Lean Logistics: Key Factors to a Returnable Packaging System

A common knee jerk reaction to a container shortage is to buy more containers or return more frequently. Buying additional containers should be the last step, only after thoroughly evaluating all known factors as well as identifying the unknowns. If this analysis\investigation is not completed, you will perpetually experience shortages, no matter how many additional containers are purchased, because the root problem wasn’t identified.

Four key factors of a returnable packaging system include:

  1. Daily Usage
  2. QPC (parts per container)
  3. Inventories
  4. Return Frequency

The first two items that should immediately come into question when experiencing container shortages are: 1) daily usage (production rate) and 2) QPC. In most cases if not all, an increase in daily usage will warrant additional container purchase - if all other constants remain the same. Cost analysis will be necessary if the daily usage increase is temporary vs. permanent to determine ROI of additional containers.

Ordering parts less than the agreed upon QPC will have a negative impact on container availability by increasing container usage. The shortage can be calculated based on reduction in QPC vs. the set QPC. For example, if QPC is set at 10 but part orders come in packaged with QPC of 5, this results in 50% less containers in the system. To prevent this from happening, minimum order quantity should be set at QPC level to avoid QPC discrepancy. Companies that don’t have a Packaging Agreement Form, Unit Load Data Sheet, or PFEP will have the greatest challenge in maintaining container availability - but also when calculating returns to the supplier. (QPC variation is a bigger issue than just returns, but that is a whole other blog post.)

My reason for writing this blog post took place recently, and it pertains to numbers 3 and 4 on the list of key items. Recently we experienced a “container shortage” for a supplier. Our knee jerk reaction was to blame lack of containers in the system. Upon further analysis this was not the case. It was discovered that there was 3 weeks of inventory on hand. Considering the initial container purchase was set at 1 week, this was 2 weeks more then what the system allowed. Inventory levels, whether on hand or at the supplier, must be maintained at the agreed upon purchase quantity calculation or container “shortages” will occur.

It was suggested by the ordering specialist to return containers more frequently - twice per week instead of once per week. Though this change might temporarily elevate the shortage, the root cause has not been addressed because the inventory maximum quantity level has not been agreed upon (if one week is no longer valid). Unless this quantity is set\identified, the right quantity of returnable containers will not be known. If, a month from now, inventory levels are at four or five weeks, does this mean we return every other day or buy additional containers? The point is that we don’t know until we define our perimeters and are disciplined enough to stick to them.

The illustration below shows areas of returnable containers at one time in the system. To maintain container availability at all times, there can’t be any variation in system. When there are variations we need to understand why, instead of “throwing more containers” or adding additional returns into the problem.

Written by Tola Yim, Lean Packaging Solutions Manager at LeanCor

Posted by LeanCor Supply Chain Group

LeanCor Supply Chain Group is a trusted supply chain partner that specializes in lean principles to deliver operational improvement. LeanCor’s three integrated divisions – LeanCor Training and Education, LeanCor Consulting, and LeanCor Logistics – help organizations eliminate waste, drive down costs, and build a culture of continuous improvement.

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