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This is to certify that the

thesis entitled

A STUDY OF THE EFFECTS OF PACKAGE
SIMPLIFICATION ON A TOTAL
CORPORATE SYSTEM
presentedby

Donald Herman Shervey

has been accepted towards fulfillment
of the requirements for

 

 

 

M.S. . PACKAGING
degreein
a
James W. Go , .D.
V?

Major p fessor

June 1985

 

0-7639

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A STUDY OF THE EFFECT OF PACKAGE
SIMPLIFICATION ON A TOTAL
CORPORATE SYSTEM

By

Donald Herman Shervey

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE

School of Packaging

1985

ABSTRACT

A STUDY OF THE EFFECTS OF PACKAGE
SIMPLIFICATION ON A TOTAL
CORPORATE SYSTEM

By

Donald Herman Shervey

A major corporation stocked a wide variety of corrugated box
sizes for packaging service parts. A case study was conducted within
the company to determine the overall effects of simplification of the
boxes.

In the study, four similar sized boxes were combined into one.
The effects and costs related to this variety reduction on all
affected departments were documented and summarized. A history and
background of simplification in industry was presented along with an
overview of the firm studied.

The results of the study revealed that eighteen departments were
affected by the box changes. The effects on these departments were
both positive and negative. The major savings were due to decreased
box and storage costs. The major cost increases were due to increased
dunnage and distribution costs.

The final cost analysis revealed that combining the four boxes

resulted in a $2,430.20 cost savings for the company.

ACKNOWLEDGEMENTS

The author wishes to acknowledge the assistance and cooperation
of his thesis committee, Dr. James Goff, Dr. Hugh Lockhart and Mr. John
Moren. A special appreciation is extended to Dr. Goff for acting as
the author's major professor.

The author also wishes to acknowledge and express appreciation
to the many individuals at the company studied who took the time to
provide the information required for this study and to Carole Mullen
for her proofreading help.

A special acknowledgement and appreciation is extended to my
wife, Nanci, and to my friends, Douglas Bey and Mel Harder, whos

encouragement helped me to complete this project.

ii

TABLE OF CONTENTS

LIST OF TABLES ........................ v

LIST OF FIGURES ........................ vi
KEY TO NOMENCLATURE ...................... vii
Chapter Page

I. INTRODUCTION ..................... 1

Background .................... 1

Purpose of the Study ............... 6

Author's Intention ................ 6

II. STANDARDIZATION AND SIMPLIFICATION .......... 7

History ...................... 7

Advantages and Disadvantages ........... 13

III. OVERVIEW OF FIRM STUDIED ............... 15

General Background ................ 15

Service Parts Operation .............. l6

Purchased Material Cancellation .......... l9

IV. DESCRIPTION OF THE STUDY ............... 22

Basic Overview .................. 22

Limitations of the Study ............. 23

Data Collection .................. 24

Container Selection ................ 24

TABLE OF CONTENTS (Cont.)

Chapter
V. RESULTS OF THE STUDY .................
General ......................
Effects on Related Functions ...........
Total System Cost Analysis ............
Implementation Costs ...............
VI. DISCUSSION OF RESULTS ................
Cost Summary ...................
Estimated Actual Costs ..............
Actual Cost Sunmary ................
Potential Benefits ................
Department Cooperation ..............
Substitution Example ...............
VII. CONCLUSIONS OF THE STUDY ...............
VIII. RECOMMENDATIONS ...................
IX. AREAS FOR FURTHER STUDY ...............
BIBLIOGRAPHY .........................

iv

Page
3T
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31
45
53
57
57
57
58
59
60
6O
62
63
64
65

Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table

10
ll
12
l3
T4
15
l6
17

LIST OF TABLES

Physical Properties of the Study Boxes ......
Standard Cost and Usage of the Study Boxes . . . .
Packaging Uses of the Boxes ............
Packaged Items Storage Space Requirements .....
Void Filling Requirements .............
Dunnage Requirements ...............
Box Height Increases ...............
Dunnage Height Increases .............
Box Cost Summary .................
Dunnage Cost Summary ...............
Main Warehouse Storage Cost Summary ........
Parts Department Box Storage Cost Summary .....
Inventory Carrying Costs .............
Total System Cost Summary .............
Implementation Cost Summary ............
Estimated Actual Cost Analysis ..........

Final Cost Summary ................

26
28
29
41
42
43
44
44
46
47
47
48
51
54
56
59
6O

LIST OF FIGURES

Figure 1 Material Cancellation Approval Routing ...... Zl

vi

KEY TO NOMENCLATURE

lng. A three dimensional shipping container made of corrugated
fiberboard.

Cartgg. A folding box generally made from boxboard for merchandis-
ing consumer products, but never used as a shipping container.

Common Carrier. A commercial transportation medium used to move a

 

product from one destination to another.

Corrugated Fiberboard. A packaging material consisting of a

 

central fluted medium with flat sheets of paperboard glued on each face
forming a single-faced board.

Cube. A conventional method of expressing volume which represents
one cubic foot.

Dunnage. Blocking, lining or other interior cushioning material
used to fill excess space to prevent free movement of an object in a
package.

Full Overlap Container. (FOL) A corrugated fiberboard box with the

 

outer flaps completely overlapping.

Kraft Paper. A brown paper made entirely from wood pulp produced

 

by a modified sulphate pulping process used to manufacture corrugated
fiberboard, paper bags and other packaging materials.

Manufacturers Joint. The seam of a corrugated box where the two

 

edges of the box blank are joined by stitching, taping or gluing by
the box manufacturer.

Master Container. A large fiberboard box used to overpack a

 

multiple of individual boxes or containers for shipment.

Mullen Test. Also known as the bursting test, measures the ability

 

of a sheet to resist rupture when pressure is applied to one of its

sides, vii

Pallet. A low, portable platform used to facilitate handling,
storage and transportation of material as a unit.

Regular Slotted Container. (RSC) A corrugated fiberboard box with

 

the outer flaps meeting in the middle of the box.

viii

Chapter I

Introduction

Background

 

The world of American industry has become more complex and more
competitive with each passing day. Every year, thousands of new
products have been introduced into the market place and thousands more
have been changed to meet the ever changing needs and desires of the
consumer. The goal of all manufacturing industries has been to produce
a product to attract the consumer, sell that product and in so doing,
make a profit.

All too often, people involved in the various disciplines of
manufacturing organizations became so involved in their own special
areas, that other related areas were overlooked. The individual's
main goal tended to be one of solving the day to day problems. These
problems were the most visible part of the individual's work and it was
the solving of these problems and the efficiency with which they were
handled by which the individuals were judged, and in turn, by which
levels of responsibility and salaries were determined. Thus it was
that the overall goal of the organization, the profit, was often not
considered in decisions and actions by the individual.

The packaging function was no exception to this problem. Packaging
was affected by almost every other area within the organization and

crossed the total spectrum of corporate strategy.1 Due to its enormous

 

1Raphael Olsson, Package Production Management, 2nd ed. (Westport,
Connecticut: The AVI Pfiblishing Co. Inc., 1976), p. vii.

 

2
size and visibility, the function of packaging had often been referred

to as an industry in itself. This however was not the true case. The
packaging function provided a service to industry and to the economy
in general.2 That service was to provide a safe means for moving a
product to the customer at the least total cost to the organization.
In that way, the packaging function was helping to maximize profits
for the organization.

In its most fundamental state, packaging‘s function was to prevent
the environment from damaging a product and in some cases, to prevent
the product from damaging the environment. Basically, a package was
designed to protect a product during its storage and distribution.

This in turn reduced waste and ultimately reduced cost. A package was
also designed to contain a product, which provided a means for it to
be handled and also provided a means of identification for the product.

In l968, Friedman stated that people were often preoccupied with
loss and damage statistics and not enough concerned about the systems
contribution of packaging.3 This implied that packaging was involved
in much more than its fundamental protection function. Anthony agreed
with this in l984 when he stated that the only feasible way to manage
the packaging and material handling functions was to remain committed
to a systems approach that recognized the interrelatedness between

packaging, material handling and other corporate functions.4

 

2Arthor D. Little Inc., The Role of Packaging in the U.S. Economy
(Repgrt to - The American Foundation For Management Research, Inc.
l966 , p. 1.

3Walter F. Friedman, "The Role of Packaging in Physical
Distribution," Transportation and Distribution Management, pp. 34-39,
February l968.

4Sterling Anthony, JR, "Improve In-Plant Material Handling With
Standardized Packaging," Material Handling Engineering, pp. 83-86,
July 1984.

 

3

In an article written in 1978, John Phillips described what he
called the systems approach to package development. This theory
stated that five functional areas needed to be considered in a package
design. The five areas included marketing, package development, manu-
facturing, distribution and transit. The reasoning behind the
involvement of each of these areas was:

Marketing - concerned with unit size and shape for customer

acceptance and maximum sales.

Package Development - concerned with an economic size, design,

 

materials, protection and satisfying shipping
regulations.

Manufacturing - concerned with packaging equipment, size

 

restrictions and the labor time involved.

