Shipping accounts for about 75% of supply chain costs on average, according to research by ORTEC.
That number still shocks us every time I see it.
Digging in, inbound and other types of shipping like transfers can be large individual expenses, but are inherently more optimized at a cost-per-unit level because of how items are batched, which results in them being a small part of the 75%. Conversely, outbound shipping is a very big chunk, because each individual item needs to be shipped to a customer.
There are so many levers to optimize outbound costs. We have focused a lot on the specifics of carrier methods and how much distance plays a role, which in general are the most impactful areas.
But other meaningful optimizations exist, too.
How you optimize packing sizes is an important component regularly overlooked. Some studies show optimizing your packaging mix can save around 20% of outbound shipping costs. That's a lot!
Early-stage companies usually aren't thinking about this area of optimization, and that's okay given their comparatively low amounts of complexity. A young and small company will inherently have fewer SKUs, fewer variations, lower shipment volume, and less opportunity to make a meaningful impact on operating expenses than larger organizations.
Meanwhile, on the other end of the spectrum, Fortune 500 companies like Walmart, Amazon and Target have this aspect down to a science.
It's somewhere in between that a company must flip a switch and make key decisions around packaging box sizes that meaningfully impact cost, customer experience, and scale. It's usually triggered by volume of shipments and variability of SKU size and weight, but is unique to each company.
We argue that companies should look at it sooner rather than later. This article will break down all the considerations to a smart packaging strategy for ecommerce fulfillment, which you can take away and determine if the ideas and timing make sense for your business.
Much like printing a label, carton sizes for shipping purchased goods is an essential requirement to every order. Outside of a few edge cases where products might be shipped in their manufacturer packaging (e.g. appliances), you physically can't ship an order without a box. Functional packaging is existential, in a sense.
Here's how packaging typically works:
Sometimes, selecting the right shipping box size is a straightforward decision:
But more commonly, the associate is dealing with multiple SKUs and hard geometrical puzzles. The greater the complexity, the slower the decision making, the greater the chance of the least efficient choice being made, and in general just worse throughput performance. Operations can make her life easier with a combination of standard sizing and even better software.
Let's walk through some considerations.
The first step towards optimizing your cartonization is getting a handle on the profile of your orders and shipments.
Note that those are two different things.
Orders in this case means the properties and attributes of goods included in an order. Your profile is highly contextual to your business. What matters are the physics around the order: shape, dimensions, weight, vulnerability, and the variability amongst each.
You get the idea.
The goal is to get a handle on the physical properties and variability of what you sell.
Variability typically tracks with a more complicated packaging strategy.
Along with variability, you must analyze volume. Which products ship more than others? What combinations are more frequent than others?
While linked, the profile of orders is different than the profile of shipments.
Shipping analysis depends on understanding the performance and attributes of your fulfillment network, primarily the carriers.
We talk more about shipping profiles in our playbook about negotiating carrier rates.
You need to know what you typically ship (orders), and how they typically ship (shipments).
If you have one FC, then orders usually equal shipments in the sense that there is little variability between how the what is shipped, so to speak.
But if you have two or more FCs, then additional variability is injected.
You are likely to have more splits, which can be an efficiency drag if unmanaged.
The key understanding stems from the chance that an order profile being shipped from FC East might have a totally different shipping profile than if it was shipped from FC West, for example.
With a comprehensive understanding of customers and shipping in hand, the first decision is to pick the packaging type.
There are several types of boxes, which we won't get into here, like cold storage companies needing cold packs, or very heavy SKUs needing sturdier materials. As always, use whatever is best for your business.
Branding on the outside of boxes can be a savvy marketing play, an expensive distraction, or both.
A typical cost/benefit calculus determines if it's a good idea for your business. For example, an additional $0.05/box might be worth it for some businesses but not for others.
The mistake is computing the calculation purely based on hard costs like ink. The pitfall to avoid is found in complexity added to process.
For example, if the strategy consists of sending branded boxes to Customer ABC but not to Customer XYZ, that will create immense downstream costs. Pick-and-pack processes will get more complicated, storage will increase (store 9x6x4 of both branded and unbranded), and human decisions will regularly be wrong.
