Saving money, resources by emphasizing packaging efficiency
National Instruments (NI) produces hardware and software for test, control, and embedded design applications. NI products range from basic low-cost data acquisition devices to multiplatform, custom hardware/software systems that can cost thousands of dollars. In 2007, we centralized 95% of our global distribution network in our manufacturing facility in Hungary; thus, approximately 70% of our shipments became international parcels. One of the major concerns with international parcels is the cost, and although we had some very good negotiated rates in place, we realized we had to be more conscious than ever before of our packaging efficiency.
Shipping cost has become one of the largest expenses NI incurs, and dimensional weight accounts for a large portion of shipping costs for both inbound raw materials and outbound finished goods. At this time, we were spending more than $1 million per year on dimensional weight charges. Shipping costs are calculated by weight, size, speed, and distance. Over the last five years, to encourage space optimization and subsidize charges for large light shipments, parcel carriers have implemented and tweaked dimensional weight factors and formulas more than ever. These changes have resulted in massive revenue increases for carriers which, if unmanaged by shippers, result in major cost increases.
This corrective behavior strategy results in a win-win situation for parcel carriers by helping them to increase their revenue and/or free up space by encouraging shippers to reduce the size of their shipments. For example, a November 2010 article from Logistics Management magazine showed an example where the tweaking of dimensional weight factors resulted in an 18.7% rate increase instead of the advertised 5.6% rate increase (see Figure 1). Parcel carriers rarely call attention to changes in accessorial fees and usually focus on the shipping charges alone.
Our global logistics and packaging engineering teams performed an extensive analysis of the packaging we were using, particularly focusing on package size and shipping costs. The teams saw an opportunity to improve efficiencies in these areas by reducing the dimensional weight of many NI packages. Most were simply far too large for their contents. Figure 2 shows a typical example.
This cost NI unnecessary money and wasted precious space in storage facilities. Additionally, because of some filler material used in empty package space, reducing dimensional weight could have a positive environmental impact. In 2007, we began a multiyear effort to resolve these problems, saving the company money and reducing our environmental impact.
International parcel rates are among the highest delivery costs affecting our industry today, eclipsed only by same-day delivery charges. Factors that influence international delivery pricing include package density, weight, destination country, destination addresses, and customs clearance costs. In general, the NI shipping profile matches well with what parcel carriers look for in parcel characteristics. Our packages weigh around 7 to 10 lbs each and are high in value with a low claims ratio, typically shipping directly to high-tech areas with a high delivery density and via international air.
Additionally, NI releases hundreds of new products annually. As a result, the NI product mix consists of high-mix, low-run parts. From a packaging design perspective, this presents a challenge.
When you sell thousands of different parts, you cannot create a custom box and solution for each part, especially when you may sell only a few of these parts each year. As a result, parts are not always custom-fitted to their packages, but are always well protected. This combination can quickly lead to packaging density inefficiencies.
In addition, with the many redesigns of individual part numbers, the bills of materials (BOMs) often change, getting smaller in size through technological innovation. With a constant rush to get the new and redesigned product to market, packaging efficiency frequently became an afterthought for engineers.
The logistics group met with the packaging engineering group and tried to tackle the problem of making packaging important to our design engineers. NI products are not sold in storefronts; our customers purchase our parts because of our technology, not because of packaging aesthetics. The engineers’ packaging goals were to maintain a quick time-to-market and high packaging protection quality over packaging efficiency.
The solution and results
We took a common-sense approach to tackling this issue. In 2008 an all-volunteer internal organization called the Green Team formed, with the goal of helping to reduce the ecological footprint of NI and its employees. The logistics and packaging engineering teams saw the green movement as a great avenue to push not only the importance of packaging efficiency, but also the importance of shipped product document reduction. The Green Team joined the other project stakeholders to eagerly take on these causes, helping to raise awareness for increased packaging efficiencies using videos, the company intranet site, and the annual citizenship report.
We focused on documentation reduction and packaging efficiency, and began by conducting both internal and external research. We believed the best place to start to address the known issues was to physically audit our top 200 highest sellers and our top 100 dimensional weight offenders which, in some cases, overlapped. To identify packaging inefficiencies, we used IATA’s international dimensional weight factor of 166 in. to identify our low-density packages.
We formed an audit team composed of members from NI logistics, packaging engineering, kitting, and industrial engineering groups. The audit findings confirmed our suspicions. Some of the changes could be made relatively quickly, while others required packaging redesign and testing as well as approval and help from a number of other groups such as the technical writers group. With this knowledge we were able to start making changes, but with more than 6,000 existing parts, and hundreds of new parts being released a year, we knew there was a long road ahead.
In late 2008, the global recession hit and NI began to look for more areas in which to cut costs. Dimensional weight and material savings from the packaging efficiency efforts naturally dovetailed with this initiative. Because of the education efforts from earlier in the year, dimensional weight was no longer a foreign term to engineers, and they understood the importance of packaging efficiencies. Many of our engineers championed packaging changes more than ever, proactively pushing packaging efficiencies and document reduction.