Distribution - (warehousing and stores) concerned with size

 

restrictions, maximum weights and storage space
dimensions.
Transit - (traffic) concerned with maximizing trailer loading
and vehicle weight restrictions.5
Basically, the systems approach looked at all considerations before
the development or redesign of a package. This produced a package to
fit the goals of an established corporate system, rather than one that
attempted to manipulate the system to work around it.6
At first glance, this seemed to handcuff the packaging engineer

and diminish the importance of the package itself. Just the opposite

 

5John D. Phillips, "Computer-Aided Package Design Yields Major
Savings In Distribution Costs," Paperboard Packaging, pp. 85-87.
September 1978.

61bid.

 

4
was anticipated to be true. The package probably received more

recognition. If the package design was judged important enough to
warrant a high degree of consideration, it was recognized as an impor-
tant part of the system and given a high priority in the final decision.
It was very conceivable that the established corporate system was more
likely to be changed following this approach, because most of the
important areas of the system were involved in the study and had been
since the beginning. Because of this, they were more likely to under-
stand the overall situation and be less protective of their own
functions. All areas were more aware of the ultimate goal and of what
each area needed to achieve that goal.

The personal experiences of the author have proven that decisions
made without full knowledge or consideration of the effects on other
related areas, often resulted in the creation of problems and injured
feelings. In many cases, the problems created were worse than the ones
originally corrected. Experience has shown that people became very
protective of their own functions when problems arose. This seemed to
be especially true when the problems were caused by actions that they
were unaware of. This protective nature seemed to diminish as more
information was made available to them and the situation was better
understood. It was the opinion of the author that a great deal of time
and effort could have been saved by involving those directly affected
by a decision in that decision. This would have eliminated many ques-
tions and problems before they arose.

In Sweden, total-system thinking dominated in the area of
packaging. It was seen as the key to efficient and economical distrib-

ution. Although only a small country, many packaging trends have come

5
from Sweden and Sweden has been referred to as a microcosm of the

United States packaging world.7

In the Swedish total system thinking, there were strong feelings
in favor of standardization and simplification in packaging. This
involved reducing the number of shipping package sizes to reduce total
costs.8

The variety reduction concept has also been a popular area for
reducing packaging costs in the United States.9 Friedman has stated
that reducing the number of packages rarely had any effect on the sur-
face designs or functional characteristics of the package, but they
have produced substantial economies in procurement, production,

material handling, warehousing and packaging.10

In a report prepared for the U.S. Navy, the Arinc Research
Corporation confirmed the authors other findings in the literature.
The report stated that the literature agreed that standardization was
generally conceded to be cost-effective, but was usually considered in
qualitative form rather than quantitative terms. There was a great
deal of background information which addressed types of costs and savings
involved in standardization, but there were few examples of actual

dollar savings.11

 

7"Distribution-Minded Swedes Gear Innovations To Total-System
Packaging," Packaging Engineering, p. 63, June 1979.

31am.

9"Packaging: How It Can Cut Your Distribution Costs," Modern
Materials Handling, pp. 70-72, December 1979.

lOFriedman, op. cit., p. 37.

11Arinc Research Corporation, The Cost-Effectiveness of Standardization
for Hull, Mechanical, and Electrical Equipment, (Prepared for the
Department of the Navy, April 1978), p. 1-2.

 

 

6
From inquires to various companies, the author found that many

companies had not done a size standardization cost analysis or if they

had, the results were for internal use and they had not been published.

Purpose of the Study

 

The purpose of the study was to determine the cost effectiveness
of reducing the variety of shipping packages following the systems
approach. That was to look at the effects and the costs that resulted
in all areas of a company due to a reduction in the number of sizes of
shipping packages. The results of the study were to be applied to
future research in the area of standardization and the systems approach
and also to benefit companies who attempted to justify the implementa-

tion of a standardization program in the area of packaging.

Author's Intention

 

In undertaking this study, the author's personal intentions were
to first, document the economic effects of packaging material simplifi-
cation within a functioning organization and secondly, to gain a better
personal understanding of the packaging function and its working
relationship with the other areas in a company. This knowledge was to
be used in future studies and in day to day decision making where time

did not allow the luxury of an in-depth study.

Chapter II

Standardization and Simplification

History

Before August of 1928, there were no known books written on the
topic of standardization in the English language. This was not to say
that standardization had not existed before that time, only that its
importance and potential had not been fully realized.12

The vast amount of material published by various authors since
that time had often referred to and defined standardization and
simplification in somewhat conflicting ways. Simplification was
sometimes regarded as a part of standardization while standardization
was sometimes regarded as a part of simplification.13

The following definitions have been given to help clarify this
author's interpretation of the two terms. All were the approved
definitions of the International Standards Organization (ISO).

"Standardization is the process of formulating and applying

rules for an orderly approach to a specific activity for the

benefit and with the cooperation of all concerned, and in

particular for the promotion of optimum overall economy taking
due account of functional conditions and safety requirements"

 

"A standard is the result of a particular standardization
effort'i

"Simplification (variety reduction) is a form of standardization
consisting offthe reduction of the number of types of products
within a definite range to that number which is adequate to meet
prevailing needs at a given time"14

 

 

12Norman F. Harriman, Standards and Standardization (New York:
McGraw-Hill, 1928), p. v.

13National Industrial Conference Board, Industrial Standardization
(New York: N.I.C.B., 1929), p. 28.

14Rowen Gile, Speaking of Standards (Boston: Cahners Books, 1972),
p. 34.

 

 

7

8
From these definitions, a few key words and phrases have been

highlighted to further aid the reader in understanding these principles.

From the Standardization definition:

 

“formulating and applying rules" - A standard was a guideline
for future use.

"orderly approach" - A standard eliminated that was different
or unusual and helped to keep things more organized.

"cooperation of all concerned" - Standards were only effective
when everyone followed the same guidelines.

"optimum overall economy" - The purpose of a standard was to
maximize profit by reducing costs.

"functional conditions" - The finished product or item in
question was of no value unless it fulfilled its
design function.

From the Simplification definition:

 

"variety reduction" - Simplification was basically
standardizing by reducing the variety if similar
items.

"within a definite range" - The principle had its limitations
and applied only to that which was already in
existence.

"adequate to meet prevailing needs" - Simplification could
not go beyond the point of full coverage.

"at a given time" - The principle had to be flexible enough

to change as conditions and requirements changed.

The principle of standardization has been around for a long time.

Roman road builders standardized the construction and design of the

9
military roads that ran throughout their empire. In 17th Century

England, the style of armour was standardized to avoid the costs
involved in altering and changing to keep up with fashions.15
Eli Whitney introduced the principle of interchangable standard
parts in his production of muskets. In 1799, after receiving an
order for 10,000 of these muskets from then Vice President Thomas
Jefferson, Eli found it impossible to meet his deadline using the
then conventional piece part manufacturing so he developed the now
common technique of interchangable parts.16
Standardization had often been fiercely opposed in the United
States. Exceptions occurred when cost-savings or other obvious
benefits accrued to a company. However, due to increased governmental
pressures, recognized benefits of reduced inventories and the spread
of standardization programs in many European countries, it was con-
sidered likely that it would continue to grow in the United States.
Companies in the United States were also becoming more aware of the
not so obvious benefits of standardization and were better able to
justify standardization programs.17
Four basic levels of industrial standardization were recognized

in the literature. They were:

1. Company Level - Standards internal to and unique to a

 

particular company.

 

15Benjamin Melnitsky, Profiting From Industrial Standardization
(New York-Chicago: Conover-Mast Publications, 1953)} PP. 34-35.

16Lal C. Verman, Standardization: A New Discipline (Hamden, Conn:
Shoe String Press, 1973), D. 8.

l7

 

Olsson, op. cit., p. 21.

10
2. Industry Level - Intercompany standards such as those

 

initiated by trade associations such as the American
Society of Mechanical Engineers (ASME) and the
Institute of Electrical and Electronic Engineers
(IEEE).

3. National Level - Interindustry standards such as those

 

initiated by organizations like the National Standards
Institute (ANSI)

4. International Level - World wide standards initiated by

 

an organization like the International Standards
Organization (ISO).'8
In the United States, most standards were written by engineering
societies like ASME and IEEE and by trade associations like the
National Fiberbox Association. To help coordinate these activities,
bodies like ANSI and ISO had been established. Their purpose was to
prevent overlapping and conflicting activities.'9
In 1972, The British Standards Institute published the results of
a study which stated, “there were no known merit in standardization for
its own sake: it must make improvement on the economics of situations
or provide other benefits such as convenience, reliability or safety."
It was the responsibility of all parties involved at all four levels

to assure that when standards were developed, they met this criteria.20

 

'8Jessie V. Coles, Standards And Labels For Consumer's Goods
(New York: Ronald Press Co., 1949). pp. 151-153.

'gDavid Hemenway, Industry Voluntary Product Standards (Cambridge,
Mass.: Vallinger Publishing Co., 1975), p. 81.

