How to Partner with Suppliers to Reduce Packaging Costs

The flood of cardboard boxes and returnable plastic dunnage we receive daily from suppliers isn’t typically top of mind when we think about reducing costs, but optimizing this “packaging” is a major pillar of continuous improvement. In fact, partnering with suppliers to optimize inbound packaging is critical to realizing lean extended enterprise performance results.

Intelligent supply chain leaders are passionate about optimization insights that can be gleaned from having detailed packaging data and are investing time up front to convert this often manual, disparate data into real-time digital information to accelerate continuous improvement initiatives throughout their supply chains. Fortunately, there’s a system for effectively organizing packaging information into a single place of reference — Plan for Every Part (PFEP) — and when implemented as part of a company’s broader lean game plan for success, it can help reduce the time and costs of receiving parts from your suppliers.

Packaging Challenges

Packaging is not typically something we think much about in the supply chain, but it plays a major role in shipping and handling parts. Inbound packaging optimization is a process where supply chain professionals partner with suppliers to look for ways to make it more friendly to the supply chain. By making small adjustments to the way parts are packaged, it saves time and money in production, transportation, storage and returns. This also requires enormous amounts of accurate real-time data. Further, inventory space can be utilized better if it stores more parts and less packaging, meaning you need to keep the ideal minimum amount of packaging inventory and/or “available pool.” This is all very challenging and a new frontier for many manufacturers.

Companies store packaging information in different places and many try to defer outlining their purchased parts information until all parts are “finalized” downstream in the product development life cycle — e.g., during launch — only to later try to manage this data in their Material Requirements Planning (MRP) systems. Plus, MRP often fails to provide data about the size or weight of the standard pack containing the part, forcing professionals to analyze data offline in Microsoft Excel, for example, to optimize pull signals, inventory levels, cycle times, and packaging. Lastly, although packaging is often the responsibility of Materials departments, changes impact many cross-functional teams, from Engineering to Purchasing, to Supplier Quality, to Manufacturing, so buy-in is critical.

What is Plan for Every Part?

Plan for Every Part is a purpose-built continuous improvement tool to solve these challenges. Derived from lean supply chain best practices, the definitions, and requirements of a PFEP vary depending on specific needs and industry, but in general, a PFEP fosters the accurate and controlled management of commercial information.

PFEP is an essential lean tool, and when combined with quality, delivery, true cost sourcing, value stream mapping, and supplier development initiatives, it can transform average supply chain operations into world-class, just-in-time lean extended enterprises.

Prior to launching a part, a PFEP enables organizations to plan more effectively for packaging to support prototype build dates, part true costs, and safe production launches. Then, once the part is launched, the PFEP is used to proactively maintain high-functioning supply chain operations by maintaining ideal delivery, packaging, and inventory costs.

4-Step Game Plan for Supplier Packaging Optimization

Step 1. Build a Plan For Every Part

Establish a dedicated, cross-functional team to accelerate a PFEP packaging initiative and spark the culture change needed to adopt the system. Ensure team members and suppliers understand how it’ll improve their daily lives and the company’s performance. Determine where to start, either internally — optimizing your plants’ packaging “inside your four walls” — or externally —“optimizing your inbound packaging from your suppliers.” If you haven’t optimized your internal packaging, start there first. Stabilize results, then turn your energy outward to partner with your suppliers to drive results.

Outline the necessary data to be included in the PFEP. A basic one may only have 35 columns; whereas a more complex one may have 120. Develop a strategy and timeline, and assign functional leads to gather the data. The key is to start small, even if the PFEP will only track 15 data inputs, because it can take time to build out the first iteration. Map the source of each data point to allow the team to improve the accuracy, maintenance, and future optimization of the PFEP. Common part packaging data to track includes, but is not limited to:

• Supplier
• Usage
• Storage
• Standard Pack
• Package Type
• Packaging
• Length-Width-Height-Weight

Using a PFEP, ideally an automated one, is critical in maintaining optimized packaging because it’s helping manage your inventory storage space, especially for manufacturers with many part numbers. Inventory space can be utilized better if it stores more of your parts and less of your packaging. Regardless of the number of parts you work with, this can be easily executed by using Automated PFEP software that allows you to collaborate with suppliers in real time, tracking task statuses, timing and next steps. Automated PFEP software also frees up your time, empowering you and your suppliers to more quickly enact your optimized packaging changes that will yield cost reductions.