One major change we undertook was replacing a significant portion of polyurethane foam packaging with paper-based cushioning. Besides the packaging efficiency needs described earlier, we also needed to comply with European Union legislation that required companies to accept their used product packaging for recycling. Not only is polyurethane foam one of the least environmentally friendly packaging options available, but it is also difficult and expensive to recycle, requiring specialized recyclers.
After evaluating several options, we decided to replace foam with paper-based cushioning and implemented 10 machines (one per kitting station as shown in Figure 3) at our main manufacturing facility in Hungary to automate the process. Since their implementation in 2010, we have seen reductions in the following areas:
- Material cost
- Shipping cost
- Warehouse space, and
- Environmental footprint.
In addition, the automated machines provide more flexibility in the kitting process by making it possible to produce on-demand adjustable cushioning size and quantity.
Specifically, we were able to modify packaging for more than 500 SKUs by replacing the polyurethane foam with the paper-based cushioning because of the machines (Figure 4).
Overall, because of the new machines and the resulting changes, we have reduced polyurethane foam use by approximately 150 m3 annually, or 30%. This has resulted in a cost savings of about $50,000 annually.
We also undertook many other projects to increase packaging efficiency, including:
- Switching to suspension packaging for several eligible products. Suspension packaging uses air instead of foam to cushion products, which reduces the amount of material used in the package. This new packaging contains at least 30% recycled content and is recyclable in corrugated hydrapulping operations. Also, it is reusable for return shipments, which minimizes waste at both ends of the distribution cycle. This change reduced the amount of foam used by 5% (87 m3) per year and resulted in a 47% reduction of box size for these products.
- Redesigning the packaging for a fragile NI hardware product, reducing the physical size of that product’s packaging by 59%.
- Developing a new method for shipping NI software by replacing the industry-standard software carton with an envelope mailer. In addition, we worked to reduce the amount of printed materials shipped with software in 2009 and condensed multiple CDs into one DVD. Through these efforts, we reduced the physical size of software packaging by 71%.
- Advancing the efforts to move more quickly to a Web-based format for manuals.
Creating custom packaging for a particularly high dimensional weight product instead of one-size-fits-all packaging had the following effects:
- Increased average shelf capacity by 88%
- Saved $27,533 on materials per year, and
- Freed up 264 storage shelves, making room for 196,504 boxes.
Redesigning packaging for a popular product had the following effects:
- 23% decrease in corrugation used
- 59% decrease in polyurethane foam used
- 43% reduction in cubic volume, and
- $423,000 in expected annual savings.
Having addressed the major dimensional weight offenders and high runners, in 2010 we decided that we needed a way to determine additional areas where we could increase efficiency. We formed a Kaizen team within the kitting teams at the NI global manufacturing site in Hungary. The purpose of the team was to educate kitters on dimensional weight and ask them for their help in improving packaging efficiencies. We provided a clear communication channel via an online database where they could log their ideas, which our packaging engineers then assessed prior to making any changes.
The team was a success and accounted for more than $260,000 in dimensional weight and material cost savings in 2010 alone. In addition, the team understood it was part of a continuous improvement effort because packaging efficiency should be an ongoing concern.
In addition to the kitting education project, we trained and audited shippers on their packaging efficiencies because they are the final group to package orders before pickup. We reviewed the data we gathered from the audits and within a few weeks began to see very positive results, such as going from a 10% shipping failure rate on shipping efficiency audits to zero failures within a few months.
As dimensional weight accessorial charges continue to increase rapidly, we have made a concerted effort to not only reduce our dimensional weight costs through efficient packaging, but to also understand how dimensional weight factors affect our costs. By understanding how they directly impact our cost and how the carriers are quickly changing factors, we are able to negotiate these factors wherever possible.Another good idea came from a member of our logistics group in Hungary who quickly realized the importance of using dimensional weight neutral packaging such as carrier-provided packs on our smaller shipments. Using carrier-provided packaging not only reduced material costs, but it provided a key avenue to avoid dimensional weight charges. The graph in Figure 5 shows our packaging efficiency gains where dimensional weight is measured as a percentage of our billed weight for our largest shipping lane.
Although we have made major progress and seen great success in our efforts to reduce dimensional weight, the biggest lesson has been realizing that this must be a continuous improvement effort. When it comes to a static environment such as product packaging, we must continue to look for ways to implement smarter and better processes. For instance, we are currently taking a hard look at suppliers’ incoming raw material packaging because this also affects our supply chain.
Ultimately, we achieved great success with our packaging and design enhancements. We saved money and precious resources, and raised awareness of an issue that not many people in the company knew about. Our focus on increasing packaging efficiencies remains, and with the number of new products NI develops coupled with rapidly changing dimensional weight factors, we expect there to be many new opportunities to save money and resources in this area.
Oliver Murphy is packaging engineering group manager for National Instruments.