How IKEA Saves Millions Through Packaging Optimization

By Tom Blanck | Principal, Packaging Optimization Practice

In a recent article published in the Wall Street Journal entitled “IKEA Can’t Stop Obsessing About Its Packaging,” reporter Saabira Chaudhuri highlights many of the ways Swedish furniture retailer IKEA is cutting waste and boosting efficiency through optimizing its packaging.Packaging-Optimization-Ikea-We-Hate-Air

IKEA CEO Peter Agnefjäll’s mantra is simple: “We hate air,” which echoes a guiding principle that we follow at Chainalytics when consulting with clients on packaging matters.

It is quite inspiring to see IKEA grabbing packaging optimization by the horns and realizing true value. That’s something that requires a trained eye and an understanding of supply chain operations that can be difficult for some companies to see.

What can be surprising is how seemingly minute changes, as small as a fraction of an inch, can cascade through the supply chain and can end up saving millions of dollars. Most companies have undiscovered opportunities – sometimes in plain sight – just waiting to be tapped.

Packaging’s Ripple Effect on Supply Chains

Packaging-Ripple-Effect-Supply-Chain-ChainalyticsThe benefits of an optimized package are amplified throughout the distribution cycle. When working with primary packages, structural changes can optimize cases, which drive more SKUs fitting on a pallet and more product in a trailer or container. Besides the potential cost savings attributed to packaging materials, even greater savings result from decreased handling, storage and transportation costs.

To illustrate how quickly small packaging optimizations compound through supply chains, consider the change one of our clients made to the primary packaging of a frozen pizza box.

Our redesigned package reduced dimensions by only 1/8” x 1/8” x 1/32”. Visually indifferent to the consumer’s eye, it does not sound like a drastic change, but the client realized over $600,000 in annual cost savings as a direct result of this minute change.

Some efficiencies derived directlyPackaging-Optimization-Case-Study from these changes equate to:

  • 133 fewer truckloads per year
  • 66,500 miles of transit eliminated
  • Decreased transit costs by $133,000
  • 9,500 fewer gallons of diesel fuel consumed per year
  • Over $175,000 in reduction of material costs
  • 146 tons of corrugate and paperboard material eliminated

Educate Sales & Marketing Teams to Save Sooner

Marketing departments are focused on developing packaging that increases visibility on store shelves and attracts customers. Working with graphic artists and brand managers, optimizing packaging for the supply chain is simply not on their minds and is often unnoticed and undervalued.

With attention on driving sales and brand recognition, not much emphasis is placed on the physical distribution or trailer utilization of the package itself.

There is an opportunity – and responsibility – for packaging and supply chain professionals to educate sales and marketing departments on the importance of structural packaging optimization and the numerous cost benefits it can provide.

More and more companies are giving supply chain managers more powerful voices as they realize the the vital role of distribution efficiency in competing effectively. Getting involved in packaging development decisions earlier in the process is an excellent use of that voice.

Engineer Costs Out of the Supply Chain

At Chainalytics, we love the cost saving multiplier effect that small packaging changes have on bottom lines, but things get really interesting when these optimizations are integrated with product design.

IKEA saves €1.2 million every year because company engineers figured out how to break its Ektorp sofa into several different pieces, reducing its packaging size by 50%. This is a great example of how including the supply chain perspective early in development processes can create huge benefits.

The WSJ article highlights that, [tweet_dis]“IKEA is increasingly designing things with packaging and manufacturing in mind from the start.”[/tweet_dis]

This touches on what we at Chainalytics call “Designed for Distribution” and is the direct result of including the supply chain perspective early on in the development process.

Another element of this “Designing for Distribution” concept is engineering both the product and the packaging requirements to survive in transit.

Damage during transport can wreak havoc on supply chain costs and have detrimental service implications. An integrated engineering approach should be taken during product development, considering both product hardness and the hazards it will encounter during distribution to produce a satisfactory consumer experience on all fronts.mojo_solo_image_gears_highres

For example, Chainalytics helped 3-D printing company Stratasys minimize shipping damages on its Mojo printer by tweaking both the product design and the packaging early on in the development process we were able to optimize the shipping unit, reduce risk, and ensure customer satisfaction.

Thus far there have been zero failures, zero returns of Mojo.

Money Isn’t the Only Green Benefit of Packaging Optimization

Another intangible benefit of these efficiencies is sustainability.

It can be challenging for many companies to make a business case solely based on sustainability as a primary objective and actually gain traction. While this may be the case, [tweet_dis]green and efficient supply chains aren’t mutually exclusive but mutually dependent[/tweet_dis] as such, sustainability is almost always a positive net result of packaging optimization.

That same frozen pizza box initiative that saved our client so much money, ALSO eliminated 100 tons of CO2 emissions and saves nearly 3,000 trees each year.

What You Do With the Savings Is Up To You

One striking thing about the savings IKEA is realizing from its packaging optimization efforts is how they’ve chosen to leverage them: IKEA passes the savings directly to the customer providing a competitive advantage for themselves in the market.

Reducing the size of Ektorp’s packaging allowed the company to reduce the purchase price by 14%. That makes great sense for a company that caters to cost sensitive consumers that love great deals, but don’t want to sacrifice quality.

Agnefjäll summed up the pursuit of efficiency nicely by saying,

[tweet_box]“We are engineering costs out of our value chain that don’t contribute anything.”[/tweet_box]

At Chainalytics, we couldn’t agree more.

To learn more about how packaging can be used to reduce inefficiencies, I am hosting a free webinar with the Georgia Institute of Technology on “Optimizing Packaging’s Impact in the Supply Chain” Wednesday, July 29 at 1:30pm EST. As bonus, webinar attendees will receive a discount code for a 2-day Packaging Optimization class September 1-2, 2015 on the same topic as part of Georgia Tech’s Supply Chain Management certificate program.

Tom Blanck helps leads the Packaging Optimization Practice at Chainalytics where he manages the delivery of supply chain packaging optimization and complex package engineering services as well as packaging value improvement programs.

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