When it comes to big dollars, product damage claims have the potential to rise to the top of a lot of internal reports and executive dashboards—especially if you’re shipping via complex and/or multi-touch methods.
While everyone wants to ship their products to arrive unscathed and with zero defects, there’s a lot behind the “science of packaging optimization.” Whether your incident rate is a high percentage of total volume shipped or a high dollar amount based on the value of the product, these damages touch multiple facets of an organization and often gain visibility at a high level, including up to the C-suite.
The additional cost factors associated with damaged products and goods
These claim dollars can really add up. But they are just the tip of the iceberg in terms of the total impact to your company’s bottom line, which includes “soft costs” like your brand image and customer satisfaction:
1. Rework and repairs: When the product shows up at the customer location damaged—or needs to be fixed, adjusted or repaired—this cost may include sending a technician to a job site, or to a customer’s location.
2. Return shipments: Assuming your product arrives non-functional, or your customer has elected to reject it due to the damages, you’ll have to pay for a return shipment just to get the damaged product back to your reclamation or repair facility, introducing reverse logistics issues and costs.
3. Expedited logistics: Oftentimes, consumers buy products because they need them quickly (go figure!). In some cases, they need the products to arrive at a certain date and time. If your product shows up damaged you may be on the hook to pay for an expedited shipment to replace your original defective product.
4. Interruptions and delays: Likewise, if you need a part or product to arrive and it shows up damaged, this may cause additional interruptions…machine down time, sending workers, installers, or technicians home. These delays waste time, and we all know that time is money.
5. Customer satisfaction/dissatisfaction: This is a no brainer because nobody wants unhappy customers. This laundry list of damage issues above only adds to customers’ dissatisfaction. (As many of us know, ordering a package to be delivered triggers your dopamine stimulation… there’s a real deflating feeling to have that product arrive dented, damaged or broken.)
6. Discounts and markdowns: Sometimes in lieu of returning the product you can offer customers a discount:
- Discounts or markdowns can occur at the retail store –the old scratch and dent sale
- These types of discounts erode at your profits and margins.
7. Sustainability: All those return shipments burn up precious diesel fuel and emit carbon dioxide, not to mention the extra garbage and waste created and energy consumed by having to scrap your product. Even though damages and claims are not often tracked as a sustainability metric, they definitely carry an impact.
As you can see, the cascading, multifaceted effect of damages can add up to impact your bottom line. What really helps is to clearly understand the supply chain hazards that impact products’ successful transit and addressing the hidden costs of damage—each of which impacts a company and customers in different ways.
So when your executive team is talking to you about those high damage claims, make sure you’re not just skimming the surface of the ocean ahead, but are thinking about the size of the seemingly small iceberg ahead!
Rob Kaszubowski is Sr. Packaging Consultant at Chainalytics’ Packaging Optimization where he is focused on reducing product damage and implementing packaging cost reduction initiatives. Rob also contributes to the Packaging Matters blog. Connect with Rob on LinkedIn and on Twitter @KazPack1
Sustainability in packaging is like a tree. No, not because it connects to the environment. And no, not because most trees are also “green.” But because, over the decades, it has (metaphorically speaking) branched out into new areas and established an anchoring root system.
Sustainability in packaging is more sophisticated now, more complex. And it is also making a bigger impact on so many levels.
Adam Gendell, associate director of the Sustainable Packaging Coalition (SPC), guides us on this nature trail and points out how sustainability in packaging is continuing to grow.
Why does sustainability in packaging continue to grow organically like a tree, with its multiple branch formations and subterranean root system?
Gendell: The sustainable packaging community is always learning, while packaging is always changing. The entire notion of sustainable packaging is fairly young, too. Many of the concepts in our field are less than 20 years old. An area like responsible fiber sourcing, for instance, has become fairly mature and created a good understanding of responsible forestry practices, but more interest is building around use of alternative fibers for paper and novel biomaterials for plastics.
Do the lessons learned from forestry practices translate to cover the growth and harvest of other plants? Some concepts, maybe—but at a macro level, no. New work is needed. As one branch matures, another sprouts.
Continuing with this metaphor, what is it that best represents the trunk? That is, what is the solid foundation of sustainability in packaging?
Gendell: I’m going to go with public expectations of corporate responsibility from brands. Here’s my thinking: other factors change—regulations, legal risk, costs of feedstocks, activist group activity—but companies must always operate with a firm understanding of what the consumers expect from brands, and in 2017, a brand is expected to operate with a compelling sustainability story. I don’t see that changing.
Once a company makes a promise to make decisions with sustainability in mind, it can’t renege. It takes something colossal—the metaphorical equivalent of a lightning strike or forest fire—to bring this down.
What new nodes (areas of interest) have sprouted recently and why?
Gendell: The most interesting conversation today, in my opinion, is the question “what’s the ultimate goal of making packaging more sustainable?”
One way of thinking says it’s most important that we strive for circularity, recovering a maximum amount of the environmental investment embodied in packaging at its end-of-life and creating new packages using only recycled and/or biobased inputs.
