The Impact of Packaging on Supply Chain Performance
Packaging is sometimes seen as a necessary evil, as it generates costs and waste. However, research and practice have demonstrated that it is strategically important and has a significant impact on logistics and supply chain performance — and on creating value. In fact, packaging affects every single logistics operation throughout supply chains from point of filling to point of emptying and recycling. For instance, a producer needs to fill, store and handle packages, and a transport provider strives for efficient loading and unloading as well as volume- and weight-efficient packaging to obtain sufficient load factors. Then, warehouse and store operators want to pick, stack, store and replenish packaging efficiently, and the packages should be easy and convenient for consumers to open, use, empty and dispose.
A holistic view on packaging performance, where the system boundaries include the whole supply chain, can enable cost efficiency from improved logistics and transport efficiency and reduced product waste. It is important to note that packaging can also increase sales by attracting consumers using design features, and by providing convenience for consumers when using packaging. The holistic view emphasizes the need to manage trade-offs related to numerous requirements on packaging in order to maximize the packaging performance.
Because packaging has many roles and functions, it is a complex matter of maximizing packaging performance. Packaging should protect, contain, unitize, apportion and sell products. It should also provide convenience and communicate with supply chain members and consumers, and enable efficient logistics and transport operations. This leads to several economic, environmental, ergonomic and legal requirements on packaging — which should be fulfilled in the best way through a number of packaging features, such as protection, stackability, volume efficiency, material-handling efficiency and promotional attributes.
The complexity of maximizing packaging performance is also affected by the fact that several departments in a company have a stake in packaging, and that different companies in the supply chain have different requirements on it. For instance, in one company, the marketing department emphasise the role of packaging to increase sales, and the logistics department focuses on increased material handling and transport efficiency. In another part of the supply chain for the same packaged product, there can be other logistical requirements from a logistics department in another company.
In addition, the packaging requirements are not fulfilled by a single package, but by a packaging system, which adds complexity. A packaging system consists of primary packaging, which is in contact with the product. It also has secondary and tertiary packaging, which contains a number of primary packages and secondary packages respectively. This adds complexity as the primary, secondary and tertiary packaging interacts with each other. For instance, if the secondary provides sufficient protection, the need for product protection in the primary packaging may be reduced.
To obtain high packaging performance, the complex situation with many, sometimes contradictory requirements on a packaging system and its inherent interactions must be managed effectively. This includes understanding and making informed trade-offs on different packaging features with maximizing the overall packaging performance as the target. Preferably, packaging should fulfill requirements from various organizational units or areas, like logistics, marketing, production, sourcing and consumers. Packaging should also have a minimal environmental impact and fulfill ergonomic and legal requirements. However, the different requirements are not often fully compatible. For example, a producer may emphasize filling efficiency and low packaging cost, a transport provider may focus on volume and weight efficiency, while a retailer may accentuate promotional attributes, product information and handleability for sufficient replenishment.
Managing Trade-Offs on Packaging Requirements
The key to maximize packaging performance is to apply a systems approach. This means viewing the usage of packaging in a supply chain as a system where the packaging system is a subsystem. With this approach, the packaging system design and selection is guided by the overall packaging performance. This can be operationalized by using a number of existing methodologies, frameworks, and models and analysis tools.
A packaging performance methodology helps to collect data in a structured manner, measure the performance of a packaging system within a supply chain, evaluate and identify improvement areas of packaging systems in supply chains, and visualize underperforming packaging features both within the packaging system and between companies in the supply chain. The packaging performance methodology helps to first map the packaging system for a product throughout the supply chain. It then captures data for the system performance in the supply chain. As a third step, it evaluates and visualizes the system performance. Finally, it helps to improve the packaging system.
Several available frameworks can facilitate this systems approach. For instance, an existing framework describes the supply chain effects of e-commerce and their general implications on the packaging system. The framework helps to understand implications on the packaging system in e-commerce in order to improve packaging performance. Another example of a framework explains where in a supply chain packaging supplies and packaging waste occur. This helps to maximize the packaging performance in terms of waste management and recycling. Many detailed frameworks support parts of the process to improve packaging performance. An example is a framework, which helps to identify and structure where primary, secondary and tertiary packaging affect different operational processes in the supply chain. This is useful to understand potential trade-offs if a packaging feature is changed. For instance, if handles are added to a secondary package to simplify the replenishment in stores, it may affect the picking process in warehouses, but not transport providers if they only handle tertiary packaging.
Models and analysis tools for packaging performance refer to computerized packaging selection models, often contextualized to specific industries. They can be based on minimising costs and the environmentally impact. The environmentally based tools are usually inspired by life cycle assessment. For industrial packaging, here is an evaluation model with five factors, which together determines the performance of industrial packaging:
- Packaging material: impact of all packaging material
- Transport: Impact of packaging on transportation in all parts of the system
- Material handling: impact of packaging on material handling activities in plants and in warehouses
- Waste handling: include waste, recycling and reuse of packaging systems as well as damaged components because of insufficient packaging
- Capital: impact of packaging on capital costs of components in inventory
To determine and improve packaging performance, the combined effect of these factors should be analyzed.
Standardization vs. Lock-in Effects
The performance of packaging in logistics operations are highly affected by the level of standardization of packaging, material handling equipment, vehicles and information and communication technology. Standardization facilitates economy of scale principles, and aims to eliminate waste, duplication of work and redundant activities. In general, a high level of packaging and logistics standardization often leads to lower logistics cost. Thus, it should be considered as a key in obtaining high packaging performance.
However, the risk of lock-in effects should be considered in the decision to standardize. For example, a perfect match between a standardized packaging assortment and the current products, vehicles and material handling equipment may become inefficient over time, if the characteristics of the product assortment or the supply chain change. Because of high investment in standardization, it may be costly to change equipment and packaging assortment, but still necessary to improve packaging performance.
Competitive Advantage and Greening Operations Through Packaging
Managing packaging systems in a conscious and smart way by making informed decisions enables companies to create competitive advantage and greening operations through cost- and resource-efficiency in material handling, transportation and packaging material usage, combined with minimal product waste from sufficient packaging protection. To maximize performance, a number of methodologies, frameworks, models and analysis tools can be applied, as they help to apply a systems approach on packaging and its usage. Research and insights from the industry clearly show that a majority of companies have much to gain by putting more emphasis on the overall performance of packaging systems. It is then possible to better adapt packaging performance to changes in the business environment (e.g. globalization and short lead times), and to be proactive toward new legislation and continuously increased consumer awareness of the environmental performance of packaging. A specific opportunity space lies within e-commerce, where packaging performance has been overlooked so far.