Jack Ampuja Supply Chain Optimizers Niagara University. Supply Chain Optimizers

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1 Jack Ampuja Supply Chain Optimizers Niagara University Supply Chain Optimizers

2 Supply Chain Optimizers

3 Founded in Toronto in 1985 Completed 500+ packaging projects Staff of logisticians + packaging engineers Partner with Logistics Service Providers to deliver efficiency & sustainability to their clients SCO supports them with packaging expertise Both Green Provider and Green Award Winner in USA clients have won similar awards Supply Chain Optimizers

4 The shipping case or bag is the lowest echelon building block in the supply chain - impacts handling-storage-freight-damage - all which have $ & environmental impact Optimization: holistic supply chain - opportunity comes from understanding total packaging, warehousing, transport effect on cost & sustainability

5 Partial ownership by marketing, purchasing, logistics, manufacturing, quality, engineering - focus on different goals - supplier & customer can also influence Understanding all cost and environmental parameters will help in decision making - problems occur when results aren t fully accounted for in packaging decisions

6 Packaging remains a major area of supply chain optimization opportunity for most firms Bob Delaney in CSCMP s 99 State of Logistics Not much significant progress in past 15 years Dimensional weight pricing has added major cost & complexity to small package shipments

7 Packaging is typically seen as a marketing or engineering process - packaging impact on supply chain <10% - warehousing impact ~20% - freight impact ~60% Yet typical client has focused on driving down packaging costs while logistics costs increase saving cents on boxes by spending nickels in transportation Supply Chain Optimizers

8 Typical box supplier or packaging engineer cannot resolve package - freight cost issues Try to protect one product [lamp shade] or packaging many units of one product [cereal boxes] Software can be a major assist They do not understand freight details or costs Commercial packaging software cannot do pickpack operations because of many different items shipping together Supply Chain Optimizers

9 Easiest box to make is a square Provides good strength to contents But square box is not a good solution for logistics Supply Chain Optimizers

10 Easiest box to make is a square Provides good strength to contents But square box is not a good solution for logistics Logistics world = rectangular..does he optimize engineering or logistics For optimal solution, detailed knowledge of both parcel & less-than-truckload costs and efficiencies is required plus packaging science Supply Chain Optimizers

11 Construction of box will impact cost Example: 10 x 5 x 10 = 500 cu in 25 x 5 x 4 = 500 cu in Box #2 uses 20% more paper material There are 10 different ways to construct each box and costs of each may vary Reality: in a 12 count box of rectangular units there are 324 possible combinations of case pack arrangements / different shipper sizes

12 Single SKU in a case is a basic analysis Multiple SKUs / box complicate situation - how many boxes for more than 1 million combinations of weight & cube which is typical for large e-commerce shippers?.one isn t enough but 10,000 is too many SCO completed 800 million analyses to optimize one client

13 Traditional manufactured product Multiple units of the same product in a box Imported product especially from Asia Little application of packaging science Pick-pack operations in e-commerce Many ship 1 million+ combinations of weight & cube each year

14 Changing package characteristics and packaging practices can remove cost. A simple step such as reducing box height by two centimetres may save money on the box, transport, warehousing and possibly even on damaged goods. Packaging optimisation almost always contributes positively to reduce climate and environmental footprint. Erling Nielsen - Global Head of Supply Chain Development Supply Chain Optimizers

15 American Retailer - Shoes Observations 12 pairs (boxes) in one carton Carton Dimension (ID): x16.25 x14 Carton Piece Count: 12 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Cost Comparisons* $3,013 $4,407 CURRENT $1,378 Reduced $2,477 $3,565 OPTION A IB OCEAN OB TRUCK * Transport costs only Suggested Carton Dimension Carton Dimension (ID): 28 x x15.75 Carton Piece Count: 12 * Tra Recommended Carton/Stacking Change case pack arrangement from stack of 2 x 6 to stack of 4 x 3 Eliminate slack Supply Chain Optimizers

16 - Reduced corrugate spend 15% (COGS savings) Item -Reduced inbound freight spend 20% (600 fewer containers /COGS savings) -Reduced warehouse storage requirements 25% (storage & handling / SG&A savings) -Reduced miscellaneous expenses (damage, pallets, shrink, labels, etc.) OPERATIONAL RESULTS Cost/Benefit $ 200,000 $ 1,580,000 $ 1,000,000 $ 100,000 + SCO fees ($ ) + Miscellaneous Internal project costs (temp labor, travel & IT) ($ 50,000 ) Total Savings $ 2,800,000 The knowledge transfer of is difficult to quantify... Supply Chain Optimizers

17 Marketed Benefit to Key Customerso Presented to Wal-Mart 15% reduction in corrugate 20% reduction in freight Recaptured national distribution $10 million 25% reduction in distribution Presented to Target 15% reduction in corrugate 20% reduction in freight Awarded men s volume $5 million 25% reduction in distribution

18 LKQ Corporation Industry leader in recycled automotive parts Annual revenues of $1.6B Refinishes headlight & taillight assemblies Extensive variety of assemblies for all makes & models of cars

19 Cost Packaging costs spiraling To minimize damages, product over-packed Transport costs rising Inefficient use of bulk shipping options Supply Chain Expenditures Q1 Q2 Q3 Q4