Step 2. Calculate Current State Packaging

Gathering packaging data from different software systems is a time sink, so it may be a struggle keeping your team and suppliers motivated when starting out. To counter this, celebrate team success by tracking the identification of accurate data sources, along with tracking the overall percentage of total supplier packaging data inputs acquired.

Share team PFEP results with other organizations to benchmark and improve against industry-wide PFEP applications. For example, established companies with existing parts in production should expect up to a 20% reduction in packaging costs.

Reduce team member and supplier error when adding data by leveraging proven formulas for calculating pull signals and planned maximum inventory levels, costs, and days. The goal at this stage is to understand your purchased parts packaging better by populating the PFEP database, not to plan anything or act on the data. Input data is typically loaded into an Automated PFEP software tool to calculate a Current State Baseline for packaging, delivery and inventory.

Step 3. Refine Plan For Every Part Packaging Inputs

Now it’s time to refine your inbound packaging. What does this look like in practical terms? As one example, an agricultural original equipment manufacturer (OEM) could partner with their Tier I suppliers of metal stampings, to optimize inbound packaging, which in turn could lower packaging costs, inbound logistics costs, inventory levels, and plant inventory floor space occupied. Teams then refine input variables such as standard packs container weights and inbound logistics costs, which calculates a Future State PFEP.

The key to swiftly refining PFEP is mastering the interrelationships between PFEP inputs and outputs. This is another area that Automated PFEP software assists as a productivity tool, automatically calculating outputs, which also reduces human error. The OEM and Tier I Supplier of metal stampings could decide to revise their Pull Quantity from 150 pieces to 100, to ensure alignment in both companies’ ERP systems of Standard Pack and Pull Quantity. Simple, seemingly small adjustments of these inputs can facilitate rapid transformations in as little as seven days. During times of sudden volume shifts, reviewing and dialing in the appropriate input variables is key.

Step 4. Optimize Future State Packaging

Small changes add up quickly as each dollar saved goes straight to the bottom line. Typically, the Buyer, in this case the OEM, partners with their suppliers as part of a continuous improvement initiative to identify, prioritize and realize cost savings that are often mutually shared. In the same example highlighted above, simply transitioning to a higher density returnable steel container, and moving from 25 to 40 pieces per standard pack, allows for more parts to be delivered with each full-truckload shipment, lowering inbound logistics costs per part.

Once cost savings were added from the resulting reductions in part inventory, plant floor space occupied and total number of containers, net cost savings totaled $45,585, or 20% of annual total costs for these line items. Continuous improvement productivity tools such as Automated PFEP software will enable you to obtain the right answer faster; however, in some cases, especially outside your organization, you’ll need to project manage the deployment changes needed to capture these cost savings. 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 set of actions. Agile project management software, often included in Automated PFEP software, is a flexible tool for tracking said supplier initiatives.

Supplier Packaging Cost Reduction Results

Winning football teams watch game film to study what they do well and to identify what needs improvement. Likewise, companies must consistently review and actively refine their PFEPs in the face of both market opportunities and headwinds to realize the best financial outcomes. For instance, as organizations optimize their supplier delivery frequency, the inbound logistics costs should adjust, which could lead to further packaging cost reduction opportunities.

Having a PFEP is an invaluable tool for maintaining a high-performing supply chain because it serves as the foundation for short-term continuous improvement and long-term operational excellence. It also provides a platform for communication with team members and suppliers outside your four walls.

Just like a coaching staff prepares its players to perform to the best of their abilities, leaders need to both create and execute their PFEP game plans to position their teams and suppliers for continued packaging success.