E-commerce Profitability: is your daily carton selection process up to the challenge?

From personal experience I know most cartons used for shipment of small orders are certainly not optimal. I regularly receive products which take up less than 50% of the volume space available in the carton and in the worst cases 70-80% of the shipment carton is empty space or - even worse - filler material like plastic airbags. Some asking around reveals these are not a few unfortunate incidents but happens many times to many people.
Shipping companies are aware of this dilemma and are consistently working on the issue. Improvements are made all the time, e.g. shipping clothing in bags, tight folding of cartons around items e.g. shipments of books, using envelopes to ship small items and initiatives like Unilever's LOOP improve matters, but a lot remains to be done.

ORTEC Customer Experience

We investigated, in detail, five very different product categories (skin care / perfumes, spare parts industrial machines, health care products, textile and shoes) to find out if improving the daily carton selection process has a measurable impact on the amount of air and/or filler material shipped and whether costs could go down.
In total we investigated over 250.000 shipped cartons.

Preparation of analysis in 8 steps

1. Collect order data (number of items ordered, item master data like length, width, height and weight)
2. Collect shipment data (which order was shipped in which cartons, actual realizations)
3. Collect carton assortments (length, width, height and costs, different per product category)
4. Analyze in detail the process flow (e.g. use of trolley to pick items for multiple cartons in one go, tote picking, etc.) to understand what was driving the costs
5. Collect basic data like costs of labor, filler material, cartons and transportation services.
6. Collect statistics on time needed for picking, packing, repacking, etc.
7. As well as the number of executed repacks done
8. We took the carton assortment per product as a given

Analysis with ORTEC’s carton optimization software

For the analyses we used ORTEC proprietary technology for 3d modelling and optimization of space utilization. This technology was initially developed in 1992 and has been both in use and undergone ongoing development since then. Basically, the solution resembles a 3d version of Tetris, a popular game from the eighties.

Today it is in use at many of the large global CPG companies (like Coca-Cola, Henkel, Kraft Heinz, etc).

Advanced Analytics with ORTEC

So how did we go about it?

Firstly, we processed all the data based on the cartons used during the actual picking, packing and shipping of orders. We aimed to find out if the rules, as explained to us, are honored in the warehouse packing processes.

The main two conclusions from this part of the analysis were:

1. The data is consistent and
2. Some orders were sent in bulging packages

Although shipments were not allowed if the products did not fit well enough in theory, still some bulging of the packages was accepted in practice in the warehouse and this was not desired. The orders which were shipped in bulging cartons were removed from the analysis.

Secondly, we processed the data so that now every order had the full carton assortment available for that category (note: these product categories where not mixed - the orders per product category were all per customer). As for costs, the cartons were assigned a flat fee transportation cost of 4 euros (the result is that shipping one larger carton is cheaper than shipping two smaller ones although the total amount of air shipped could still be larger). We know smaller amounts of air can be shipped however the result would be that handling and transportation costs go up - which is unacceptable.

For labor costs we calculated with the legal minimum hour rate. For consumable packaging material we used purchasing costs of those materials. And lastly for time needed for stuffing filler material or to repack, we measured times needed in the warehouse based on the actual operations.

Comparison of these two scenarios and looking at the differences allows us to quantify the savings

• Fewer cartons translates into less rounds through the warehouse so this reduces labor cost.
• Also, fewer cartons mean less transportation costs (typically charged at a per carton rate).
• Furthermore, fewer and smaller cartons means less costs for cartons.
• As the products fit better to the cartons the amount of empty space to stuff with filler material goes down - this saves filler material (a small saving however this is also important in improving the CO2 footprint) and it again saves labor time needed to do the stuffing (a large saving, and better for employee morale - stuffing the air bags is not very uplifting work).
• A further reduction in labor costs happens because the number of repacks needed goes down as well (reducing either repacking of a too small or for a too large carton).
• Minimal Change Management is needed. The only thing people might notice are fewer repacks, less stuffing of filler material, no more bulging cartons and fewer kilometers walked in a day (as well as more picks during sngle pick rounds).

Benefits of improved carton utilization

Choosing the shipping cartons right the first time saves labor costs, transportation costs and consumables costs. The savings per carton (over the 250.000 plus cartons analyzed) range from 21 to 83 cents per carton. Given that fulfillment operations typically charge a few euros per item (for receiving, stocking, picking and shipping) these are interesting numbers with a measurable impact on profitability of the fulfillment operation. How the spoils are divided by the fulfillment party and the manufacturer depends on the contracts they have agreed to. We did not investigate this as part of this analysis.

Back to our initial question: Is your daily carton selection process up to the challenge?

Please reach out to me and share your experiences. Likewise, if you want to have an in-depth analysis of your operation - contact me. I'd love to work on your data.
In a next blog I will share our experience on carton assortment selection. Here we move from the operational selection of cartons to the tactical selection of carton assortments. This additional investigation and analysis held some nice surprises.