Cartonization: The $avings Can Be Huge

Transcription

1 Cartonization: The $avings Can Be Huge

2 Cartonization: The $avings Can Be Huge Overview One can hardly pick up a trade journal these days that is focused on warehousing, distribution, logistics or the supply chain without coming across feature articles discussing warehouse and distribution metrics, the volatility of transportation costs, or drivers of inefficiency in the supply chain. While the subject of this paper is cartonization, the ramifications of this topic are far-reaching, and in our opinion cartonization opens the door to emerging opportunities that can result in substantial savings in the distribution center. These savings include reductions in corrugated expense, space savings,and reductions in labor and shipping costs including freight costs and accessory charges that can be 30% or more of a shipper s freight spend. Addressing the basic topic of cartonization, we include some foundational approaches that can be implemented in smaller distribution centers. These approaches the utilization of shipping cartons, decrease expenses, increase throughput and lay the foundation for achieving major savings in distribution and transportation. We also discuss our view of the dynamic changes that are just around the corner, and how the savvy ecommerce, retail or manufacturing company can implement new cartonization concepts that will not only generate substantial savings, but improve operations and achieve major gains in meeting corporate sustainability goals. Cartonization discussions are typically driven by a need for more simplicity, a mandate to increase distribution center throughput, or a desire to reduce shipping and transportation costs. Where cartonization begins Supply chain professionals are often faced with making painful packaging choices about the number and size of shipping cartons to use in their distribution center. Adding carton sizes can result in a higher cost from the supplier for smaller quantities of each box; operator error in selecting the wrong box; packing workstation complexity; and space consumption to store and stage the additional box inventory. Correspondingly, reducing the assortment of carton sizes will usually result in increases in throughput and lower per-box raw material costs, but at an increased cost for void fill. The cost-benefit analysis quickly becomes more complicated when you consider volume discounts, freight charges, dimensional (DIM) charges, damage claims, order history, and more. 2 Invata Intralogistics Invata Intralogistics, Inc. All rights reserved.

3 The basic approach to cartonization Entry level cartonization strategies can be focused on increasing throughput or reducing costs. Driven by the pressure from increasing order demands, one company made the decision to streamline its inventory of different shipping cartons, and shipped several thousand random piece orders per day with only a handful of different carton sizes. As a result, there have been a number of benefits, foremost a welcome boost to operator performance and an increase in capacity to satisfy the dramatic increase in customer order demand. Excess material costs also decreased, as operator errors and the penalties of selecting the wrong carton were virtually eliminated. Additional negotiated volume discounts from the company s box supplier were achieved by increasing the purchasing volume for a reduced selection of cartons required to meet their order demand. This example builds a case for the advantages of cutting down on the number of different carton sizes a distribution center uses, but raises questions: What number of different carton sizes is most efficient? When does the cost of adding another carton size exceed the benefit of reduced void space? What are the best carton sizes to use? For the distribution center in this example, four sizes appear to be working well enough, but this begs the question: How did they choose those carton sizes, and how would their material, labor, and freight costs change by changing the carton assortment, adding another carton size, or cutting out a superfluous size? And what about the downside? With the advantages achieved by reducing carton sizes also comes the risk of elevated costs associated with inefficient carton sizes. While the analytical foundation for optimized cartonization is compelling, the business case is undeniable. An analytical approach based on past performance While the analytical foundation for optimized cartonization is compelling, the business case for it is undeniable. Today many warehouses are maintaining accurate dimensional and weight data for each item, so it is possible to perform large-scale quantitative analysis of a distribution center s order history. With an item file and some orders for a given span of time it is possible to repeatedly model what-if scenarios and provide insight into what costs could have been given changes to the number and size of cartons used. Such careful analysis is critical to estimating the advantages of reducing the array of carton sizes while maintaining efficient carton utilization. 3 Invata Intralogistics Invata Intralogistics, Inc. All rights reserved.

