Manufacturers in North America have emerged from the crisis with a renewed appreciation for the cost-saving potential of packaging, with more consideration at the part-design phase
Automotive packaging technology tends to evolve at the pace of vehicle programmes. Carmakers and suppliers may feel the pressure to improve their packaging all the time–as logistics costs climb, quality demands become more stringent and environmental performance becomes more important– but their real opportunities to react to that pressure only arise periodically, as new model programmes bring with them the need to design and procure new packaging options. Otherwise, the assets used remain fairly constant.
With that in mind, the recent recession and the scale of the downturn in North America could be viewed as a double setback for packaging engineers, packaging providers and anyone keen to accelerate the adoption of new ideas about the way components are packed and shipped. Firstly, new programmes were delayed or cancelled, reducing the opportunity to invest in new techniques. Secondly, and perhaps more importantly, as production volumes plummeted, huge quantities of reusable packaging were removed from the supply chain and began piling up in the warehouses and back lots of carmakers, suppliers and logistics providers.
Even as volumes began to rise again after the recession and new vehicle programmes came back on stream, carmakers remained acutely cost sensitive and were motivated to do whatever they could to avoid spending money on unnecessary new packaging, says Camille Chism, a packaging engineer at Chrysler. Also, the glut of packaging stock still available made new investment less attractive.
“Just after the crisis volumes were still low so there was plenty of packaging stock available,” says Chism. “The first thing people do if they need more packaging is look in their container management system and see if there is something they already have that they can use.”
For packaging providers low production volumes, cash consciousness, and vast quantities of excess packaging meant one thing: lower demand.
“If each vehicle produced in North America uses around 2.5 standard bulk bins, the collapse in demand cut the need for bulk bins from 38m annual uses in 2007 to 22m in 2009,” says Drew Merrill, vice president of business development and strategic planning at container pooling supplier Caps, referring to the drop in vehicle production and its knock-on effects. “That resulted in a huge excess of packaging in the system, which effectively masked many of the inefficiencies in the supply chain that typically foster the need for pooling.”
On top of that, he notes that the excess packaging also produced a large secondary market for low-cost, used containers.
Dan Roovers, vice president of automotive sales at packaging provider Orbis, describes a similar situation. Orbis permanently closed one plant in North America and mothballed another during the recession, as sales activity “dropped off the table overnight”.
The crisis was painful, even fatal, for some packaging providers, but could be a blessing in disguise, as Carl Schini, international transportation and packaging manager at Mitsubishi North America, explains: “As the crisis hit, we suddenly had to deal with a lot of excess packaging and people started to realise just how much packaging we have. It was like a light bulb going on as management recognised that packaging is an important component in the system, responsible for a lot of cost.”
A big push to change the way packaging was treated came from Mitsubishi’s suppliers, says Schini. “Our suppliers were being forced to store all this packaging, and that was costing them money, particularly where you have dunnage that is susceptible to the elements, so you can’t just pile up your unused packaging outside.”
Working with its suppliers and 3PL, Mitsubishi came up with a strategy to deal with its excess packaging: reusing it where they could, recycling where possible. At the same time, the company began to think about ways it could change its use of packaging over the long term. “The whole exercise triggered our management to go back and look at what we do with packaging. In the past, packaging was ordered based on peak volume, which means a lot of money was invested and much of the time those assets weren’t managed or respected the way they should have been,” says Schini.
Now, he says, improved awareness of the importance of packaging is changing Mitsubishi’s entire approach. “Awareness is the key,” he says. “You need to get the packaging engineer involved at the beginning of the part design process. They won’t determine the final outcome of the part, but you need their input into design and cost considerations, so you can look at the total picture.”
That total picture must balance numerous potentially competing demands on the packaging itself, Schini notes. “You can design a packaging solution that is very efficient from a transport perspective, but you lose all that advantage if it doesn’t work with your line-side furniture.”
Mitsubishi has also ramped up its supplier development efforts around packaging. “Some suppliers of electronic components, for example, would send us a lot of single use cartons with polystyrene dunnage and plastic bags,” explains Schini. “So we’ve been working with them to find more environmentally friendly, reusable solutions.”
