Improving the Returnable Packaging Loop

The automotive industry has been a pioneer in the use of returnable packaging (such as totes, bulk-bins and racks) to move goods in its supply chain. OEMs as well as Tier 1 (and even Tier 2) suppliers discovered long ago that utilizing 1-way, expendable packaging to move parts, components and even finished goods across their supply chain was not only wasteful from a financial perspective, but also from a “green” perspective. It also created production-line problems such as waste and potential contamination that needed to be removed on a constant basis in a very manual and expensive process. Add to these problems the fact that expendable container integrity was usually inadequate given the rough environments in which these goods moved around. As a result of these “issues”; the industry started replacing 1-way, expendable packaging with reusable, returnable packaging. The benefits were very compelling: predictability of expenditure, drastic reduction of waste material, cleaner working environments, better protection for the goods being shipped, and many other. But at the end of the day, the real attraction was lowering the total cost of operation. Why buy a different packaging box for every shipment when you could just buy one reusable packaging box and use it over and over, for many years to come?

As companies dove into this way of operation, they quickly realized that although the benefits were there to be had, it took a lot of management to ensure that the operation ran smoothly. New issues surfaced when companies went to a returnable packaging strategy: shrinkage of the returnable container fleet, hording of returnable packaging assets by business partners, shipments of parts and goods using the wrong returnable containers, “borrowing”; of returnable container assets bycompetitors, miscalculation of the returnable container fleet sizes, etc.

The root cause of many of these problems was the fact that even though companies implemented a returnable packaging strategy from the operational perspective, they neglected to put in place the proper controls and management tools required to ensure that there was proper visibility and accountability for the usage and operation of the returnable packaging assets. They failed to realize that it was essential to provide a collaborative environment in which business partners (suppliers, customers and 3rd party logistics companies) could participate in the design, planning and operation of the returnable container loops.

Best-in- class companies have been adopting, during the last few years, a combination of improved processes and technologies to ensure the proper operation of these returnable container loops. In many instances, companies are complementing their internal packaging groups with 3rd party packaging (3PP) service companies that specialize in providing not only design and procurement services for returnable packaging, but also outsourced operations that help companies keep the management and handling of these returnable containers outside the usually-expensive plant floor.

Another important aspect that has been implemented by these best-in-class companies is the use of partner-wide (business network) visibility software tools that provide effective and seamless collaboration between the business partners (suppliers, customers and 3PLs). These technologies bring business partners closer together and provide supply-chain wide visibility as well as accountability for the use (or misuse) of the returnable assets. Simple things such as knowing how many returnable containers suppliers have, what is available to ship and determining if there are enough containers in the loop in order to prevent production-line shut-down are almost impossible to asses without the proper controls and technologies in place. In fact, the ability to prevent potential risky situations (such as plant shutdown) due to the lack of returnable containers at a mission-critical supplier, by creating an early warning signaling system, is usually enough of a reason to implement some of these best-practices.

From a productivity and efficiency perspective, it is extremely important that all business partners can easily understand the state and availability of these returnable containers, while also putting the proper controls, KPIs and reports in place to ensure that no one abuses the system. For instance, in many operations, suppliers are in charge of “requesting”; returnable packaging from the plant. The normal tendency for the supplier is to “over-order”; returnable packaging because they want to ensure that they will not miss a shipment due to lack of returnable containers. However, from a supplier network perspective, all this does is to force a larger-than- needed fleet of returnable containers. Providing and enforcing the right controls in place (max number of containers allowed per type, per supplier, for instance) ensures that the plant only has to acquire the necessary number of returnable containers.

Last but not least, it is also important to have properly approved “back-up”; expendable packaging in case things go awry. As usual, one should strive for perfection, but be prepared for reality. No matter how well everything is designed, life happens as we all know and not being prepared in case of an unexpected situation is the worst thing that can happen.

In specific, the returnable packaging strategies used by best-in- class companies have the following common characteristics:

  • Well Thought-Out Conversion of 1-way, expendable packaging to Returnable Packaging
  • Early Involvement of Supply Chain Partners (suppliers, customer and 3PLs) in Returnable Packaging Operation
  • Evaluation of Engaging 3rd Party Packaging Service Providers (3PPs) in the Operations and Management Process
  • Design and Implementation of Operational Controls and KPIs
  • Implementation of Appropriate Technology to Support Controls and Manage Operations
  • Definition of Approved Back-Up 1-Way, Expendable Packaging.

As with most processes, up-front design of the returnable packaging loop mitigates the risk of poor assets utilization. This is paramount for the successful implementation of a returnable packaging strategy.

For more information, please contact us at to understand how LoopManager can help you achieve success in managing your returnable assets.