Boxed In?

Jan 01, 2006 10:30 PM  By

Getting a detail right, as opposed to almost right, can make all the difference for multichannel merchants. Picking the right shipping package is one of those details. A case in point: Would Netflix be mailing out a million DVDs a day without those reversible red envelopes?

In one respect, however, the folks at Netflix had it easy. They needed to make only one good decision. Most remote sellers need to keep making hundreds of good packaging decisions again and again, year in and year out.

Consider Hammacher Schlemmer, the Niles, IL-based gift company. Its 7-Foot Upside-Down Pre-Lit Christmas Tree is clearly going to require different packaging than its Remote Control Golf Ball. But for items closer to one another in size, the answer is often not that clear-cut.

Don Rogers, vice president of operations for Hammacher Schlemmer in Cincinnati, says that his team tries to keep a range of different-size boxes on hand to match the wide range of product sizes. How close should those sizes be to the size of the product? Very close. Rogers says the dimensional weighting that most major carriers use to determine shipping fees gives merchants an incentive to keep package size down.

But it’s not feasible to offer the ideal-size box for every product you ship. “You don’t want to have the inventory on 50 different box sizes,” says Rogers. “It’s not only unwieldy, it’s also not cost-effective. The more you can concentrate your purchases in fewer box sizes, the better prices that you get on the purchases that you make.”

Then, too, an overabundance of size choices adds complexity to the packing operation. Rogers says that before Hammacher Schlemmer automated its packing system, getting packers to choose the right box “was the most difficult thing to train them to do.”

And at some companies, reducing the time it takes packers to select a box is more important than ensuring that they select the optimal box for the package. “It’s crazy,” says the fulfillment director at a major apparel merchant. “What our management gets graded on, the numbers that they watch every month, are the variable labor costs. They don’t really look too much at consumable costs.”

He thinks it’s an expensive mistake. The labor costs of packing an order at his company, he says, are maybe $0.14. “The box to put that in costs anywhere from $0.25 to $0.75. We’ll just bend over backward to get a 10% reduction in labor, but we should be looking at the consumables side.”

PRICE SWINGS

Roger Cunningham, a partner at DCB & Co., a supply chain consulting firm based in Marietta, GA, says that concern over packing material costs varies wildly and moves along with the price of cardboard. Because cardboard is a commodity, its price jumps around over time, and often in unpredictable cycles. “Sometimes boxes will be in the $0.50 range and everybody’s happy,” Cunningham says, “and other times they’ll be up in the $1.20 range — inside the same year — and people are very unhappy, and decisions change.”

There does not seem to be an easy way to hedge those costs. For shipping from distribution centers to stores, Cunningham suggests that firms recycle a third of their vendor cartons, and more when corrugate prices are rising. But for home deliveries, a reuse operation is usually not possible. “If you used a vendor’s carton, the customer may return it sight unseen or refuse it at the door,” because the buyer won’t recognize the company.

Most firms keep only two weeks’ inventory, Cunningham says, and get their boxes from a local supplier who provides boxes on a just-in-time basis. But buying ahead of time generally doesn’t pay: “To store that much corrugated and take up that much space gets pretty expensive, so you may face a losing equation to try to prebuy unless you have an empty warehouse and definitely know an increase is coming.”

While buying some kind of wood-products future might seem like an option to hedge the risk, the only timber-price-related futures contract is a contract on 2×4 board futures traded on the Chicago Mercantile Exchange. One possible option is to do what your company’s catalog paper buyer may already be doing: sign a 12-month contract with your supplier that includes limits on price swings.

YOUR SILO OR MINE?

Of course, the cost factor may not be a firm’s primary concern. Cunningham estimates that marketing calls the shots on packaging at roughly 20% of firms. “Marketing is either completely absent or totally dominant,” he says. “There’s no in-between. It’s not a partnership. It’s either laissez-faire or a monarchy.”

Crate & Barrel, he says, is one firm where shipment packaging is driven by marketing: Everything goes out the door in the Northbrook, IL-based home furnishing company’s distinctive black-and-white box. “It says Crate & Barrel on it; it’s like an advertisement coming in the door,” Cunningham says.

But Patagonia’s case is probably more typical. For the manufacturer/marketer of outdoor gear, the branding of packaging isn’t an issue. “We do not have any logos or any other information on our packaging, from a marketing perspective or an image perspective, mainly because it lends itself toward a potential theft in the supply chain,” says Dave Abeloe, director of Patagonia’s Reno, NV, distribution center.

The eco-friendly merchant does make sure that its boxes are made of recycled materials, however. “We want to use packaging materials that have the highest amount of recycled content that we can find,” Abeloe says.

One fulfillment director confesses that decision-making tends to be passed back and forth between marketing and operations. “We don’t really have a good process for that,” he says. “It’s kind of hit or miss.”

Mostly miss, apparently — the director says that often operations will be using a certain kind of box until merchandising has the idea that they should use another. “And so, for about three months we use that box until someone catches on that, hey, this is costing us twice as much as it used to, so then we go back.” Neither side has all the answers. Operations likes polybags because they are cheaper. Merchandising likes boxes because customers are less likely to complain about products arriving wrinkled. But rather than work out an agreement, the divisions continue the tug of war.

This is probably not an isolated problem: The silo effect is common in many industries. The tendency for noncommunicative departments to act in ways that benefit the company from their perspective rather than benefit the company as a whole, the silo effect is a subject that keeps many management consultants busy year after year. Although the problem seems endemic to large, decentralized organizations, the solutions the gurus typically recommend include forming cross-functional teams and hammering out clear agreements about who gets to make what decision.

THINKING OUTSIDE THE BOX

At Hammacher Schlemmer, Rogers says, operations and marketing work together when it comes to boxes. Operations takes care of the package itself, but marketing decides what should go on the outside. “Within reason, they own the outside of the box,” he says.

The employee who purchases all of Hammacher’s packaging is also responsible for all of its transportation, Rogers says. “Part of her job is to look at the early, early versions of what merchants think is going to be in the book, primarily for transportation reasons. But while she’s doing that, she will become aware of things that are going to require some kind of packaging beyond what we would normally have.”

Usually, Rogers says, his team will then look for a box to accommodate the new product. Most of the time, they find one. But occasionally there will be a product that will be prohibitively expensive to package or prepare for packaging. “That’s going to get raised as an issue, because we do have to look at profitability by item,” he says. “When the costs get excessive, great product or not, if you’re not going to make any money, it doesn’t make any sense to run it.”

But while careful study may be the best way to avoid expensive snafus, the ham-handed should take heart in the fact that mistakes sometimes reveal the biggest opportunities. After all, distribution centers might still be shipping in wood or metal boxes if it weren’t for a mistake made by a careless pressman in a shop in Brooklyn in the late 1800s. Set up improperly for a run of paper seed bags, a ruling machine sliced through some cardboard instead of folding it, a mess that somehow gave printer Robert Gair the idea of cutting a cardboard box out of a single sheet.


Bennett Voyles is a business and financial writer based in New York.