4 What does the analysis look like? The frequency distributions in figures 1 and 2 illustrate the most efficient possible carton configuration based on the customer order and SKU profile. The blue shaded regions illustrate the subset of orders that fit inside of a particular carton size. The arrows point to the largest area of the order population within each carton size. The arrow location is an indication of the carton s efficiency. Orders close to the right side of a carton s range take up the most space in the carton and are an efficient choice. Choosing carton sizes that cover a range where large areas of the population reside on the right side of the carton s distribution means more orders are destined to a well suited and efficient carton size. By adjusting the carton sizes and thereby changing their subset populations, it is possible to produce the more desirable scenario shown in figure 2. An analysis of orders and their packaging needs is essential to make informed decisions about carton sizes. Choosing the ratio of the carton s dimensions is an integral part of determining optimum carton sizes for which liquid volumes are inadequate. Figure 1 Poorly suited carton sizes Figure 2 Improved carton sizes Taking dimensions for individual items in an order and determining the best possible carton is an extension of the well known knapsack problem that has occupied the minds of mathematicians and professionals in almost every industry. For every order there is a theoretical perfect carton size that leaves the smallest amount of void space. Visually, this involves packing the items together as tightly as possible, then drawing a cuboid around the resulting combination. Assuming an infinite number of carton sizes, with the proper software algorithm it is possible to take an order population and generate a frequency distribution of these perfect carton sizes. Previous methods to answer these questions have been attempted using liquid volumes (the product of the dimensions), but these methods fail to provide a high enough level of precision. A liquid volume discards information about the shape of each item that is necessary to choose a specific carton size. Liquid volume estimates provide insight into neighborhoods of carton sizes by volume, and with summary data about the dimensions of items, reasonable assessments can be made about what size cartons to use. However, an infinite number of cartons can have identical volumes. Choosing the ratio of the carton s dimensions is an integral part of choosing optimum carton sizes for which liquid volumes provide are inadequate and provide no insight. 4 Invata Intralogistics Invata Intralogistics, Inc. All rights reserved.

5 Today, modern consumer computers are powerful enough to apply algorithms that examine items in an order as their respective shapes and keep track of the ideal cartons (the cuboid drawn around each combination) for every possible arrangement of the items. Having all of the possible arrangements, not just the arrangement with lowest total volume, is important. For every ratio chosen, there will usually be a different ideal carton resulting from a different arrangement of the items inside, because the ratio of the arrangement dimensions likely does not exactly match the ratio of the carton used. Generating frequency distributions of ideal carton sizes for an order population has the caveat that a fixed ratio of the carton s dimensions must be chosen. While this necessitates analyzing multiple frequency distributions, a systematic approach to this analysis can readily determine the ideal combination of cartons. Higher performing algorithms examine items in an order as their respective shapes whereas liquid volume is only effective at determining void fill needs. This method is essentially a ground up approach to determine optimal carton sizes for a given order population. Using frequency distributions, one can take a particular carton size and view the subset of the population that will fit inside. This generates a good estimate of how many orders would be able to utilize this carton on average if it was used in the distribution center, but more importantly it also demonstrates the carton s relative efficiency for void fill. For each carton and order, there is a total liquid volume of the items in the order and a total liquid volume of the carton. The difference is the amount of void space remaining. For a population compatible with a given carton there is a distribution of orders by volume that shows the quantity of orders that are going to leave the most and the least void space. The best possible scenario is for an upward sloping distribution with a peak at the end, which results in more orders fitting into this carton and little void space that requires additional fill. In such a case, the efficiency of the carton is high, and the average cost per order is at an optimal level. Looking at these distributions can guide the selection of carton sizes. For instance, a parabolic distribution strongly suggests splitting the population between two carton sizes. A downward sloping distribution indicates relatively low efficiency and a high cost per carton, suggesting a different carton size should be chosen. For each frequency distribution, the goal is to isolate large populations (peaks) and choose a carton size that accommodates them. When going on to analyze further distributions with other carton dimension ratios, the efficient population of orders that most closely matches a chosen carton size should be removed and the remaining population examined. This method of looking for peaks in distributions, assigning an ideal carton size, removing them from the population, and then reexamining the 5 Invata Intralogistics Invata Intralogistics, Inc. All rights reserved.