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21 Used 6 different boxes Protected lights with foam-in-place product Poor case fit on pallets - inadequate height in trailers Used scrap pallets to save money On site cooperation from LTL carrier s claims manager & national account rep

22 Identified a handful of operational changes Added more boxes to selection Secured tighter product fit & less corrugate Recalibrated foam machine for flexible output Increased shipment density Purchased solid used pallets for outbound Carrier was able to get more product on trailer LTL freight class declined from 250 to 150

23 "HHL and its partners delivered tremendous results -- a 40% reduction in transportation costs, reduced packaging and streamlined warehouse operations. 'Greening' our supply chain has lessened our environmental impact while benefiting our customers, employees and investors. - Mike Lahr, Director of Logistics & Environmental Compliance, LKQ Corp

24 Most small package shippers utilize too few carton sizes: <10 is common - savings in purchasing are not enough to offset loss in distribution efficiency - air is most expensive commodity to ship Typical company we have helped gets 65% cube utilization of outbound cases - the remaining 35% = filler & air

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33 Thousands of new shippers No science applied to packaging Many daily shipments of one box per destination Lots of residential deliveries Has changed cost profile of couriers which traditionally managed by weight UPS & Fedex attempting to get proper cost back to shipper If you are inefficient you will pay more Supply Chain Optimizers

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35 Multiply case dimensions in inches and divide by divisor examples: 12 X 12 X 12 = 1,728/139 = 12.4 billed as 13# 24 X 24 X 24 = 13,824/139 = 99.5 billed as 100# UPS and FedEx will weigh and laser scan dimensions of each package automatically at their terminal and apply higher of weight or cube charges Box bulges will add to size as lasers are precise September 22, 2016

36 September 22, 2016

37 Known in the trade as "dim weight" pricing sets the transportation price based on package "volume," or the amount of space a package takes up in a truck in relation to its actual weight Applied to all air freight shipments for years Implemented in 2007 for ground shipments larger than 3 cubic feet by FedEx, UPS, USPS September 22, 2016

38 Jan-2015 applied to all orders regardless of size Divisor reduced at same time from 194 to 166 Divisor reduced to 139 effective Jan : 194 divisor = 8.91 lbs/cu ft 2015: 166 divisor = lbs/cu ft [+14%] 2017: 139 divisor = lbs/cu ft [+16%] Density requirement up 40% in 24 months The shift is cataclysmic. It is paralyzing to many shippers not under custom contract..rob Martinez CEO, Shipware September 22, 2016

39 3 cables weighing 1 lb shipped via UPS Ground Dim weight: 15 lbs (16 x 14 x 11 ) Product: 54 cu in Package: 2,464 cu in Cube utilized: 3% Supply Chain Optimizers

40 September 22, 2016

41 Effective Jan, UPS and FedEx now charge $10.50 "additional handling fee" if the longest side of the shipment exceeds 48 inches. Old maximum length was 60 [25% greater] Old surcharge was $9.00 [14% lower] This most recent change is the 7th price increase of some type applied by UPS in the past 18 months, and the 6th imposed by FedEx Street rates are up 60% since 2006

42 US freight classes have been based on density but charged by weight since 1935 Difficult for carriers to verify weight No easy way to assess density Many use scales on every forklift to check weight of each pallet of freight Scales verified for accuracy every four hours Will assess re-weighing charge if shipper weight is incorrect Supply Chain Optimizers

43 Brad Jacobs CEO of XPO: We don t want inefficient freight light density product, susceptible to damage, doesn t fit pallet, tough to handle - but if you tender to XPO we will charge accordingly We will install pallet dimensioners into all crossdock operations to verify shipment density All major LTL carriers use pallet dimensioners Cost: $65,000 paid back within 90 days

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48 Product cube = 5.42 cu ft Density of lbs / cu ft freight class: 55 Pallet cube = cu ft Density of lbs / cu ft freight class: 70 Freight cost of class 70 = 30% higher than 55

49 4 chair mats shipped via FedEx Ground Each package dimensions are: 50 x14 x14 = 9,800 cu. in Actual Wt. = 17 lbs. each Billed Wt. = 60 lbs. each or 240 lbs total All four chair mats could have been shipped in one box of 50 x14 68 lbs. Proper packaging can reduce freight cost by 70% Supply Chain Optimizers

50 Packaging science is different than other engineering disciplines Aeronautical, Facility, Industrial, Paper engineers are not trained in packaging issues Knowledge of packaging performance in real world operations is critical Must also understand handling, storage and transportation costs Software alone cannot provide solution Operations experience is difference maker Supply Chain Optimizers

51 E-commerce is not really a packaging issue more freight & math problem Packaging decisions require logistics input before box is created Sustainability needs a corporate champion to gain traction Packaging optimization is all green Improves sustainability & profitability Supply Chain Optimizers

52 Smart people learn from their mistakes. But the real sharp ones learn from the mistakes of others. -- Brandon Mull, writer Supply Chain Optimizers

53 Jack Ampuja, President Supply Chain Optimizers LLC Phone: Website: Executive in Niagara University Website: Supply Chain Optimizers