20The British Standards Institute, "Packaging Standardization and
Relationalisation," Packagigg Technology, pp. xvi-xix, November 1972.

 

 

11
The function of simplification most often applied at the company

level. The individual firm had to make the decision to simplify and
they in turn realized the direct benefits.21 An exception to this was
a study undertaken by members of the Fruit and Vegetable Industry.
This study recognized that reducing the number of different size ship-
ping containers used to transport fresh fruit and vegetables had cost
saving potentials that could benefit the entire industry.22

On March 24, 1917, shortly before the beginning of World War I,
the U.S. Council of National Defense started the Commercial Economy
Board (CED) to work towards conserving our national resources.23 The
CEB recognized the waste involved in redundancy and began by working
directly with over 250 industries to reduce the number of styles and
varieties and sizes. This practice continued during the war when the
conservation division of the War Industries Board was created to reduce

wasted labor, capital, materials and equipment in all industries.24

In 1921, after the war was over, Herbert Hoover became Secretary
25
of Commerce and declared an all out war on waste. The war and post

war depression brought out a realization of the need for conservation

 

21An lo-American Council on Productivity, Simplification in British

 

Industry London-New York: A.-A.C.P., 1950), p. 6.

22American National Metric Council, Report of Industry Panel
Presentation on the Fresh Fruit and Vegetable Sector to Officials of
the U.S. Departments of Commerce and Agriculture (Washington, D.C.
March 21, 1983).

 

United States, Library of Congress Science Policy Research
Division, Voluntary Industrial Standards in the United States
Washington: U.S. Government Printing Office, 1974), p. 11

 

Harriman, op. cit., p. 112.

5
United States, Library of Congress Science Policy Research
Division, op. cit., p. 12.

12
and more efficient production. Waste had to be eliminated as did

unnecessary sizes, shapes and varieties to help cut costs without
decreasing production. Simplification offered one important key to
the total solution.26

Hoover coined the term "simplification" to mean the cutting down
of sizes and styles because he anticipated that many people would mis-
understand and resist a program titled standardization.27 A committee
he appointed found productivity in American Industry to be only 50% of
its maximum, so a nation wide movement of simplification was begun.
It was found that reduction in variety of from 24% to 98% was often
possible.28

In a speech given at a later date, Hoover stated that standards
and simplification had made an enormous contribution towards increas-
ing the comfort and standard of living of the people of the United
States. He considered them the base of all mass production.29

It was noted that standardization and simplification did have
their limitations. If overdone, standardizing could have stifled
creativity and become a barrier to progress. Standardization was
recognized as a tool available to help make permanent and readily

available the progress that had been made up to a given point in time.30

 

26National Industrial Conference Board, op. cit., p. 256.

27Mrs. Carol (Willis) Moffett, More For Your Money (New York:
Public Affairs Committee, 1942), p. 7.

28Verman, op. cit., p. 9.

 

29Dickson Reck, ed., National Standards in a Modern Economy,
lst. ed. (New York: Harper and Brothers, 1956), p. 4.

3O
Coles., op. cit., p. 160.

13
The 1950 Anglo-American Council on Productivity stated that

standardization was to be considered a servant of American industry,

not the master.31

Advantages and Disadvantages

 

Many sources agreed that reducing the variety of materials used
for production had both positive and negative effects on the different
areas of a company. As stated earlier, to accurately judge a simplifi-
cation proposal, the overall effects on the total system had to be
considered. Positive and negative effects reported on various areas
of a company included:

Advantages

 

1. Engineering - Less time was required in processing and

 

selecting new items.
2. Stores - Less space was required and fewer records had
to be kept.

3. Inventory Control - Reduced capital was required and

 

less funds were tied up in inventory. Less safety
stock was required and fewer items needed to be
controlled. Obsolescence and deterioration were
reduced due to a faster inventory turn over.

4. Purchasing - The larger volume of fewer items gave more

 

purchasing power and more reliable delivery dates.
Reduced costs resulted due to the need to issue

fewer purchase orders.

 

31Anglo-American Council on Productivity, Packaging (London-
New York: A.-A.C.P., 1950), p. 27.

14
5. Quality Control - Inspection requirements were reduced

 

due to the fewer incoming items.

6. Manufacturing - With fewer items to choose from,

 

decision times were reduced.
7. Warehouse - With fewer items, better planning and
utilization of storage space resulted.32

Disadvantages

 

1. There was a potential for increases in material and
part costs.
2. There were costs involved in the standardization study.
3. There were costs involved in making changes.
4. There was a restriction of freedom of choice and loss
of flexibility.
The ultimate goal was to weigh these positive and negative factors
to determine the overall effect on the company and its profit. This
was recognized as the determining factor in the justification of a

variety reduction program.33

 

32Ken Kivenko, "How Design Can Help Control WIP Inventory,"
Machine Design, p. 42, May 26, 1983.

 

33British Standards Institution, The Operation of a Company
Standards Department (London, 1979), p. 5.

 

 

Chapter III

Overview of Firm Studied

General Background

 

The Company in which this study was conducted was a large machinery
manufacturer headquartered in Midwestern United States. For purposes
of confidentiality, because actual cost figures were used in the results
of the study, the name of the organization is not used. The organiza-
tion has been referred to in the report as the "Company".

The Company was incorporated in the early 1900's and grew to world
leadership in its field. Corporate products included a broad line of
equipment, ranging from large commercial units to major appliance type
consumer products. Two major divisions and many sub-divisions existed
which supported the two main product groups.

The manufacturing operation involved various facilities throughout
the United States, Canada and several international locations. Sales
were conducted through a worldwide network of sales offices.

In 1984, the Company employed over 10,000 people worldwide and
had sales in excess of one billion dollars. In that same year, the
Company was purchased by and became a major division of another large
corporation. The acquisition had no effects on the study or its
results.

The Company's packaging function was located in the Development
Engineering area of the Commercial Equipment Division. The group
consisted of two people who had total responsibility for all packaging
related activities within the division. The packaging involved was

mainly industrial type packaging, which was designed to provide safe,

15

16
efficient and economical distribution of the manufactured products.

The appearance of the package was a concern, but it was generally of
a secondary nature.

The packaging group was also responsible for all of the packaging
involved in the distribution of service parts. The decision was made
to conduct the study in the service area because this area used the

widest variety and largest volume of packaging materials.

Service Parts Operation

 

The Company's service parts operation consisted of approximately
45,000 parts with 10,000 considered active parts. Active parts were
defined as higher volume or critical items that were kept in stock for
immediate shipment. The inventory of these stocked parts was turned
over four times per year.

In general, each plant location stocked the parts that were
required to support its product lines. There was some overlapping of
parts between the manufacturing locations, but this was very limited
and was considered insignificant to the study.

Included in the service operation were parts manufactured by the
Company and others purchased from outside suppliers. The physical
properties of the parts ranged from small screws and washers to large
components weighing hundreds of pounds. Packages for these items
included paper and plastic envelopes, padded bags, folding paperboard
cartons, corrugated boxes and wooden boxes and crates. Cushioning and
dunnage materials included kraft paper, polyethylene sheet foam, loose

fill foam, and expanding polyurethane foam.

17
The corrugated boxes used were a part of a group of general

use materials that were used throughout the Company where ever needed.
When the study began, approximately 30 different boxes were used, rang-
ing in size from 2 x 2 x 3 inches to 34 x 34 x 20 inches. Occasionally
a package or material was added to stock to support a particular item,
but this was done only if the value, volume or protection requirements
of the item justified it. When a new material was added to stock, it
automatically became available for general use unless some special
characteristic prevented it.

The packaging group was responsible for selecting the appropriate
packaging materials for each of the service parts. This was typically
done at the time that the item was set up as a service part.

In the selection of a package, the physical size, shape and
weight of the item was considered along with a general determination of
its fragility. No actual fragility testing was performed unless it had
been specifically requested. Generally, a package was selected that
most closely matched the dimensions of the item and provided adequate
clearance for the required cushioning materials. Items were packaged
to protect against damage and also to prevent any rattle that was
unacceptable to some carriers.

In the actual packaging operation, all parts were manually
packaged in their primary packages per the instructions given by the
packaging group. These packaged items were then labeled for identifi—
cation and placed in a storage area. Items were stored in racks, skid
boxes, bins or drawers, depending on size, weight and the quantity

normally held in inventory.

18
The Company's service parts were sold and distributed through a

network of over 125 franchised service agencies. These agencies varied
greatly in size and were located world wide to cover the territory of
the sales organization. The part requirements of each of these agencies
depended mainly on its location and the line of products sold in that
location. Orders were generally placed as parts were required but also
to take advantage of special promotional price breaks. A minimum order
of $25.00 was required.

When an order was received from one of these agencies, the ordered
parts were manually picked from the storage area, consolidated in a
secondary packing area and manually bulk packed in a master shipping
container or containers. Packers followed a general instruction on
safe packing but were allowed mainly to use their own best judgement in
the packing arrangement.

Depending upon the size and weight of the finished master pack,
it was shipped by either United Parcel Service (UPS) or Common Carrier,
with UPS being the preferred method. The traffic department was respon-
sible for determining what type of shipment was the most economical.