Another way of thinking says it’s most important that we drive down measurable environmental impacts like greenhouse gas emissions, water emissions and solid waste. The two lines of thought have more similarities than differences, but for today’s decision-making, they are often at odds, because it’s hard to do both.
Packages with the lowest impacts are often made from virgin materials and not recyclable, while the more recyclable packages usually can’t offer the lowest environmental impacts. Which is more important? There’s no clear answer. It’s a fascinating question.
Any pruning needed? If so, where and why?
Gendell: Sure, though usually more reprioritization and rebalancing of concepts as opposed to wholesale dismissal of past ways of thinking.
Lightweighting is the classic example. Reducing packaging used to be viewed as the chief pursuit, but then product protection suffered and it became clear that it had been taken too far.
Now, we have very compelling narratives on the relative importance of food waste and the ability of packaging to prevent that, so there’s even more reason not to go overboard with packaging reduction. It doesn’t mean that it’s totally lost its importance, but the context of weight optimization has become more robust.
Two more candidates for evolution: fiber certification and recyclability.
For fiber certification, we’re working with our members and the American Forest Foundation to understand why more forests aren’t certified, and we’ve learned that many uncertified woodlands are being operated with responsible practices but the family ownership is unlikely to pursue certification. So we’re working to uncover new ways of providing assurance of responsible forest management. Certified fiber will always have its rightful home in sustainability conversations, but the conversation will be augmented.
Recyclability has confused everyone. Ever since the Federal Trade Commission first developed language around what can and cannot be considered recyclable, the discussion has hinged on “access” (that being shorthand for the FTC’s now infamous phrase “access to facilities that recycle the item”), and the understanding of “access” has hinged on whether or not recycling programs say that they take the item. This is an insufficient view of recycling.
Today, we recognize that recycling is a sequence of elements: collection, sortation, reprocessing and finally use in the manufacture of a new product or package to offset the use of virgin material. It matters much more whether the package in question has a substantial likelihood of completing each stage of recycling—that is, to know that if it’s put in the recycling bin, it will get recycled. We’re still curious to know what communities tell consumers to put in the recycling bin, but it’s now viewed as a less substantial piece of the puzzle.
The partnerships we’ve seen develop over the years across the supply chain represents, to me, a strong base, like the root system of a tree. What more needs to be done to nourish sustainability in packaging?
Gendell: Partnerships are crucial, and not just across the supply chain—NGOs [non-governmental organizations], government agencies, communities…industry has the capability to engage in meaningful and constructive collaboration with many different stakeholder groups that touch packaging in consequential ways. We’re seeing a lot more of this.
Our brand members’ engagement with family forest owners is a partnership that will help both parties. Our respected colleagues at The Recycling Partnership are connecting industry resources with on-the-ground community practices, giving industry the means to enable forward progress in recycling. The Carton Council has done a wonderful job of working with paper mills, recyclers and communities to further carton recycling.
The 21st century has connected us all and the packaging industry has leveraged that to its advantage. At the Sustainable Packaging Coalition, we consider our organization to be a hub for collaboration—a sort of mothership with many docking ports (if you’ll forgive the straying from our tree analogy). We want to help industry connect with more distant stakeholders and foster dialogue!
Speaking of supply chain, the program for the upcoming SustPack 2017 conference (Apr. 24-26; Scottsdale, AZ) focuses on the Inputs, Outputs and Impacts of Packaging in Supply Chain Sustainability. What new sprouts might come from the sessions and/or networking at this leading event?
Gendell: There will be a whole bunch of sprouts.
One of my favorite aspects of SPC conferences—and what I feel makes SPC conferences unique—is that wide range of subject matter touched by our sessions. Aluminum sourcing, streamlined life cycle assessment, restricted substance lists, food waste prevention, bioplastics, design-for-recycling…the list goes on.
It’s safe to say that every single attendee will not only learn something new, but have their existing knowledge challenged. Our tree will grow!
I’ve got more for our analogy: cross-pollination. We often hear that the presentations and panel discussions are helpful, but it’s the interactions with other attendees that provide the most indelible takeaways. Whether it’s across value chain positions, product sectors, areas of expertise or primary materials, our audience is diverse in many dimensions, and it’s a venue for discussion unlike any other. We hope you’ll join us!
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As we see most ecommerce fulfillment being done by third parties such as Amazon rather than by product manufacturers or brand owners, there is a ripple of new challenges being faced by packaging and supply chains. With Amazon proving to have the most authority on what needs to be shipped, when, how and in what quantity, brands are having a difficult time fitting into its ecommerce model.
Standard packaging lines are set up for pallet-load distribution, and traditional shipping quantities to brick-and-mortar outlets; however, these traditional shipments are not in quantities that are seemingly required by the “Amazon model.” For example, traditional shipments from brand owners are in quantities to stock shelves and sell through standardized retail channels. The new ecommerce model, though, requires an “each” approach rather than the “stock” model.
As online consumer buying continues to grow exponentially across industries, it has become critical that companies and industry organizations work together to increase efficiencies in all aspects of the supply chain, in packaging and then to perfect the last leg of distribution.
