Shipping costs were cut by 40 percent when a more efficient way was found to pack and move small shipments of apparel and accessories from China to retailers in U.S. and Canada.

Wholesalers and retailers are moving out of the large distribution center processing world to a leaner and quicker process that calls for drop shipment to destination.  The beauty is that suppliers can move product more quickly from origin to final destination, but there is a cost. To achieve speed to market, suppliers must use small-package carriers that are more efficient at moving individual packages as opposed to LTL or truckload carriers. SGI Apparel knows the challenge well. Among its brands are items with the Harley-Davidson logo, which are sold through Harley-Davidson stores and other retailers.

Until it totally transformed its packing and shipping process, many of its shipments, from factories in China to North American-based outlets, perfectly illustrated waste in materials and money. All too often, it was the norm for retailers to receive multiple shipments that should have been consolidated.

Opportunity was contained in that problem, in the view of Charlie Kantz, vice president of logistics and warehousing with Bakers Footwear Group, a division of SGI, which provides the merchandise to more 360 Harley-Davidson stores and other retailers. Shipments ranging from pizza-box size to larger arrived frequently, often daily. Stores with small staffs and ever-shrinking back rooms had difficulty unpacking and displaying the goods. Kantz: "Retailers just love getting deliveries like this!"

The solution was to initiate a drop-ship program with the Harley-Davidson stores across the U.S.  As set up, the program called for stores to place orders with SGI, which would be labeled in China, brought into the States and then shipped directly to the stores via small-package carrier.  This process allowed SGI to bypass its U.S. distribution center and utilize lower-cost labor in China.

Since SGI passed the cost of domestic shipping to the customer, it needed to find a way to decrease the cost of those movements. Specifically, SGI needed to reduce the number of cartons going to customers' locations. Small-package carriers charge on a per-package basis based on carton weight and distance between origin and destination.  Shipping on a per-pound basis is quite expensive for lower weights but becomes much more palatable as you move into the higher-weight categories, says Max Kantzer, president of Transmodal Corporation, the 3PL managing SGI's shipments.

So it was imperative that SGI get the expense of shipping under control. Enter IES Limited, which offers logistics and supply chain management software for the transportation industry. IES officials saw the need to consolidate multiple shipments for one destination into fewer shipping cartons and maximize the optimization of each shipping carton if it was going to slice shipping costs, and felt they had the answer.

Admittedly, the first solution they came up with was less than ideal as shipping costs actually increased.  SGI, IES and Transmodal decided that since this was a new venture with no prior history, the best approach was to do as much of the process manually to find the shortcomings.

IES helped Transmodal by creating a picking document by store.  This allowed workers to pick all goods going to that store and then bring them back to a packing station where they would be consolidated into one or multiple cartons by store.  Transmodal would use the IES system to scan the individual cartons into the master carton and when completed they would close the carton, print the labels and load the carton onto the container.

Three serious issues resulted: workers' productivity slowed tremendously as they tried to figure the best way to pack cartons together into the master carton; they packed merchandise into cartons if only two cartons fit into a box; and boxes were not cut down before being shipped overseas.  Cartons on average were 60 percent full. "Altogether too much air was being shipped," said Tom Zinner, director of supply chain development at IES.

The system had to be able to identify all cartons going to a single location; analyze the cartons to determine the best way to pack and achieve higher volume utilization at a better shipping cost; and communicate the packing solution to packers in a way that put some zip into the packing process.

IES integrated an optimization engine made by Magic Logic to find out the best way to do it.  The engine allowed IES to put in multiple master carton dimensions along with dimensions of the cartons going to a single location and shipping rates per finished carton size.

IES also used the Magic Logic optimizer solution to bring in a packing diagram that acted as a road map for Transmodal's employees to follow.

They pulled the empty shipping carton or cartons. A barcode on the  carton was scanned to ensure that the correct size carton has been pulled to pack into based on the optimization results.

Importantly, once the outer carton was in place, the system told the packer the first inner carton to be packed and how to place it in the external carton.  The system then moved on to the next carton to be packed.  This continued until all the cartons were packed properly.  Now, once all cartons are scanned into the shipping carton based upon the optimization, the carton is closed. Shipping labels and packing slip labels are printed and applied to the carton.  Before the carton is closed the box is cut down to the top of the tallest unit inside the carton to ensure that there is minimal air being shipped.

The carton is then scanned onto the ocean shipping container.  If there is another shipping carton to be used for a store the carton is scanned and the process starts all over again.

Incidentally, if a wrong item is scanned the system will not allow the operator to move on until the correct item has been scanned.

SGI reportedly was able to realize savings of more than 40 percent on the consolidated cartons as compared to shipping them individually. The savings included the cost of the carton and the labor to pack the carton. The amount of corrugate used was cut in half, Zinner said. The worker's speed to make the packages was also improved by almost 150 percent.  In addition, order accuracy of 100 percent was achieved.

Resource Links:
IES Ltd, www.iesltd.com
Transmodal Corporation, www.transmodal.net