It was noted that a small percentage of parts ordered were shipped
by air. However, this percentage was so small, that it was considered
insignificant to the study and it was not included in the analysis.

Upon receipt of a parts shipment, the service agencies either took
the parts immediately to a job site or stored them in their own small
inventory warehouse. These storage areas were typically back rooms
with racks and shelving.

The typical life of the Company's service parts was summarized

in the following five steps:

19
l. The packaging group was alerted that a new item was to

be added to stock. A drawing of the item was
examined and appropriate packaging materials were
selected from the general use materials in stock.

2. The part was then manually packed, labeled and placed
in a storage area.

3. When an order was received for the item, it was manually
picked from the storage area along with other parts
on the order and taken to the secondary packing
area.

4. The item was then bulk packed in a master container with
the other items and shipped to the ordering service
agency by either UPS or Common Carrier, which ever
proved to be the most economical.

5. The service agency then either used the part or stored it

for later use.

Purchased Material Cancellation

 

A major factor involved in the implementation of a simplification
project was the removal of the items being eliminated. When it was
determined that a purchased material such as the corrugated boxes
involved in this study were no longer required, a systematic process
was followed to remove the item(s) from the Company's stocked inventory.
This process involved the approvals of nine different departments.
Figure 1 showed the routing taken for these approvals.

When the cancellation was approved, the item was removed from

the listing of current materials and the remaining inventory was used

20
up, returned to the supplier for credit, transferred to another

manufacturing location or scrapped, which ever was possible and
provided the most benefit to the Company. All drawings specifying
the cancelled item(s) were then changed to specify the substitute

material.

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Chapter IV
Description of the Study

Basic Overview

 

The purpose of the study was to determine the overall economic
and other related effects that packaging simplification had on a
total corporate system. To accomplish this objective, a case study
was conducted within the repair service parts area of the Company. The
study consisted of a theoretical elimination of three similar sized
corrugated boxes and an evaluation of the positive and negative effects
that this action had on other related areas of the Company.

From the literature, it was determined that simplification
typically affected the areas of purchasing, engineering, manufacturing,
stores, inventory control, quality control, and warehousing. The
author used this information as a basis, but then expanded the study
into other related areas that were identified as the study progressed.
These areas included cost, receiving inspection, bill of material, the
parts packing area and distribution. Each of these areas was addressed
individually and as part of the total system. When possible, the
actual costs involved were documented and the effects on efficiency
were determined. Intangible effects such as customer goodwill and
employee acceptance were also identified and documented whenever
possible.

In each of the areas affected by the study, the general topics of
materials, labor, inventory, storage and warehousing, obsolescence and
general paperwork requirements were examined when they applied. Also

considered were the general feelings of interdepartmental coordination

22

23
and cooperation. Both positive and negative effects were documented

in all cases.

The study also included an examination of the effects on the
Company's sales and service agencies. These agencies ultimately received
the newly packaged items and while their costs were not directly related
to the Company's profits, their acceptance and efficient use of the
parts had a direct impact on their sales and service performance which
ultimately reflected on the Company's Sales and profits.

Occasionally an ultimate consumer who was not a Company sales
outlet or service agency was also affected by a packaging change. How-
ever, because these cases were outside of the control and direct
knowledge of the Company, they were documented as a reference only. No

attempt was made to analyze the cost effects in these cases.

Limitations of the Study

 

Limitations were placed on the study to keep it within the scope
of the project. These limitations include:

1. The data collected and the costs involved were current
for the three month period that they were collected,
September through November 1984.

2. The study was limited to a single plant location within
the Company.

3. The study only considered a reduction in the number of
items already in stock. The study did not consider
the option of adding new items to replace others
that were already there.

4. The study considered only domestic shipments in the

evaluation of the distribution costs.

24

Data Collection

 

To determine the effects in the different areas, the author
selected key personnel in each area and presented them with the
theoretical packaging material substitutions. Each was requested to
consider the effects on efficiencies and costs involved in their area
and also to consider the intangible effects.

The author searched for and documented all of the inventory
location of the boxes and also all locations where the boxes were
actually being used. This included all warehouses and production areas
at the manufacturing location being studied. The author also collected
all of the data on the annual usage of each box and the information on
all of the items that were packaged in the boxes.

The author also physically measured the rack, bins, and other
storage locations of both the boxes and the packaged parts inventory.
This included taking measurements and weights of the boxes and dunnage

materials and collecting all of the applicable cost data.

Container Selection

 

As mentioned earlier, when the study began, the Company stocked a
total of 30 different size corrugated boxes that were available for
general purpose packaging. The materials used for these boxes ranged
from 175 to 275 pound single wall corrugated fiberboard. A11 box
styles were either regular slotted or full overlap containers with
taped or glued manufacturers joints. Printed graphics were typically
a one color two panel layout of the Company's corporate logo.

The entire range of boxes was screened to determine which were

similar enough to be considered as candidates for the study. Several

25
limitations were set to assure the final substitutions resulted in a

package that provided equal or greater strength and protection when
compared to the original boxes. The limitations placed on the selection
were:

1. The substitute box must have been equal to or larger
than the original box in all dimensions.

2. The substitute box must have been no more than one inch
larger than the original box in any dimension.

3. The rated strength (mullen test) of the substitute box
must have been equal to or greater than the original
box.

4. A full overlap container could replace a regular slotted
container but a regular slotted container could not
replace a full overlap container.

It was determined that in the range of available general purpose
boxes, several satisfied the requirements to be considered for the
study. After an evaluation of all of the potential candidates, a
group of four similar sized boxes were selected for the study. Many
one to one substitution combinations were available, but it was the
opinion of the author that by increasing the scale of the study to four
items instead of two, a more detailed and more thorough evaluation could
be documented.

The four corrugated boxes selected for the study were designated
simply, box #1, box #2, box #3, and box #4. The largest of the four
was box #1. It acted as the theoretical replacement for the other
three. Boxes #2, #3, and #4 were cancelled, removed from the Company's

inventory and replaced in all cases by box #1.

26
A comparison breakdown of the physical properties of the boxes

at the time of the study has been summarized in Table 1.

Table 1

Physical Properties of the Study Boxes

 

Inside Dimensions

 

 

 

§95_ (L) x (w) x (0) 1.0. (in3)
#1 7.00 x 7.00 x 4.50 220.50
#2 6.00 x 6.00 x 3.75 135.00
#3 6.25 x 4.50 x 6.38 179.44
#4 7.00 x 7.00 x 3.88 190.12

Outside Dimensions

 

 

 

§9§. (L) x (W) x (D) 0.0. (in3)
#1 7.25 x 7.25 x 5.00 252.31
#2 5.25 x 5.25 x 4.25 155.02
#3 5.55 x 4.31 x 5.59 211.09
#4 7.25 x 7.25 x 4.38 230.22

Material Specifications

 

 

 

ng_ Board Test Flute Size Box Style
#1 275 1b B RSC
#2 200 lb 8 RSC
#3 175 lb C RSC
#4 275 lb 8 RSC

 

27
General background information describing the boxes was as

follows:

1. All were printed with the Company logo on two panels in
one color ink.

2. All were identified with the Company's part number, date
of manufacture and the box makers certificate. All of
this information was printed by the box manufacturer.

3. All were manufactured with a taped manufacturers joint.

4. All were constructed of kraft corrugated fiberboard.

5. All were certified as complying with Code of Federal
Regulations Title 49 paragraph 178.205-18 for the
shipment of hazardous materials and all were printed
with the Department of Transportation (DOT) symbol
certifying this compliance.

It was noted that box #3 changed from 175 pound corrugated
fiberboard material to 275 pound material. This was a substantial
increase, but it was necessary to assure that there was no loss in
package strength when the box substitutions were made. Box #1 and box
#4 were both originally 275 pound material so the use of a 275 pound
material for the substitute box was necessary. These boxes were also
used for the shipment of items that were regulated by the Department
of Transportation as hazardous. The amount of regulated material that
could legally ship in a corrugated box was determined by the boxes
burst strength. It was important that the substitute box be 275 pound
material so that there would be no reduction in the ability to use
box #1 or box #4 for hazardous material shipments.

The standard cost to the Company and the annual usage of each of

the boxes at the time of the study has been summarized in Table 2.

28

Table 2

Standard Cost and Usage of the Study Boxes

 

 

 

Bpx_ Standard Cost Each Annual Usage
#1 $.374 3047
#2 $.176 7416
#3 $.145 9659
#4 $.224 3882

 

 

All of the boxes were purchased from the same three suppliers
following an internal material requirements planning (MRP) system
for inventory management. All orders for the boxes were initiated
by the same buyer and all were received, inspected and warehoused
in a similar manner at the same location. All four of the boxes were
requisitioned as required by the user department(s) and all were
handled and transported to the user in a similar manner.

The primary function of all four of the boxes was to act as the
primary package for various service stock replacement parts. Only
boxes #2 and #3 showed usage outside of the service department. They
were also used to package miscellaneous products in another general
shipping department.