Defining unwritten rules
What is clear in the uncertainty of the ecommerce boom and “Amazon model,” is that the rules are yet to be written, and standardization is yet to be established. With that, there is great opportunity in paving a path to efficient and productive channels from brand to consumer, and eventually, back. Until then, distributors like Amazon continue to lose capital on shipping, and brands continue to feel the burden of labor, processing, packaging and distribution.
There is no doubt that the capital and labor implications for companies are highly impactful, and we should also see continued growth in co-packing and more custom service providers to segment primarily for ecommerce service. Many companies though, are still assessing if the ecommerce service model should be managed by internal resources or if they should be seeking a co-packing or partner provider to take over this growing segment. Meanwhile, distributors like Amazon will likely try establishing guidelines for packaging that aligns with their internal systems (such as Kiva robots, racking systems, automated and manual order picking, and autonomous vehicle design).
Many companies will be hesitant to make any type of investment until the industry begins to structure and establish standardized guidelines. As the burden begins to shift towards these brands though, we should also see more industry-collaborative and organizational/trade association initiatives to define the rules of ecommerce to create mutually beneficial practices in packaging and distribution.
Challenges and opportunities
As ecommerce continues to develop and the models become more complex and demanding, manufacturers and distributors are struggling to solve the cost of consumer expectations and turnaround times, while trying to develop complimentary labor profiles, determine where/how assets need to be allocated and how new technology such as autonomous vehicles may play a role. Already invested in the recognition of the growing burden of ecommerce, companies are starting to peel back the layers of complexity to find resolutions.
One of the most strenuous asks by the consumer and distributor is for product to be shipped in smaller cases, but with the same quantity. One resolution is to use compression methods to ship items such as diapers, which would not be damaged by proper methods of compressed packaging. However, this type of standardization and reduced pack size competes with branding and marketing efforts, which are critical to packaging.
Another challenge arises from required diversification in products and brands—for example, an order containing diapers and wipes from one brand, and tissues and towels from a competitor. Here, companies are looking to capitalize through marketing and brand engagement as a solution. Through data analytics, brands would be able to better understand buying habits and essentially build bundle packages for consumers of their own products, similar to those the consumer has requested of competitors, at either a reduced rate or shipping cost.
As a way to encourage repeat orders or reward loyalty for bundled orders, companies may use tote bags rather than cases, which consumers would then return for free to be refilled. This would allow more product to fit in a given shipment, create loyalty for returns and increase branding opportunities.
Benefits to this challenge, of course, include the acquisition of consumer profiles and big data analytics. Companies will be able to not only better service their consumers, but better understand their buying needs and preferences, which would ultimately allow for greater consumer experiences, increased brand recognition and loyalty. The longer a company can service any given consumer over time, the better able the brand becomes to offer more integrated marketing efforts, as ecommerce is just one (rather large) aspect driving the revenue stream.
The ecommerce strain on packaging will also force companies to reevaluate current practices. Over time, we’ve seen run quantities decrease as stock-keeping units (SKUs) have diversified and increased; however, many companies have not changed how they approach packaging. This has been a slow evolution that ecommerce may force into a quicker pace. Overall, companies will likely benefit across many operations by addressing inefficiencies and ultimately helping their bottom line.
Preparing for ecommerce
The first step for most brands will be to start benchmarking. Companies should look for non-traditional collaborations to determine industry challenges, options in manufacturing and varied channel outlets. Opportunities might include co-mingled shipments, shared distribution, exposure to new or alternative equipment and processing methods—at the very least, a lesson in best practices. As ecommerce continues to streak across the global marketplace, companies, organizations and associations are going to have to start working more collaboratively in this highly competitive market.
Companies will then need to look introspectively and build a strategy. Where do you think your labor, processing, third-party partnerships, equipment and technology assets are headed? In the next five to 10 years, what will this look like? Here, you’ve created at least a point of reckoning when the ecommerce market stabilizes. Then build out your roadmap by creating scenarios to establish strategies. For example, maybe you outsource all of your packaging, maybe partner with a co-packer, or perhaps it makes sense to build packaging and fulfillment centers in-house. Explore your options before you’re in a position where you don’t have any.
Like it or not, companies cannot hide under a rock on this one. And as a first step in preparation, companies should build packaging business strategies that look at long range and utopia options, then begin building realistic roadmaps with trigger points for activation.
Louis Pasteur once said that “Chance favors only the prepared mind.”
It is time to be prepared for ecommerce.
Phil McKiernan, vp, consulting solutions, packaging, at HAVI, has more than 20 years of new product development, productivity enhancement and process oriented business leadership. Previously, he led packaging organizations at Kimberly-Clark Corp. and Sweetheart Cup Co. As a leader in the creation of new products and packaging, McKiernan has guided cross-functional teams in the development of multi-year product and intellectual property plans, leveraging consumer insights, technology trends, and qualitative and quantitative research. He has a Bachelor of Science degree in Packaging from Michigan State University, with additional MBA graduate level studies at the University of Baltimore. He regularly speaks at Institute of Packaging Professionals (IoPP) student chapter meetings and mentors students from MSU and Rochester Institute of Technology packaging programs.