
them increase their end service or product delivery.
Federal Express by
allowing you to track the goods they are shipping is a good example. As a final
customer, you can track your goods from your supplier’s web site or directly
from FedEx, but in both cases, you benefit from a service that your supplier
hasn’t developed. Enterprises that depend on demand network partners for a substantial
portion of their revenue have begun to recognize that proactive engagement and
collaboration with partners is essential to enhance overall demand network
capabilities, as well as end-customer value.
But satisfying customers is not the
only factor to ensure a prosper and competitive company. According to some
experts, procurement represents the single largest expense at most
organization. It is also the only place in a company where you have a 100% relationship
between cost reduction and benefit increase: 1 US$
spare in procurement represents 1US$ benefit. Developing
relationship with the best suppliers is therefore a must that helps ensuring
timely delivery, product quality and best prices.
To help reduce procurement costs,
different methods can be put in place such as catalogs, auctioning and request
for proposals. But as for the CRM, if the systems are not interconnected you
will not be able to achieve the reduction costs you expect because not enough
suppliers will respond, catalogs will not be completed, and auctions will be
systematically too high. As a solution, enterprise can either count on its
suppliers’ CRM or take the fate in its hand and develop what is called a
Suppliers Relationship Management (SRM) system. This will focus on enhancing
the relationship by collecting data and providing new services (such as request
for proposal (RFP)/request for information (RFI) management) to the supplier.
Some will argue that developing the relationship with suppliers was one of the
first concerns of IT with initiatives such as electronic data interchange (EDI)
or more recently e-procurements. These solutions have helped exchanging data,
such as contract, order, delivery coupons between customers and suppliers, but
they haven’t tackle the problem of managing the relationship with the
suppliers, which means understanding their needs, behavior or measuring their
performance.
- Attract new suppliers:
in a knowledge economy where goods can be produced anywhere around the world,
finding the “best” supplier is becoming a complex task;
- Acquire new suppliers
by doing business with them;
- Supplier retention and
development: retaining the best suppliers is the best warranty to maintain a
competitive edge;
- End of relationship by rejection or termination of contract: ending a contract with “bad” suppliers is a necessary safeguard for the company and understanding why “good” suppliers are leaving is valuable information.
By opposition to CRM,
SRM’s goal is to help the company to be a better buyer by supporting and developing
its understanding of suppliers. Some services can help the supplier directly or
support its relationship with its own suppliers. A SRM will therefore help the
company gain the following competitive advantages:
- Increase satisfaction of goods and services purchased and speed up product development by promoting a shared knowled of suppliers and alternative technologies.
- Increase supplier’s satisfaction to attract and retain the most competitive ones.
The idea of “how to
better understand your customer” is covered in numerous articles. “How to better
understand your supplier” is the underlying idea of this paper. The mirrored
point of view led to the idea, that existing CRM functionalities may help to quickly
extrapolate the basic functionalities that could be expected from a SRM system.
Such a system is meant to support companies to better understand their suppliers
by collecting and aggregating information from various sources such as purchase
officer, marketing, R&D, service and support, maintenance.
This will in return allow identifying the best suppliers and therefore helping the company improving its overall performance. SRM is not about integrating suppliers and buyers information systems but about using internal sources to gather supplier relevant information. SRM is therefore mainly turned toward the company itself and less to the outside. Instead of seeing the buyer’s SRM as the complement to the seller’s CRM, SRM should be seen as a complement to the buyer’s CRM. To demonstrate this, imagine a company B purchasing goods from suppliers (company S) and selling to customers (company C). Picture the information flow related to purchase and sale as a rectangle.
When introducing a CRM
solution in company B, it will gain a much broader understanding of the customer
side (company C). But this creates a discrepancy with the purchasing side,
which can be compensated by implementing a SRM solution to increase the depth
of the relation with the suppliers (company S). To gain maximum profit, both
sides (CRM and SRM) must communicate and need to be integrated.
This integration is motivated by the fact that customer’s and supplier’s data sources are sometimes the same. A ‘customer care’ collects information from customers, but also provides vital data about supplier’s product and service quality that needs to be taken in account. On the other hand, suppliers are also collecting customer information and performing customer satisfaction studies that can be used to complement the CRM. Integration will allow avoiding redundant information and ensuring that the widest range of information sources is covered. Technical aspects are certainly important, but they are not the key success factor. To be successful, SRM and CRM must be integrated in a wider view where the company entire information flow is taken in account. SRM is the inevitable complement to any CRM system and that they both need to be integrated with the major company information systems (ERP, SCM…) to become successful management tools.