A breakdown of the usages of the four boxes has been summarized

in Table 3.

29

Table 3

Packaging Uses of the Boxes

 

 

Number of Different Service
ng_ Items Packed Related Qtpgp_
#1 91 ° 91 O
#2 78 77 1
#3 ' 51 41 10
#4 68 68 0

 

 

Typical products packaged in the four boxes included bearings,
switches, valves, controls, pistons, gasket and o-ring kits, springs
and gauges. The weight of these items varied from less than one pound
for some of the kits, to over 30 pounds for some of the bearings and
valves. The value of the items also varied greatly from a few dollars
to hundreds of dollars.

As indicated in Chapter III, no formal fragility or other package
testing was performed on these items unless specifically requested.
The amount of protection specified for an item was determined by its
nature and appearance and by the general background and experience of
the packaging engineer. As a general rule, electronic parts received
plastic foam type cushioning while mechanical parts were packed to
prevent free movement in the package using the plastic foam, crumpled

paper, free flow foam or other available dunnage material.

30
After the selection of the sample boxes was completed, the

author then collected the data from all of the departments affected
by the simplification project. This data was then analyzed and

summarized in the following chapter.

Chapter VI

Results of the Study
General
The study revealed that many areas of the Company were affected by
the packaging material simplification project. These included the areas

referenced in the literature and others that were unique to this study.

Effects on Related Functions

 

The study revealed that the areas in the Company affected by

packaging material simplification were:

Purchasing

Material Control

- Stores

- Packaging Engineering

- Engineering Standards

- Engineering Drawing Change

- Engineering Drafting

- Engineering Drawing Files

- Manufacturing Engineering

- Quality Control

- Cost Department

- Receiving Inspection

- Service Parts Packaging Department
- Bill of Materials

- Distribution (Traffic)

- General Shipping Departments
- Field Service Agencies

- Ultimate Parts Users
31

32
The magnitude of the effects varied greatly from one area to

another, but all were in some way affected. A summary of the effects
felt in each of the areas has been included.

Purchasing

 

The Company's purchasing department's responsibility was to
identify acceptable and economical sources for required materials and to
do the actual buying of those materials. Purchasing benefited from
simplification due to lower box costs resulting from higher volume
buying, a reduction in the number of orders placed each year and an
overall reduction in general paperwork.

Before simplification, the four individual boxes were ordered from
two to three times per year. Box #2 was ordered twice annually and
boxes #1, #3, and #4 were each ordered three times annually. The order
quantities ranged from 1,000 to 3,700. After simplification, box #1
was ordered four times per year in quantities of 6,000. This reduced
the number of purchase orders from 11 to 4 and the higher volume orders
reduced the annual cost of the boxes.

Purchasing also realized benefits from the reduced number of
follow-ups that were required, reduced requirements for supplying
vendors with material specifications, reduced requirements for request-
ing periodic price updates and other miscellaneous paperwork jobs that
(were required in the ordering and tracking process. Because each item
and each order was unique in regard to these requirements, the Company's
purchasing department had not assigned standard costs to them. They
have been included here as a reference to their existence, but they

were not included in the final cost analysis.

(I

33
Material Control

 

Material control was responsible for maintaining pr0per inventory
levels using a Material Requirement Planning system. This involved
inventory planning and computerized cost maintenance of every purchased
item. Savings were realized due to the elimination of the need to plan
and maintain boxes #2, #3, and #4.

Inventory carrying costs were also involved. These costs were
reduced due to a reduced average inventory value after combining the
boxes of from $392.91 to $296.05. These numbers have been summarized
in the cost analysis section in Table 13.

The remaining inventories of boxes #2, #3, and #4 were used up
before box #1 was substituted. As a result, there were no obsolescence

costs involved.

§£ggg§ (warehouse and materials storage)

The stores function was responsible for all storage, warehousing
and interplant movement of materials. Simplification affected this
area by reducing the requirements for storage from four items to one.

The study revealed that two of the four boxes were stocked in four
locations and the other two were stocked in five. Boxes #1 and #4 were
stocked in the main warehouse and in three separate locations to sup-
port parts packaging. Boxes #2 and #3 were stocked in the same four
locations as #1 and #4, but in addition, they were also stocked in the
shipping department of one of the other local manufacturing plants.
This resulted in four storage locations in the main warehouse, twelve

to support parts packaging and two in another shipping room.

34
In the main warehouse, the boxes were stored on the same pallets

that were received on from the suppliers. These pallet loads were
then broken down and dispersements made as required.

All of the boxes involved in the study were received on standard
40 x 48 inch wood pallets, which required 13.3 square feet of floor
space. Because the box storage section of the warehouse had no storage
racks, the size of the pallets determined the floor space that each
required.

In calculating warehousing costs, stores also included one half of
the aisle in front of the stored material. In this case, the aisles
were six feet wide. This resulted in an actual storage requirement of
76 x 48 inches or 25.3 square feet for each pallet load.

At the time of the study and on the average, the main warehouse
contained two pallet loads each of boxes #2 and #3 and one pallet load
each of boxes #1 and #4. This resulted in a total of six pallet loads
and floor space requirements of 151.8 square feet.

After simplification, an average of two pallet loads of box #1
were stocked in the main warehouse. This number varied from one when
only safety stock remained to four when an order of 6,000 boxes was
received in three pallet loads of 2,000 each. It was estimated that
over time, the average was two pallet loads, requiring an average of
50.6 square feet of floor space. This compared to the original require-
ment of 151.8, resulted in a savings of 101.2 square feet or 66.7
percent.

In the parts packaging department, boxes were stored in six foot
square storage bays. The aisle was again six feet wide so the actual
floor space requirement for each storage location was 6 x 9 feet or 54

square feet.

35
The 12 storage areas required for the original four boxes required

a total of 648 square feet of floor space. After simplification, only
three storage areas were required for a total of 162 square feet. This
resulted in a space savings of 486 square feet or 75 percent.

In the general shipping room where boxes #2 and #3 were stocked,
the quantities were so low that the boxes were simply piled in a storage
shelf. Combining the boxes here had very little, if any effect on the
amount of space required. No estimate of the savings were made.

Epgineeripg

 

Reducing the number of boxes affected various areas in the
Company's engineering department. These included the packaging group,
engineering standards, drawing change control, drafting and files.

The packagipgygropp was responsible for initiating the box changes.

 

The simplification changes had several advantages and disadvantages to
the group's future work. The advantages included reduced package selec-
tion time due to the fewer choices, simplified mass changes when they
were required for all boxes and reduced work required to keep all
packaging material specifications up to date. The main disadvantage to
the group was the reduced selection flexibility.

A special series of engineering drawings was dedicated to service
parts. Each drawing specified a particular service part and also spec-
ified the box that it was to be packaged in, the dunnage requirements,
the identification label required and any other special requirements for
packaging the part.

For the initiation of the change, a packaging engineer's time was
required to prepare and issue a drawing change request to revise all of

the drawings that specified boxes #2, #3, and #4. Box #2 was specified

36
on 68 drawings, #3 on 35 and #4 on 57, resulting in a total of 160

drawings that required revision. The engineer was also required to
initiate a purchased material revision request, requesting the cancel-
lation of boxes #2, #3 and #4 and their removal from stock. It was
estimated that this work required two hours of an engineer's time.

The engineering standards group was responsible for controlling

 

additions, deletions and changes to purchased materials. In this case,
their responsibility was to approve the purchased material revision
cancellation request initiated by the packaging group. When the request
was approved, the group was then responsible for updating the Company's
code book to alert everyone that the three boxes were no longer avail-
able for use. It was estimated that processing these three revisions
required one hour the group's time;

For approval, the cancellation request was routed through the nine
departments described in Figure 1. The costs involved in the review by
all of these areas were real. However, most of these costs were very
insignificant and an attempt at accurately documenting all of them was
beyond the scope of the study. Those costs that were definable have
been included in the cost analysis. Otherwise, these areas have been
included simply to document their role in the project.

The engineeri g drawigg changepgroup was responsible for

 

coordinating the drawing changes. These involved processing the drawing
change request and alerting other areas of the Company to the changes to
the 160 drawings. The group's supervisor estimated that this work
required eight hours of her staff's time.

Epgineeripg drafting services was responsible for all of the

 

engineering drawing work. They were responsible for physically chang-

ing the 160 original drawings. Because the change was a simple code

37
substitution, the drafting manager estimated that eight drawings were

changed in an hour, requiring a total of 20 hours.

Engineering drawing files was responsible for handling and storing

 

all original and microfilmed engineering drawings. For this study, the
work involved microfilming the 160 revised drawings and refiling both
the original drawings and the film cards. The department supervisor
estimated that this work required four hours.

Manufacturing Engineering

All drawing changes were reviewed by manufacturing engineering.
Their responsibility was to review the labor time that was required to
package the affected service parts in box #1. The study revealed that
no changes in labor time were required. It was estimated that this
review required four hours of a manufacturing engineer's time.