6 remaining population can be repeated until all of the orders have been evaluated. This method requires a structured approach to examine many different combinations of carton sizes using many different carton dimension ratios, but through multiple analyses clearly optimal solutions emerge. Thus, the order population frequency distribution in figures 1 and 2 is just one of many for a given fixed ratio. Several apparent peaks suggest optimum carton sizes, while the sizes that are not ideal may be better suited to fit in a carton with a different ratio of dimensions. Invata tested stand-alone programs that purport to measure cubic volume of sea containers, air containers, trailers, mixed pallet loads and cartons. The results yielded significant variances in fill rate and overall efficiency. Proactive performance the future, or today? For those companies with higher volumes or who are interested in further optimization, there are some emerging technologies that can have a significant impact on their operation. In designing the ultimate solution, the first step would be to establish some clear objectives for an ultimate solution to cartonization. The following is a guideline: Reduce freight costs and back charges by having the smallest box that meets your needs Downsize cartons and/or move to lower cost bags or envelopes Reduce material costs by purchasing box materials direct, and building boxes more efficiently Improve your commitment to sustainability by reducing storage space associated with maintaining an inventory of different box sizes, additional rack storage space requirements, packaging and shipping area storage space Reduce packaging waste and excess void fill Deliver the right box or shipping container, sized precisely to fit my order, just in time to the pack line or packaging operation Achieving aggressive cartonization objectives is now attainable with cost effective, reliable technology that includes both mechanization and software solutions. 6 Invata Intralogistics Invata Intralogistics, Inc. All rights reserved.

7 A combination of box automation technology, packaging automation, and cartonization and packaging integration software can achieve substantial cost reductions. In our opinion, achieving these objectives is not only possible, it s now both attainable and cost effective using a combination of recently released box automation technology, packaging automation, cartonization software and packaging integration software. This combination of technologies can quickly and accurately evaluate orders, dimensional characteristics, and packaging utilization. Once complete, order cartons can be created at the beginning of the picking process, or sequenced to the packaging point-of-use location. In-motion scanning, weighing and print/apply technologies can quickly and accurately validate parcel weight, order number, or serialized data and add specific consumer related messages to the parcel on the fly. And lastly, the optimized parcels can be quickly routed via the least-cost shipping method resulting in outstanding potential savings. FreeBox Automation (courtesy System Logistics) An automated cartonization solution such as FreeBox can produce variable size boxes, on demand and fully assembled at a rate of 7 boxes per minute or more, depending on box size. Scrap is less than 5% and payback is typically less than two years. See more details at 7 Invata Intralogistics Invata Intralogistics, Inc. All rights reserved.

8 But what about seasonal peaks? This was the first major question about more automated approaches to cartonization that truly resonated with us, because the problem of managing seasonal peaks is not just about the analysis and box size in question, but about the deeper issue of meeting dramatically higher peak rates. Under these conditions, it is often more effective to manage order picking outside of existing automation or through less automated, yet often more productive processes resulting from seasonal peaks. And the answer is a fairly practical one. One approach is to utilize the same cartonization algorithms discussed in the first section to model the optimum carton profiles and pre-build standardized cartons that can be inserted during the picking process. This process may be merged with existing automation, or if volume peaks are high enough, may take an alternate more more manual, yet highly productive path through the distribution center. The second approach is to allocate reserve box-building capacity to pre-build the right quantities based on the previous day s orders, or even based on the order entry queue data. A good design process can accommodate seasonal peaks in demand while still leveraging the substantial benefits and return from investing in box-building automation, automated packaging and cartonization software. What s the opportunity for combining automated box-building and cartonization? When all is said and done, the business opportunity resulting from a program of managing carton efficiency can drive huge results and savings to the bottom line. Consider the following: What would it mean to reduce your corrugated consumption by 30%-50%? How much warehouse storage space and packaging/shipping area space would this save? What would it mean to ship boxes that are 30% smaller? And lighter? What savings could be derived from selecting the lowest cost carrier as a strategic negotiation or in real time? How much is spent in unnecessary dimensional (DIM) charges or the assessorial charges that can be as high as 30% of your annual shipping spend?? 8 Invata Intralogistics Invata Intralogistics, Inc. All rights reserved.

9 For more information: Invata Intralogistics is a global supplier of supply chain and facilities optimization, software and controls. The company approaches warehousing and distribution process analysis and system integration with a sophisticated business approach to meet the needs of our clients and their customers. For more information on cartonization and box-building automation, visit or call Invata Intralogistics info@invata.com