References:
Rocher
Perrotin, LE MARKETING ACHATS-STRATEGIES
ET TACTIQUES, Les édtions d’organisation, 1992
SSCC Implementation Guide
There are many reasons to use the Serial Shipping Container Code (SSCC) but the most compelling would be the primary benefit of speeding your products through the process of shipping and receiving. With the prevalence of e-business, there is an increasing need to exchange information electronically as well as track the movement and location of logistics units. A logistic unit is defined as any composition established for transport and/or storage, which needs to be tracked through the supply chain (cartons or pallets). Data exchange and tracking of logistics units is an application of the EAN.UCC System. This can be accomplished through the use of the Serial Shipping Container Code (SSCC). When used as the “license plate” to identify specific information about cartons,pallets or even trailer loads of products, the SSCC will help accomplish the task of moving products from one trading partner to another quickly and efficiently. More importantly, the costs associated with moving and receiving products will by greatly reduced.
Open, global standards:
• Allow system-to-system interaction
• Speed processes by enabling end-to-end automation
• Lower costs, reduce errors
• Reduces the risk of system incompatibility
• Protects technology investments
• Enables the optimization of supply chain management practices
• Eliminate supply chain roadblocks and bottlenecks
In today’s competitive global marketplace, speed and efficiency is critical to success and survival. Producing a good product is no longer enough to keep a company competitive. Managing the physical flow of product with the electronic flow of business data is a major challenge in today’s intensely competitive environment. The same time, attention, and detail that go into designing and producing a quality product must also be evident in the transmission of that product’s business data through the supply chain. A system, built with standardized processes and a common business language, is needed to monitor and manage the movement of product and information through every component along the supply chain.
More details: SSCC Implementation Guide by UCC
09 mars 2007
China-U.S. Trade and Imbalances Grow and Grow
U.S. imports continue to outpace exports, especially in China trade.
Colography Group's analysis reveals that shipping between the United
States and China has meant greater export-import inequity. Imports from
China to the United States last year climbed to 129.6 billion pounds, a
jump of 19.2%. With a value of $235.2 billion, that meant growth of
24.4%. Overall, import tonnage from all sources-including China—was up
4.2%with an increase of 15.1% in value. Colography notes that some of
this increase can be put on the climb in petroleum prices. In fact, according to the study, move vessel tonnage in 2005 was imported from Venezuela than any other trading partner and petroleum was the main product imported.
Source: Written by: Roger Morton Logistics today
Choosing a Path in China
Is logistics the new language of diplomacy?
The tools of diplomacy vary with time and the parties involved. In the case of China, logistics can play a major role in the development of the nation and its economy. The United States is in a unique position to aid that process.
China's rapid growth carries a measure of problems along with the opportunities. Journalists are reporting dissent among classes of the population that feel they aren't participating in the economic revolution. There's rising crime and other problems in some of the boom towns. That's not unexpected when you see a sleepy fishing village like Shenzhen, population 30,000, become a megalopolis of roughly 10 million souls in just over a decade.
Logistics is not just important to the
growth and success of China's new
economy, it is absolutely critical. For a
Twentieth Century example of what
happens when logistics systems aren't
built or are not built and maintained adequately, just look at the dissolution of
the Soviet Union. What prosperity there
was often couldn't reach the majority of
the population. Examples abound of
farm crops that spoiled before they
could reach markets due to inadequate
or inefficient transport and logistics networks. This created artificial shortages
that were, nonetheless, discouraging and
disruptive to major portions of society.
Repeated failures contributed to intolerance and a decline in confidence that
helped undermine the government.
Source: written by Perry A Trunick Logistics Today
Vendor Managed Inventory (VMI) In Retail Industry
In today's E-logistics course, our teacher talked about the subject of Vendor Managed Inventory especially the application in the retail industry which sounded very interesting. So I searched for some information about this topic.
VMI is gaining great momentum in retail business processes. In this era of tough competition retailers are implementing every supply chain optimization process that will reduce their costs, reduce inventory levels and increase profits. Efficient supply chain management requires the rapid and accurate transfer of information throughout a supply system. Vendor Managed Inventory (VMI) is designed to facilitate that transfer and to provide major cost saving benefits to both suppliers and retailers customers. Vendor Managed Inventory is a continuous replenishment program that uses the exchange of information between the retailer and the supplier to allow the supplier to manage and replenish merchandise at the store or warehouse level. In this program, the retailer supplies the vendor with the information necessary to maintain just enough merchandise to meet customer demand. This enable the supplier to better project and anticipate the amount of product it needs to produce or supply.
Here is a white paper about the VMI in Retail Industry: VMI_white_paper
Source: TCS