Cost Department

The cost department was responsible for reviewing the 197 items
on the 160 drawings being revised and updating the standard costs applied
to the items. This involved revising the cost of the boxes and adding
the cost of the extra dunnage material that was required. It was
estimated by the manager of the department that this required eight
hours of work.

Receiving Inspection

The receiving inspection department was responsible for verifying
materials specifications and the quantity of each purchased material
shipment. Due to simplification, they were now receiving only four
shipments annually instead of eleven. It was estimated by the depart-
ment foreman that 15 minutes was required to inspect and record each
shipment of boxes. This resulted in an annual time savings of 105

minutes.

38
Bill of Material Change Group

 

The bill of material change group was responsible for reviewing
the 160 drawing changes and updating the bill of material item master.
This item master was a computerized listing of all materials that were
required to produce and ship each item. In this case, the box require-
ments for each of the 197 parts affected were updated. The supervisor
of the department estimated that this required 16 hours of work.

General Shipping Room

 

The general shipping room had stocked boxes #2 and #3. These were
replaced by box #1. As indicated earlier, this did not affect storage
space requirements, but it was indicated that it did simplify paperwork
requirements. Instead of keeping track of and requisitioning two items,
they now only had to keep control of one. The costs involved were
insignificant so they were not included in the cost analysis. However,
it was noted that if the volume of the boxes had been greater, the
change would have had a very significant effect on the department's
workload.

Quality Control

Quality control's responsibility was to screen all material changes
to prevent obvious reductions in product quality. Due to the nature of
the change, product quality was not affected, or if anything, the larger
box provided added protection. Costs resulting from this review were
again insignificant and were not included in the cost analysis.

Field Service Agencies

Past experience in working with the Company's field service
agencies had revealed to the author that they were mainly affected by
the increased size of the packages. They were not concerned with the

package itself, but with the safety of the parts and size consistency

39
over time. The agencies storage areas were set up to accommodate

packages that had been received in the past. As long as the parts were
shipped consistently in box #1 after the change, there were no antici-
pated problems or extra costs involved.

Ultimate Parts User

 

In a very few cases, it was found that the ultimate user of a part
was someone other than a Company approved service agency. In these
cases, the change in box size may have had some effect. However,
because the identity of these users were unknown, it was impossible to
determine the actual effects. This potential effect was documented as
a reference to its existence, but no attempt was made to analyze the
costs involved.

Service Parts Packaging Dapartment

The greatest effects of the study were found in the packaging
department where the boxes were used. Here the physical advantages and
disadvantages of using the larger box were felt.

The foreman of the department and the packers interviewed, all
agreed that reducing their box selection from four to one saved them
time in searching and selecting on those occasions when the decision
had been left up to them. At the same time, they indicated that it
reduced their flexibility and ability to select boxes to provide the
best fit. This was similar to the concern about flexibility expressed
by the packaging group. Overall, the feeling was very positive about
combining the similar size boxes.

As indicated in the warehouse and storage section, the boxes were
stocked in three locations to support the parts packaging operation.
The foreman indicated that reducing the number of items from four to

one not only resulted in a cost savings from the space savings, but it

40
also greatly helped to relieve an overcrowding problem that was quite

serious in one of the three storage locations. It was not possible to
assign a dollar value to this, but helping to relieve the overcrowding
problem was a definite benefit to the Company.

In the actual packaging operation, the greatest effect was due to
the size of the box. Since box #1 was slightly larger than the three
that it replaced, it required more dunnage material to assure a tight
pack. The exact amount of this dunnage material was determined by the
packer at the time the part was packaged. Only the type of dunnage
material to be used was specified by the packaging group, not the amount.

Time studies revealed that increasing the amount of dunnage
material used did not increase the average time required to package the
parts. As a result, the study revealed that simplification of the
boxes had a direct effect on material cost but no significant effect on
labor.

The use of the larger box would have had a negative effect on the
storage space required to hold packaged parts in stock. The standard
storage bin for these parts was 36 inches wide, 36 inches deep and 15%
inches tall. Using box #1, each bin held up to 75 packaged parts.

Using boxes #2 and #4, each bin also held up to 75 packaged parts. How-
ever, using box #3, each bin held up to 84 packaged parts or approximately
11 percent more.

Of the four boxes, box #3 had the greatest usage, so the 11 percent
difference was significant. On the other hand, the bins were rarely
filled to their capacity so it potentially had no effect at all. Due
to the variables, it was not possible to calculate the exact effects
and costs involved, so an analysis of the extremes was given in the

cost analysis section of this chapter.

41
The larger box also had a negative effect on the amount of space

required to pack the master shipping containers that were used to ship
orders. As with the storage bins, box #1 required more space than did
boxes #2, #3 or #4. A summary of the space requirement differences

has been given in Table 4.

Table 4

Packaged Items Storage Space Requirements

 

O.D. Increase

 

 

 

§g§_ Annual Usage Due to Change Annual Increase
#2 7415 95.79 in3 415.39 ft3
#3 9559 51.72 in3 239.10 ft3
#4 3333 32.59 in3 73.21 ft3

 

Total Annual

Increase 777.70 ft3

 

 

The total increase of 77.70 cubic feet seemed to represent a
significant amount of extra master container shipping cube that was
now required. However, as with the storage bins, this overall increase
number was deceiving.

It was estimated by the department foreman and the master container
packers that 90 percent of all master containers were not shipping
completely filled. The uniqueness of every order prevented having
containers that fit exactly. The voids in the containers were filled
with dunnage or the depth of the box was cut down to match the load.
Due to this, in most cases, the extra cube that resulted from using
box #1 was absorbed by the capacity that already existed in the master

containers.

42
Again, due to the uniqueness of the orders, it was not possible to

calculate the exact requirements. As with the storage bins, an analysis

of the extremes was given in the cost analysis section of this chapter.
Due to using box #1, extra dunnage material was required to fill

the extra void. A summary of the amount of this extra void per box has

been given in Table 5.

Table 5

Void Filling Requirements

 

O.D. Increase

 

 

 

 

.ng Annual Usage Due to Change Annual Increase
#2 7415 35.50 in3 355.94 ft3
#3 9559 41.05 in3 229.74 ft3
#4 3332 30.33 in3 53.29 ft3
Total Annual 3
Increase 664.97 ft

 

Records indicated that the dunnage used to fill the extra voids in
boxes #2, #3, and #4 was crumpled 40 pound kraft paper 50 percent of
the time and crumpled .031 inches thick polyethylene sheeting the other
50 percent of the time. Testing revealed that 36 square feet of the
crumpled kraft paper was required to fill a one cubic foot void and
that 63 square feet of the crumpled foam sheeting was required to fill
this same space. Using this information, the total annual extra require-
ments for the kraft paper and the foam sheeting was determined. A

summary of these requirements has been given in Table 6.

43

Table 6

Dunnage Requirements

 

 

 

 

Extra Dunnage Amount Required Total Annual

Material Requirements Per Cubic Foot Requirements
Paper 332.49 ft3 35 ft2 11959.54 ft2
Foam 332.49 ft3 53 ft2 20945.35 ft2

 

 

These extra requirements for the paper and foam were real numbers
and their cost and weight effects were included in the cost analysis of
the study. However, due to the large amounts of foam and paper used
annually by the company, these extra requirements did not figure signif-
icantly in storage and warehousing costs, so they were not included in
the cost analysis. It was noted, that if the extra dunnage requirements
resulted in the need to stock new material or added a significant per-
centage to the already used materials, the storage and warehousing costs
would be significant to this type of study and they would have to be

included in the cost analysis.

*Distribution (Traffic)

The distribution or traffic function was concerned with the costs
involved in the shipping and safe arrival of the products. Using the
larger box #1 and adding extra dunnage increased the protection prOper-
ties of the packages, but it also acted to increase shipping costs by
adding cube and weight. A summary of the extra weight associated with
the larger box has been given in Table 7 and a summary of the extra
weight associated with the dunnage required to fill the extra 777.70

cubic feet of void has been given in Table 8.

44

Table 7

Box Weight Increases

 

 

 

 

 

 

 

 

 

 

 

Box Weight Weight Increase Annual Annual Weight
895, (lbs) Using #1 (lbs) Usage Increase (lbs)
#1 .408 ---- ---- -------
#2 .208 .200 7416 1483.20
#3 .214 .194 9659 1873.85
#4 .388 .020 3882 77.64
Total Annual
Increase 3434.69
Table 8
Dunnage Weight Increases
Total Extra Annual Weight Per Annual Weight
Material Requirements (ft ) Squt (lbs) Increase (lbs)
Paper 11969.64 .01324 158.48
Foam 20946.87 .00570 119.40
Total Annual
Increase 277.88

 

 

Combining the extra weight of the box and the extra weight of the

dunnage materials, resulted in a total weight increase of 3,712.57

pounds.

This total divided by 20,957, the total annual usage of boxes

45
#2, #3 and #4, resulted in an average increase of .177 pound or 2.83

ounces per package.