There is little doubt that there is plenty of room for improved performance across the packaging sector. Recent research by the Automotive Industry Action Group (AIAG) asked automotive companies if their current returnable container solutions created problems. The answer was a resounding ‘yes’, with more than 75% of respondents indicating some kind of issue in their packaging supply chains. The most common problems indicated were operational downtime or the need for expedited transport caused by a lack of containers or dunnage.
Beyond the knock-on effects caused by packaging, it is very costly just to keep reusable packing supply chains operating. AIAG estimates that more than 7% of automotive companies’ packaging budgets are absorbed by the cost of replacing containers that go missing in the supply chain, a figure equivalent to more than $750m per year in North America.
AIAG has high hopes that technology may help to reduce these costs. With its association counterparts Odette in Europe and JAMA in Japan, it has announced a new guideline for the use of radio-frequency identification (RFID) for the handling and tracking of any size returnable container.
In an effort to keep implementation costs low, the new guideline requires only a single passive RFID tag and has been designed to comply with all the relevant ISO standards to ensure worldwide cross-border and cross-industry interoperability and interchangeability. Pilot schemes in Europe have shown that the new RFID standard can be integrated into a company’s existing supply chain at a cost that allows rapid return on investment. Among the benefits of improved asset tracking cited by AIAG are reduced container replacement costs, increased shipment visibility, improved asset availability and more effective production scheduling.
The benefits of better packaging don’t just come from hi-tech tags and tracking systems, however, as Dan Roovers at Orbis points out. Both the company’s mothballed plants are now back in production to meet rapidly rising demand, and he says there is considerable interest in new products designed to help OEMs and suppliers save money by packing more components into each case, and more cases into each truck.
“One new product that is seeing a lot of use in the automotive space is a new container top cap that allows three types of products to stack together compatibly: the 48 by 45 steel racks, 48 by 45 collapsible bulk containers as well as the same size pallet sets of handheld totes,” he says. “Importantly, one top cap design copes with the racks of many different OEMs.”
Orbis is also offering a more compact bulk container, which uses stronger materials and clever moulding techniques to deliver smaller overall dimensions while keeping interior space the same. “With a traditional 48 by 45 inch bulk container, you fit 78 full containers in a 53ft trailer. When you collapse them for the return journey, you can fit 208 into a trailer. The new container lets you fit 84 full containers and 252 collapsed into a trailer,” says Roovers, adding that the improvement in return logistics cost equates to a 21% efficiency improvement.
The AIAG has also published guidelines on a new pallet standard that it hopes will gain international acceptance. A working group from across the industry is currently developing and implementing the standard.
Merrill says that the post-recession environment has signalled substantial interest in his company’s pooling and container management offerings. “Right now, idle assets are drying up, while various programme changeovers and new models are coming on stream,” he says. “At the same time, companies are still extremely cautious about capital investment and reluctant to re-hire people for non-core roles like container management. As a result, we are seeing more interest than at any other time in the past five years.”
Container pooling is most efficient where customers are operating in reasonable proximity to each other and making use of similar trade lanes. Another effect of the recession has been substantial structural changes in material flows in North America. In particular, says Merrill, large part production volumes have shifted to Mexico, causing Caps to make several changes to its offerings in response. It has augmented its existing US border facilities with new capabilities inside Mexico, designed to support both in-country transport and export to the US.
Caps has also been targeting new customers with the aim of balancing container utilisation to and from Mexico. “With so much flowing out of Mexico we have extra capacity in the southbound direction,” says Merrill, “so we’ve been working hard to target customers in the US and Canada with materials going into Mexico.”
Pooling won’t be the solution for all carmakers, however. At Mitsubishi, Schini says that operational barriers stand in the way of container pooling.
“We have done several studies looking into pooling, but it just wasn’t cost effective for us. Because of our schedule and because of the limited size of some of our line-side furniture, we wouldn’t be able to use all the standard container sizes in the pool.”
Whatever options they select for new vehicle programmes, it is clear that North American carmakers have emerged from the recession determined to cut waste and expense. They are also more aware that packaging decisions have an important role to play in that process. For packaging providers that might herald a period of rapid market evolution. “Packaging ensures the quality of the part, its cube efficiency in transport and drives safety and ergonomics in production,” concludes Schini. “Packaging is not just a container, it’s part of the part.”
