Packaging Effects On Logistics Activities

As a rule of thumb, one could assume that practical full capacity is 80-85 percent of theoretical

capacity. The capacity is mainly measured in terms of time availability but it could

also be measured by space provided. Instead of cost per time unit that would imply cost

per cubic meter.

2. Estimating the unit times of activities.

Determine the time it takes to complete one unit of each activity. One should not measure

the time spent on doing the activity, the measurement should be on completing the activity.

3. Deriving cost driver rates.

By calculating the cost per time unit and unit time, one gets the cost driver rate. These rates

could then be applied in real time to assign costs to individual customers as transactions

occur.

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Frame of Reference

4. Analyzing and reporting costs.

The time driven ABC reveals both the cost of a business’s activity and the time spent carrying

them out. The analysis will reveal if there is any unused capacity somewhere and which

activities are most costly.

5. Updating the model.

The ABC model could easily be updated because of its simplicity, all that needs is to add

activities or estimate new times for them. There are two factors that cause changes in the

rates. First, price variations of resources supplied and the second is shifts in efficiency of

the activity.

It is important that the cost estimates are based on actual order characteristics and not on

how and where employees spend their time. The time driven ABC system is not only useful

when tracking down costs it could also be a useful tool when dealing with future customers.

Activity based costing is today the best tool for attaching cost to activities. Knowing

what the cost is for a certain customer order allows an easier decision for what service

level that is justified (Goldsby & Martichencko, 2005). A drawback that often occurs is

when managers consider the volume of sales to be equal with profitability. This is however

seldom the case since larger customers often requires special services (Goldsby &

Martichenko, 2005).

 

2.3 Packaging

 

Packaging is an important factor in logistics and its role and purpose is widely discussed in

the literature (e.g. Coyle et al., 2003; Bowersox & Closs, 1996; Lambert, Stock & Ellram,

1998). The purpose of packaging can be summarized into four main areas; information

displays, improve materials handling, provide customer service and secure quality (Coyle et

al., 2003). In Table 2-1, different packaging consequences are presented that create requirements

for trade-offs between the logistic activities; materials handling, customer service,

communication and transportation (Lambert et al., 1998). From this, one can see that

packaging is closely related to the logistic activities.

Table 2-1 Packaging trade-offs with other logistical activities

Packaging consequences Trade-offs

Increased package information Decreases order filling times, decreases

tracking of lost shipments

Increased package protection Decreases damage in transport, increases

weight, decreased cube utilization from larger

dimensions, increases product value

Increased standardization Decreases materials handling, decreases customer

customization

Source: Lambert et al., (1998)

As presented by Lambert et al. (1998), the issue is to improve the advantages of the chosen

packaging solution while minimizing the disadvantages. This emphasizes the importance of

understanding the effects that packaging has on the logistical activities (materials handling,

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Frame of Reference

customer service and transportation) and their internal interrelation in order to find the

right balance between them. An example of a trade-off that requires attention could be if a

certain packaging solution could improve product protection while the increased size and

weight of the product decreases transportation ability.

2.4 Transportation

 

Another logistical activity that is greatly affected by packaging is transportations since

packaging impacts the volume of the product. Transportation provides place utility to a

product and in some aspects also time utility (Lambert et al., 1998). Transportation in this

sense concerns the movement of products from the focal firm to the customer. By delivering

products on time and without damage, transportation also contributes to customer service.

Economical factors are important in transportation. There are several factors that influence

cost for transportation; density, stowability, ease in handling and liability (Lambert

et al., 1998). Bowersox and Closs (1996) add three factors and present them in their relative

importance for transportation economics.

• Distance Influence the variable cost for labour and fuel.

• Volume Here, scale of economies is important. It is important to

transport as much goods as possible to spread cost over a

larger volume to lower transportation expenses.

• Density The weight of the product could be a limitation for high

density products. However, volume is often the limitation

rather than density.

• Stowability In this case, the physical dimensions is importance for space

utilization. Odd sizes and shapes are difficult to load and often

waste space in the transportation vehicle.

• Handling The ability to use standard equipment to load and unload the

transportation vehicle is affected by how products are

packed together.

• Liability The requirement for extra care in transportation that is

needed for security and quality.

• Market factors The importance to balance the transportation back after the

goods have been delivered so that transportation is not

wasted by an empty transportation vehicle.

As said, these factors influence the cost for transportation from a shipper’s perspective and

are important to consider. From a packaging perspective, the most important factors are

volume, stowability and handling because these factors are highly influenced by a product’s

physical characteristics.

 

2.5 Customer Service

 

Customer service is a logistical activity that is also affected by packaging. Customer service

has various meaning throughout an organization and it is important to consider these aspects.

Customer service can be viewed as something that is provided by the firm to the

buyer purchasing the product. From a marketing perspective, it exists three levels of prod-

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Frame of Reference

uct; the core product, the tangible product and the augmented product (Kotler, Wong,

Saunders & Armstrong, 2005). The augmented product provides secondary benefits to the

purchased product and logistical services are one of these features that add value (Coyle et

al., 2003). Services that are offered in addition to the basic service level, often to key customers,

are known as value-added services (Bowersox and Closs 1996). This value adding

services are often results of unique demand from customers that is developed in collaboration

between the two parties in order to increase efficiency and effectiveness in for example

quality and customer convenience (Saghir, 2004; Bowersox & Closs, 1996). Value-adding

services could be found in a broad span of activities such as customized packaging, unique

product mix to support manufacturing and customized bulk transport.