Again, because of the unique nature of each order, it was not
possible to accurately determine exactly how this extra weight was
distributed among the orders shipped over a year's time, nor was it
possible to determine what the exact cost increases were. As was done
with the extra cube estimates in the parts packing section, the author
presented an analysis of the extremes in the cost analysis section of

this chapter.

Total System Cost Analysis

 

As mentioned in the first half of this chapter, reducing the
number of shipping packages had cost effects on many areas and depart-
ments through the Company. The following analysis covered those cost
changes that were significant enough for the author to be able to
assign dollar values, and listed as a reference those that were not.

Box Costs

Increasing the annual usage of box #1 from 3,047 to 24,004
resulted in a cost decrease of from $.374 to $.148 per box. This
provided a total savings of $1,162.34. These savings were summarized
in Table 9.

Dunnage Costs

 

Standardizing on the larger box #1 resulted in an increased cost

of $281.29 for dunnage materials. These costs have been summarized in

 

Table 10.

Purchase Orders

 

The Company used a figure of $35.00 to represent the cost of

preparing and issuing each purchase order. By reducing the number of

45

boxes purchased, the number of annual purchase orders was reduced from

11 to 4.

This resulted in an annual savings of $245.00.

Table 9

Box Cost Summary

 

Box
#1
#2
#3
#4

#1

Before Simplification

 

 

 

 

Cost Per Box Annual Usage Annual Cost
$.374 3047 $1139.58
$.l76 7416 $1305.22
$.145 9659 $1400.56
5.224 3883 $ 869.57

Total Annual
Cost

After Simplification

 

$.148 24004

 

$4714.93

 

 

$3552.59

Total Annual

 

Cost

 

 

 

Storage Costs (Main Warehouse)

 

The manager of stores estimated that the storage space in the main

warehouse cost the Company $2.50 per square foot annually.

rent, taxes, heat, guards and other miscellaneous costs.

space requirements presented in the first half of this chapter have

been summarized in Table 11.

This included

This and the

47

Table 10

Dunnage Cost Summary

 

 

 

Additional Cost Per
Material Reguired Square Foot Annual Cost
Kraft Paper 11959.54 ftz 3.005 3 71.32
Plastic Foam 20945.37 ft2 5.010 $209.47

Total Annual
Cost Increase $281.29

 

Table 11

Main Warehouse Storage Cost Summary

 

 

 

Boxes Average Space Annual Cost Total
Stocked Requirements Per Square Foot Cost
4 151.3 ftz $2.50 $379.50
1 50.5 ft2 $2.50 $125.50

Total Annual
Savings $253.00

 

48
Storage Costs (Parts Department)

 

The manager of stores estimated that space in the parts department
cost the Company $5.00 per square foot annually. This again included all
of the miscellaneous costs involved. This and the space requirements

presented earlier in this chapter have been summarized in Table 12.

Table 12

Parts Department Box Storage Cost Summary

 

 

 

Boxes Average Space Annual Cost Total
Stocked Requirements Per Square Foot Cost
4 543.0 ft2 $5.00 $3240.00
1 152.0 ftz 55.00 s 310.00

 

Total Annual
Savings $2430.00

 

 

 

Packaged Parts

 

The extra annual storage space for packaged parts that was required
due to using the larger box was determined to be 777.70 cubic feet.
Considering that the parts inventory turned over four times per year,
the maximum extra storage space that was required at any given time was
194.43 cubic feet.

Each storage bin provided 11.4 cubic feet of storage space, so a
maximum of 17 extra bins were required. Each of these bins covered 18.0
square feet of floor space. However, because the bins were stacked five
high, the actual floor space required for each bin was 3.6 square feet.

As a result, the maximum extra floor space requirement for the larger

49
box was 61.2 square feet. At the rate of $5.00 per square foot, this

resulted in an additional cost of $306.00.

It was also possible that all of the extra space requirements were
absorbed by the unused space in the existing bins. In this case, the
extra storage space requirement was zero.

From this analysis, it was concluded that the range of additional

cost for storing packaged parts was from $0.00 to $306.00.

 

Master Container Costs

 

The larger size of box #1 increased the amount of master shipping
container requirements by the same 777.70 cubic feet annually. From
discussions with the parts packers, an average master container was
determined to be 22 x 22 x 18.5 inches. This box did not always ship
completely full, but it had a capacity of 5.18 cubic feet and could ship
by either UPS or Common Carrier. The material cost of the container was
$1.88. Using an existing time study standard of five minutes for pack-
ing parts in the container, and the departments labor and overhead rate
of $.82 per standard minute, resulted in a packing cost of $4.10. This
resulted in a total cost of $5.98 for each completed master container.

Assuming that all of the extra space requirements had to be
supplied by new containers, an additional 151 were required. This
resulted in a cost of $902.98. If all of the extra space requirements
were absorbed by the existing extra capacity, no additional master con-
tainers were required. In this case, the extra cost was $0.00.

From this analysis, it was concluded that the range of additional

cost for the master containers was from $0.00 to $902.98.

 

Receiving Inspection Costs
Receiving inspecting labor was reduced by 105 minutes. At a cost

of $.82 per standard minute, this resulted in an annual savings of $86.10.

50
Material Control Costs

 

Material control costs resulted from the labor time and computer
usage costs involved in planning and maintaining inventory levels. The
Company used an annual cost figure of $83.00 per stocked item to repre-
sent the administrative costs involved in this work. Eliminating the
three items resulted in an annual savings of $249.00.

Inventory Carrying Costs

 

The Company's inventory carrying costs were figured as 30 percent
of the cost per piece multiplied by one twelfth of the annual usage. A
summary of the inventory carrying costs before and after simplification
has been given in Table 13.

Distribution Costs

As indicated, the Company's distribution costs for domestic
shipments were affected by changes in the weights of the items shipped
and not by changes in cube. As a result of the study, distribution
costs increased due to the standardized use of the larger carton #1.
The increase was based on the average weight increase of .177 pounds
for each of the 20,957 packages affected.

Past records revealed that the Company shipped approximately 85
percent of the parts orders by UPS and the remaining 15 percent by
Common Carrier. This resulted in 3155 additional pounds shipped by UPS
and 557 additional pounds shipped by Common Carrier.

At the time of the study, UPS rates increased on even one pound
increments and were determined by the shipping zone of the point of
destination. Common Carrier rates were based on minimum weight charges
and additional rate charges that varied by point of destination, from

state to state and city to city.

51

 

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52
To arrive at an average cost increase for UPS shipments, the rates

for a zone five shipment were averaged over the entire one to seventy
pound range. Shipping room personnel indicated that zone five was the
most common point of destination and that the packages shipped would
cover the entire one to seventy pound range that UPS accepted. The
average cost for a one pound increase was calculated to be $.15.
Assuming that all 85 percent of the 20,957 packages involved or
17,813, each caused a master container to raise to the next higher UPS
rate, the annual cost increase was $2,671.95. Assuming that none of the
17,813 packages raised the weight to the next higher rate, the annual
cost increase was $0.00. This resulted in a potential cost increase of

from $0.00 to $2,671.95.

 

Arriving at a cost increase range for Common Carrier shipments was
found to be very difficult. Because of all of the variables involved in
the trucking industries rate system, it was virtually impossible for the
traffic department to even estimate accurate averages.

The additional 557 pounds that were added to Common Carrier
shipments were considered quite insignificant, especially considering
that many of these shipments went below the minimum weight. To arrive
at a maximum cost for the study, the traffic department estimated the
highest rates at the highest rate destinations and arrived at an annual
figure of $412.00. The minimum was again $0.00 if the extra weight
caused no increase to the shipping costs.

The author acknowledged that the estimate for the Common Carrier
cost increase had not been substantiated in this report. Including an
explanation of the complicated trucking rate system was beyond the scope
of the study. The estimate of the traffic department has been included
to help summarize the results of the study and to act as a reference

to its existence.

53
As a result of these estimates, the total range of the distribution

cost increase was determined to be $0.00 to $3,083.95. These costs and

 

all of the other cost results, have been summarized in Table 14.

Implementation Costs

 

The following analysis outlined the costs that were involved in
cancelling boxes #2, #3 and #4 and revising the drawings that called
for them to call for box #1. The time estimates given were provided by
the heads of the departments involved. The author acknowledged that
they were estimates, but they were considered typical.

Engineering time was required to prepare and issue a drawing change

 

request for the 160 drawings affected and to prepare and issue three
purchased material revision requests, requesting cancellation of boxes
#2, #3 and #4. It was estimated that this work required two hours. The
standard cost of an engineer's time was $39.00 per hour resulting in a
total cost of playgg.

The engineering drawing changepgroup was required to process the
drawing change request. It was estimated that this took eight hours.
At a rate of $15.00 per hour, this resulted in a total cost of $120.00.

.41 '1

Epgineeripg drafting time was required to physically change the 160

 

original drawings. It was estimated that this required a total of 20
hours. At a rate of $22.00 per hour, this resulted in a total cost of
$440.00.

Drawing files was responsible for microfilming and refiling the

 

microfilm cards and original drawings after the drawing changes were
completed. It was estimated that this was a four hour job. At a rate

of $15.00 per hour, this resulted in a total cost of $60.00.