It's a requirement that the selection process be simple if you desire to use branded boxes.
A few other considerations:
The last point is a relevant synopsis of the topic:
The incremental operating cost for branded boxes is tied to growing the top line.
In reality, it might be financially smarter to save that money or put it towards optimizing other fulfillment components — from product packaging to shipping to returns — that impact savings and the bottom line. Branded boxes are a controversial topic that shines a light on which metric matters most to your business: growth or profit.
In the end, only you will know what's best for your business.
Raise your hand if you saw a 20% Door Dash coupon when opening your Blue Apron subscription box.
Inserts and promotions are increasingly becoming common, but they are extremely divisive throughout the industry.
They are indicative of how a box is packed, so let's recap a typical packing strategy.
Dunnage is first. Associates will include materials to ensure safe and efficient transit of goods. It serves a purely functional purpose.
Second is a packing slip, or a list of all items included in the package. This is helpful in most cases, but critical if your fulfillment process takes advance of split shipments. Packing slips are potentially the cheapest and best impact on toppling promotions, however. If slips are a longer sheet of paper, it is straight forward to advertise a new product line to customers on the slip itself. Customers are usually in the midst of a positive experience, unboxing something they have been eagerly waiting for, so a promotion at that moment works well.
The trick is to ensure the generic nature of the promotion on the packing slip: Make it universal to all customers to keep variability and engineering costs to a minimum.
Then comes marketing materials like inserts. Marketing folks have a favorable view. Operations folks typically don't. Both have a point. What matters is what makes sense for your specific business, but more importantly what matters for your specific customer.
A few considerations:
While divisive, inserts and promotions can be beneficial if this single principle is adhered: Market an additional product you think your customers will really like, versus a product that pays the most to be included. If the thing being promoted doesn't align with your customer, you will almost always experience a negative ROI no matter how much that partner paid for the opportunity to promote.
The following plays are for companies who must use boxes and can't simply anchor on simpler packaging like softpacks for all orders.
Look at all orders (not shipments) that left each FC last year on the same day. It will be the closest approximation of anticipated order profile and volume. (People don't tend to order winter jackets in June, for example.)
Do a theoretical analysis of single-shipments for those orders. If every SKU was a single shipment, what is the variability and frequency of dimensions and weights?
With this analysis in hand, figure out the maximum number of boxes to support each FC. This is an answer that is part art and part science.
To illustrate the point, consider polar maximums. If the goal was to optimize outbound shipping costs as much as possible, you'd have unique box dimensions for every SKU to ensure zero air is ever shipped. But that is practically impossible.
On the other end, if the goal was to optimize the cost of box management, you'd simply stock one box size. That would give you the maximum volume discount, would streamline storage, and make selection easy. But that would never support all the shipment configurations needed.
Each business is somewhere in between.
The variation and sizes needed are contextual to your business. With that said, a few considerations:
The statistical analysis is conducted as follows:
If it turns out the financial costs for shipping air are higher than the process/storage costs of available boxes, iteratively introduce another box size. Re-run the calculation. Keep doing so until you near equilibrium.
If, on the other hand, it turns out the financial costs are less than the process/storage costs of available boxes, then iteratively remove package box sizes. Keep going until you near equilibrium.
From what we have seen, the sweet spot is between 5-10 box sizes, with most companies finding the optimal selection around 8.
It may surprise you that the number is this low. On average, this range has tended to be the right mix of optimizing the competing priorities of:
The analysis can be done by hand with spreadsheets, but it is possible to employ machine learning and software to determine the results.
The Shipium platform offers a Carrier Selection product which integrates at a given FC.
The product helps determine the cheapest/fastest shipping method available per-order based on probable performance, not based on the generic carrier SLA. A 5-Day Ground method might arrive next day, for example.
Carrier Selection also offers an API for packing sizes. Customers tell us the dimweights of the SKUs for an order, and we return the most optimal box size to pick based on available sizes. It helps ease the pick-and-pack burden for the associate and streamline decisions, while minimizing the amount of "air" shipped on an annual basis, thus helping reduce shipping costs.
Request a demo today and discover how Shipium can help optimize your ecommerce shipping operations.