Packaging, Handling, Storage and Transportation

Packaging, Handling, Storage and Transportation

As integral components of any effectively managed supply chain, packaging, handling, storage and transportation are of fundamental importance. By identifying opportunities for improving the manner in which these supply chain components are implemented and administered, companies of all types and sizes can also gain a competitive advantage by improving customer satisfaction, as well as improving their performance and profitability. To determine how these can be accomplished, this paper provides a review of the relevant literature concerning packaging, handling, storage and transportation considerations from a supply chain management perspective, followed by a summary of the research and important findings in the conclusion.

Review and Discussion

A supply chain consists of the entire network of organizations that are involved in delivering products and services to end-customers (Lambert, Garcia-Dastugue & Croxton, 2008). There is a growing consensus that logistics managers must integrate the activities that take place along the entire supply chain in order to be effective (Lambert et al., 2008). This is a vitally important point because effective supply chain management is an essential element in achieving competitive advantage and improved performance. In this regard, Chapman and Ellinger (2009) emphasize that, "The potential for creating customer value and sustainable competitive advantage through supply chain management is now widely acknowledged within industry. Similarly, the strategic significance of the logistics processes that enable the efficient and effective management of supply chains has also increased" (p. 197). Four components of a supply chain include packaging, handling, storage and transportation, and the manner in which these components are administered can have an enormous effect on the effectiveness of the supply chain as discussed further below.

Packaging.

According to Twede, "Logistical packaging -- the logistical system component comprised of shipping containers, dunnage, and unit loads -- has a significant impact on the productivity of logistical channels" (1999, p. 69). As examples, Twede cites the efficiency of sorting that relies on the number of units that are being processed that are compatible with an organization's manual or automatic identification systems such as electronic product codes, bar codes or radio-frequency identification labels, as well as their size, shape, and weight of the packages that are involved. In addition, end-customer satisfaction will ultimately depend not only on how quickly a package is received, but on the condition it is received, making the protective methods that are used in the packaging process of utmost importance (Twede, 1999). According to Twede, the costs that are associated with packaging include a number of factors that may not be readily discernible but which inevitably contribute to the costs of packaging. Consequently, "Focused academic and management attention on the logistical packaging function has the potential for creating dramatic savings throughout the marketing system (Twede, 1999, p. 69).

One environmentally responsible approach that has proven ability to reduce packaging costs is reusable packaging. In this regard, Mollenkopf, Closs, Twede, Lee and Burgess (2005) emphasize that, "Since logistics is one of the major drivers of packaging requirements, firms can develop more environmentally responsible logistics operations to reduce packaging waste. As part of such an initiative, reusable shipping containers are increasingly being applied in production environments" (2005, p. 169). Besides beyond more environmentally responsible, by reducing packaging waste, companies can also increase their profitability (Mollenkopt et al., 2005).

Handling.

Cable television is flooded with infomercials that compel consumers to order by offering twice as much product or adding other items to the offer "for free, just pay additional handling." These marketers are taking advantage of the exorbitant prices that can be charged for handling, which are in fact steep. According to Holmstrom, Hoover, Louhiluoto and Vasarahandling (2002), the costs that are associated with handling include activities such as performing quality checks, writing receipts, and unpacking as well as other depending on the setting. These costs can be significant as well. For instance, Holmstrom et al. note that, "For a typical industrial customer, such expenses amounted to the price of many order lines themselves. As a result, the customer must choose between ordering in relatively large lots and holding unnecessary inventory, on the one hand, or paying the higher cost of many small orders, on the other" (2002, p. 63). Therefore, streamlining the handling involved in the supply chain by incorporating automation and computer-based applications can help reduce these costs, which will provide additional flexibility for customers in the quantities they order as well as reduce the costs involved in providing these products (Boyson, Harrington & Corsi, 2004; Sebastio & Golicic, 2008).

Storage.

As part of the overall supply chain management process, manufacturers typically have three alternatives available for their storage requirements:

1. A private warehouse facility operated by the shipper using the warehouse;

2. A contract warehouse operated by a third party that uses dedicated resources to service the shipper; and,

3. A public warehouse operated by a third party and services multiple shippers using shared resources (Maltz, 1999).

Depending on the products that are involved and the manufacturing methods used by a company, storage costs can also add a great deal to the final costs. According to Maltz, "Logistics in the United States remains heavily oriented toward company-owned operations such as proprietary field warehouses. [Such] private warehousing provides over 85% of all domestic warehousing services" (1999, p. 45). Because there are some viable storage alternatives available as noted above, though, companies that rely on private warehouse facilities may be able to reduce their storage costs by outsourcing this requirement to a third party vendor. Some manufacturers have elected to form strategic relationships with third-party providers for their storage needs for good reason. According to Rogers and Daugherty (1992), "Warehousing firms involved in alliance-type relationships with their customers offer more services to their customers than do transaction-oriented firms" (p. 250).

Transportation.

Just as handling costs affect the price charged to end customers and their decision concerning what levels to order, transportation costs can likewise become overly burdensome if care is not taken in mode and carrier selection. Unfortunately, less expensive modes and carriers do not necessarily represent a better choice for many organizations because of the overriding need for reliability. Companies using a just-in-time inventory approach, for example, might find their entire operation shut down because of the failure of a supplier to provide them with essential materials. In this regard, Maltz notes that, "The transportation choice literature has consistently found that service quality, rather than price or cost, is the most important factor in mode selection and carrier selection" (1999, p. 46).

In the past, the costs associated with transportation as part of the overall supply chain were mistakenly regarded as being fixed, and were therefore not considered important for contract negotiations (Carter & Ferrin, 1999). These views were based on the assumption that there was little difference in the speed and quality of the service provided by different carriers in the same mode (e.g., trucking, railroads, air cargo, etc.) (Carter & Ferrin, 1999). In recent years, though, there has been a growing recognition that there are differences between modes as well as carriers in terms of their efficiency and reliability which should be taken into account in the decision-making process concerning which approach is optimum for a given company (Carter & Ferrin, 1999). Moreover, companies that fail to accurately determine their logistics costs such as transportation can loss any competitive advantage gained through the effective administration of the rest of the supply chain (Lambert et al., 2008).