Packaging is an important factor in providing customer service (Coyle et al., 2003; Saghir,

2004; Bowersox and Closs, 1996). For example, a packaging solution might be good for the

firm but the customer might not be able to handle the packages at its premises and then

the customer service is lost (Lockamy III, 1995). This adds to the interrelations between

packaging and logistical activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 Analysis

The previous chapter clarified the current outbound logistic process at ROL and the activities

included in the different steps of the process. The next objective is to analyse how the

different packaging alternatives would affect the current outbound logistics process from

the different perspectives.

The analysis chapter will start with an evaluation of the current situation at ROL from a

lean perspective. This will include the identification of existing wastes throughout the outbound

logistics process. Following, an important part of the analysis is to establish what

packaging material that would be most appropriate since the chosen packaging material

greatly affects the activities performed in the packaging process. Continuing, a change in

the packaging configuration would result in changes in the activities and this alteration in

activities is discussed and visualized. After studying the internal impact of a change in packaging,

it is important to also consider the external aspects, especially through customer service.

Thereafter, the customer order information will be analysed in terms of its impact on

the feasibility of the proposed packaging alternatives. An important aspect to consider in a

decision making process is the cost. This is done through the use and discussion around

the result of the ABC-analysis. Finally, a summary of all the different perspectives will be

presented.

 

3.1 The Current Situation

 

The existing procedure for the outbound logistics process at ROL could not be seen as

lean. This is because the existence of several wastes throughout the processes. In the following

section, these wastes will be further discussed in order to present suitable areas of

improvement.

From the gathered primary data, especially the observations, one could determine that

there are several of the seven wastes described by Hines and Rich (1997) represented at

ROL’s premises. However it is important to recognize that the process from powder coating

to storing is Lean since no unnecessary activities were identified during that process. It

is important that after discovering a waste to investigate it even further and explore the underlying

causes of its existence. Another way of expressing it would be to use Monden’s

(1993) three descriptions of operations, non-value adding, necessary but non-value adding

and value adding. The two most obvious wastes are unnecessary motions and transports.

The waste of unnecessary transports and unnecessary motion occurs during the orderpicking

process where pallets are transported from the pick-location to the order-picking

area, where pallets are collected and thereafter transported back to the pick-location (activity

13-15 in Figure 4-4). When considering Monden’s (1993) three descriptions of operations,

it is possible to classify the transportation activity as necessary but non-value adding.

The activity is non-value adding since it does not add any value to the product. However, it

is necessary in the current procedure of working because shelves cannot be picked directly

at the pick-location and needs to be transported to the order-picking area. The waste of

unnecessary motion arises when the pallet is lifted out of the pick-location. The reason for

this procedure is that shelves are standing up in the pallet and it is impossible to remove

shelves from the pallet unless the pallet is lifted out of the pick-location. These two activities/

wastes could be eliminated if shelves could be picked directly from the pick-location

without lifting out the pallet. Therefore, the two wastes provide potential for improvement

in the aspiration for a leaner process.

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Analysis

 

3.2 Packaging Material

 

During the study, different materials and procedures for the two packaging alternatives

have been discussed and suggested from different persons within the firm. As previously

described (Table 4-1), three alternative materials are feasible for packaging of shelves; corrugated

cardboard box, plastic wrapping and plastic strapping. In order to discuss what will

happen to the activities in the outbound logistics process, it is important to first establish

the most appropriate packaging material for each packaging alternative. Furthermore, it is

important to acknowledge that this is only concerning the difference between the packaging

materials and its impact on the existing activities and does not consider changes in the

packaging process, which will be considered later on in this chapter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4 Conclusion

 

The results from the analysis showed that the packaging method clearly affects logistical activities

at ROL International in several different ways. Materials handling at ROL are affected

through the different activities that are required to complete each one of the three

packaging alternatives and the handling at the warehouse. Transportation is affected in

terms of the double stacking ability of pallets and a possible volume increase. The customer

service is mainly affected by packaging through the installation process and the quality of

the delivered products.

It is concluded when considering the different perspectives that a change in packaging

method would be unsuitable for ROL in the present situation. The two suggested alternatives

provide benefits in form of waste reduction and a more efficient order-picking process.

However, the disadvantages presented in the analysis demonstrate that both alternatives

are unsuitable for implementation. The results from the ABC-models clearly states

that both alternatives will double the cost and time consumed during the internal materials

handling process.

Given that quality levels are currently at a satisfactory level, one could question if an alternative

packaging method that focuses on enhancing quality is a strong aspect for justifying

higher cost for packaging. Another aspect that could have justified an increase in cost and

time is enhanced customer service. However, since customer service appears to be at a satisfactory

level, a change from the current packaging method would not enhance the perceived

value for ROL’s customers.

The results from the order statistics revealed that shelves delivered in high volumes are unsuitable

for alternative packaging since packaging and handling will just result in unnecessary

activities. Moreover, the installation process will also be affected negatively due to difficulties

when unpacking shelves, especially for large orders. However, it can be concluded

that smaller volumes of shelves that are delivered in high frequency are more suitable for

an alternative packaging method due to their impact on the frequency in which the activities

are performed.

The study also concludes that neither the current situation nor the two suggested alternatives

are lean throughout the whole outbound logistics process. It is therefore important

that the work towards the reduction of wastes continue within ROL in order to make the

studied process leaner. This is especially true in the warehouse, where the analysis revealed

that the order-picking process is currently inefficient. However, neither of the two alternatives

is the right solution towards a more efficient outbound logistics process.