54

Table 14

Total System Cost Summary

 

Defined Costs

 

Annual Cost

 

 

 

Annual Cost
Decrease

 

 

 

Increase
Box Costs
Dunnage $281.29
Purchase Orders
Storage Costs (Boxes)
Main Warehouse
Packing Area
Receiving Inspection
Material Control
Inventory Carrying Costs
$281.29
Estimate Costs
Storage Costs (Packaged Parts) $0.00 - $306.00
Master Container Costs $0.00 - $902.98
Distribution Costs
UPS $0.00 - $2671.95
Common Carrier $0.00 - $412.00
Total $281.29 - $4574.22

 

 

$1162.34
$245.00

$253.00
$2430.00
$86.10
$249.00
$29.05

$4454.49

$4454.49

55
The cost department was responsible for reviewing the parts affected

 

and updating standard cost files. It was estimated that this required
eight hours. At $18.00 per hour, this resulted in a total cost of
$144.00.

The bill of material change department was responsible for reviewing

 

the revised drawings and updating the computerized bill of material item
master listing. It was estimated that this required 16 hours. At a rate
of $18.00 per hour, this resulted in a total cost of $288.00.

Manufacturing engineering was responsible for reviewing the drawing

 

changes and revising the labor standards that had been applied to each.
As indicated earlier, the labor did not change so this job was estimated
at four hours. At $22.00 per hour, this resulted in a total cost of
£8.99.

Purchased material cancellation approvals had to be received from

 

the nine departments illustrated in Figure 1. The departments involved
provided time estimates that varied from five to thirty minutes to
process the requests. These resulted in an average time of 15 minutes
for a total time of 135 minutes or 2.25 hours. At an average rate of
$27.50 per hour, this resulted in a total cost of yglyga.

The total implementation costs involved were $1,279.88. These

costs were summarized in Table 15.

56

TABLE 15

Implementation Cost Summary

 

Department

 

Engineering

Engineering Drawing Change
Engineering Drafting

Drawing Files

Cost Department

Bill of Material Change Department
Manufacturing Engineering

Matrial Cancellation Approvals

$ 78
$120

$440.
$ 60.
$144.
$288.

$ 88
$ 61

.00
.00

00
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.88

$1279.

88

 

Chapter VI

Discussion of Results

Cost Summary

 

The results of the study revealed that combining the four boxes
into one, resulted in a definable annual savings of $4,454.49. They
also revealed a definable annual cost increase of $281.29 and an addi-
tional potential cost increase of from $0.00 to $4,292.93, resulting in
a potential increase of from $281.29 to $4,574.22. The total cost
effects of the study ranged from a maximum annual savings of $4,454.49
to a maximum annual cost increase of $119.73.

From experience and knowledge gained during the study, the author
anticipated that the actual effect on the Company's profit was much
closer to the $4,454.49 cost savings than to the $119.73 cost increase.
The following analysis was an attempt to arrive at the actual costs

involved.

Estimated Actual Costs

 

Most of the additional requirements for 194.4 cubic feet of storage
space in the parts department were absorbed by the storage space that
was already available. A conservative estimate was that the actual
cost increase for storing the larger carton would be only one third of
the maximum possible or $100.00.

Due to the fact that only ten percent of the master containers
shipped fully loaded, most of the annual requirements for the additional
777.70 cubic feet of master shipper space requirements was also absorbed

in the existing capacity. A conservative estimate was that the actual

57

58
cost increase for master containers was only one fourth of the maximum

possible or $225.00.

The additional distribution costs resulted from the additional
weight of .177 pounds per package. To increase the cost of a UPS ship—
ment, six parts packed in carton #1 were required to increase the total
weight of a master container by one pound or the original weight of the
master container had to have been within .177 pounds of the next higher
rate point. It was conservatively estimated that this would affect no
more than 50 percent of the standardized boxes. This resulted in a
realistic UPS shipping cost increase of $1,336.00.

To increase the cost of a Common Carrier shipment, the .177 pound
increase or some multiple of it, had to apply to a master container that
was near to or over the minimum weight for its destination. Due to the
fact that an estimated 80 percent of common carrier shipments shipped
below the minimum weight, the additional weight of the larger package
increased the distribution costs only 20 percent of the time. It was
estimated that the actual cost increase for common carrier shipments
was a similar 20 percent of the maximum, or $82LQQ annually.

A summary of the cost increase resulting from these estimates has

been given in Table 17.
Actual Cost Summary

Combining the estimated cost increase of $1,743.00 with the dunnage
cost increase of $281.29 resulted in a total cost increase of $2,024.29.
Combining this cost increase with the $4,454.49 cost savings resulted in
a $2,430.20 annual savings for the Company. The $1,279.88 implementation
expense was recovered in roughly seven months, making this a very attrac-

tive investment for the Company. Even using conservative estimates.

59
the results of the cost analysis revealed an attractive savings

resulting from simplification.

Table 16

Estimated Actual Cost Analysis

 

Estimated Percentage
Cost Areas Range Actual Cost of Maximum

 

 

Storage Costs

Packaged Parts ($0.00 - $306.00) $100.00 33%
Master Container Costs ($0.00 - $902.98) $225.00 25%
Distribution Costs

UPS ($0.00 - $2671.95) $1336.00 50%

Common Carrier ($0.00 - $412.00) $82.00 20%

 

($0.00 - $4292.93) $1743.00

 

Potential Benefits

 

The savings percentages given in the results of the study showed
the savings potential for a higher volume operation. The annual usages
of these cartons, from 3,000 for carton #1 to 9,600 for carton #3 and
even the combined total of 24,000 for all four, were quite low from an
industry wide view point. Applying the 66.7 percent main warehouse
space savings, the 75 percent storage area savings in the parts packing
area and the 24.5 percent reduction in the average cost of the boxes

to a high volume operation would have tremendous cost saving potential.

60

Table 17

Final Cost Summary

 

Total
Defined Costs $281.29

Total
Estimated Costs $1743.00

 

Total Annual
Cost Increase $2024.29

Total Annual
Cost Decrease $4454.49

Total Annual
Cost Savings $2430.20

 

Dapartment Cooperation

 

Overall, all of the Company departments interviewed were very
positive about the substitution of the boxes. All departments were
very willing to share their information for the research. Only those
areas that were strictly a paperwork type function, like the drawing
change group and the bill of material change group, seemed only to be
concerned with their own work effort. Neither department opposed the

project, but neither were they in favor of the extra work.

Substitution Example

 

A question obvious to the reader and one that confronted the author
early in the study was, why replace box #3 which originally cost $.145

with box #1 which cost $.148? The answer lay in the overall costs in

61
the system. If box #3 had been eliminated from the study, its annual

usage would have been lost from box #1's higher volume buying power.
This would have raised the cost of the remaining 14,345 boxes by con-
siderably more than the $28.98 (.003 x 9659) savings that resulted from
keeping box #3. There would also have been savings lost due to storage
space requirements, purchasing costs and all of the other savings areas.
This again pointed out that the true cost effects were only found by

examining all of the factors involved.

Chapter VII

Conclusions of the Study

The study verified the author's hypothesis, that simplification of
the number of different size shipping packages was beneficial to a
corporation's total system and resulted in increased profits. The
study revealed that combining four similar sized cartons into one,
resulted in 5 $2,430.20 annual cost savings to the Company, with a
seven month payback of the one time $1,279.88 implementation expenses.

The savings resulted from reduced material costs due to higher
volume buying reduced ordering costs due to the reduced number of
purchase orders required and reduced storage and inventory costs due to
the reduction in the number of items stocked. Cost increases were
realized in increased dunnage and distribution costs which resulted from
the expanded use of the larger box. These cost effects were consistent
with the theories and examples found in the literature.

The study also verified the potential danger of simplification in
the packaging area. That danger was in looking at the obvious effects
and not considering the effect on the total system and the ultimate
effect on the Company. Eliminating the three boxes had obvious effects
on packaging and distribution, but it also affected 16 other areas of
the Company. In this study, most of the effects were positive, but the
potential existed for having the positive results in the obvious areas
out weighed by negative results in other areas.

Simplification of packaging materials has cost saving potential.
Every manufacturing operation and every simplification effort will be
unique. To determine the benefits of simplification for a company,

the effects on the total system must be analyzed.
62

Chapter VIII

Recommendations

It was recommended by the author that boxes #2, #3 and #4 be
cancelled and replaced by box #1. It was also recommended that other
similar size boxes be evaluated for further simplification. The steps
taken in this study were to be followed to determine the overall savings

potential.

63

Chapter IX

Areas For Further Study

As a result of the study, the following areas were identified as
having potential for further study in the area of packaging material
simplification.

1. An in depth analysis into any one of the 18 areas that

were identified in the study.

2. A determination of the effects of packaging material

simplification on export shipments.

3. A determination of the effects of packaging material

simplification on air shipments.

4. A more in depth study into the use of the larger carton

and the effects of the trucking industry rate system.

64

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BIBLIOGRAPHY

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