Packaging's growing role in e-commerce
The UK automotive parts supply chain has been transformed by the emergence of e-commerce and the changing behaviour of car owners. Online parts sales are growing at a rate of around 10.5% a year (CAGR) compared with 3% for the whole UK aftermarket and, according to the Society of Motor Manufacturers and Traders (SMMT), online parts and accessories sales will be worth around £1.65 billion by 2022. These figures suggest manufacturers need to get into the e-commerce mindset and meet consumer expectations to avoid losing out on a sizeable revenue stream.
In 2016, Amazon launched an automotive research site that allows users to access aftermarket parts for specific makes and models. Though Amazon had been selling auto parts for ten years up to that point, the new site – geared towards purchasers’ individual requests – has proven automotive e-commerce to be just as viable as any other kind of e-commerce. Similarly, eBay.co.uk, visited by one in three British people every month, is emerging as a growing marketplace for automotive parts.
This online marketplace is focused on two primary customers: those seeking accessories for upgrades and those interested in purchasing older model parts. The average UK car is now approximately eight years old, up from just over six years old in 2003, according to the SMMT. Most of these owners are now choosing to buy parts online because of the lower prices and convenience that e-commerce provides. Meanwhile, owners of newer vehicles are mainly interested in online shopping experiences that allow them to accessorise their vehicles.
Yet, despite the significant rise in the sector’s popularity, automotive manufacturers have yet to register a considerable rise in their bottom lines. According to PwC, figures from the US – a larger market but a yardstick for the UK – show that its top ten automotive manufacturers have only seen a 4% return on capital, compared with the average of 8-9% earned by manufacturers in other industries.
One way to improve these figures and take advantage of the rising popularity of the e-commerce automotive aftermarket sector would be to focus on the role that packaging plays in supply chain efficiency.
Far too often, packaging is viewed as a commodity, but in fact it is a critical component of manufacturers’ supply chains, as it determines how much space is needed in warehouses, how much damage products will experience during shipment and, as a result of e-commerce, how valued customers feel when they open the box in which the auto part was delivered. The value of packaging – and its impact on manufacturers’ marketability and supply chain efficiency – must not be overlooked.
Typically, package delivery costs consist of: freight (60%); labour (20%); packaging materials such as corrugated and dunnage (15%); and damage (5%). Companies tend to focus only on reducing packaging material costs, even though they could achieve more significant savings by concentrating on the other 85% of costs. To do this, manufacturer stakeholders should conduct a value analysis to determine the true financial and supply chain efficiency savings that can be generated if each type of cost is reduced.
To ensure automotive manufacturers find the right balance between packaging speed and protection, a four-pillar approach to packages should be considered: minimising damage; maximising packaging productivity; right-sizing boxes; and ensuring that unboxing is easy and pleasing. By implementing lean principles into packaging operations, these pillars can increase manufacturer productivity by up to 30%. This uptick in productivity can lead to a trickle-down effect, as manufacturers will typically require 15-20% less labour per package, figures that will directly influence their bottom lines.
As freight costs continue to rise because of limited trucking capacity, mainly resulting from driver shortages, manufacturers must ensure that all packages feature more products than air (box cube minus product cube) before they enter pallets or trucks. After all, only 65% of trucks and pallets – if filled with manufacturers’ packages – are utilised, as 35% of each box is composed of unfilled space.
To improve that figure and increase profits in the e-commerce era, a partnership with a packaging solutions provider that is focused on manufacturers’ unique needs and will test packages until correct sizes are determined is more important now than ever before.
Ben Nguku is the marketing manager at global protective packaging solutions provider, Sealed Air