Abstract

The goal of the thesis is to demonstrate the total packaging costs in the supply chain and show

what kind of effect damage during the transportation has in the total packag- ing cost.

The research method is the qualitative method of doing research and gathering infor- mation

about the cost centers in the supply chain. Total quality cost calculator, pro- vided by Metso

Mining and Construction Technology, is used to analyze the total packaging costs. Two

packaging solutions are compared.

The findings stated that investing to the packages, which are designed to the individual products have

higher material costs, but transportations costs are lower. The total an- nual packaging costs are also

higher with the packaging solution with higher material costs.

The Impact of Packaging on Supply Chain Performance

Chapter one

Introduction

Packaging has traditionally been seen as an important part of the physical product

(Brown, 1950). The change of customer expectations, however, as customers become more

demanding, means that the role of packaging becomes more important as it can be used to

provide information and functions. This may mean that certain functions of the package are

modified or intensified, compared to the package’s previous function of merely protecting the

merchandise, and facilitating storage and transportation. This addition of new services or

functions to the package of the goods can be viewed as a transition of a product on the goodsto-

services continuum. Since customers perceive goods and services in different ways, such a
transition makes it important for organizations to reconsider what quality means and how it is

related to customer satisfaction.

Packaging has become much more than it used to be. Today a package is not only designed to

contain, preserve and transport the products; it also acts as an interface between the seller and the

buyer. This means that the package requirements have escalated. The package should not only

protect but also inform for example about the requirements that need to be clear when

transporting the products. The package is the first

thing that the customer sees when he or she receives the ordered product and therefore it

should send a message about the qualities and values that the company represents and

further more it should sell.

. However, research and practice have demonstrated that it is strategically important and has a

significant impact on logistics and supply chain performance — and on creating value. In fact,

packaging affects every single logistics operation throughout supply chains from point of filling

to point of emptying and recycling. For instance, a producer needs to fill, store and handle

packages, and a transport provider strives for efficient loading and unloading as well as volume-

and weight-efficient packaging to obtain sufficient load factors. Then, warehouse and store

operators want to pick, stack, store and replenish packaging efficiently, and the packages should

be easy and convenient for consumers to open, use, empty and dispose.

Objectives of the Stud

This paper tries to analyze and find out the most important elements of packaging that influence the buying

decision process. Thus, the paper will try:

To find out the impact of packaging on the buying behavior decision.
To check the effect of packaging elements on the buying behavior.

To measure the relative impact of each packaging element on the consumer.

1.2. Research Questions and Hypothesis

The study tries to answer the following research questions:

1. What is the impact of packaging elements on the buying behavior of consumers?

2. What is the effect of the packaging elements on the buyer behavior?

3. What elements of the package are more important for consumers in the buying decision process?

CHAPTER TWO

LITERATURE REVIEW

2.1Introuduction

2.2 supply chain packaging management

A holistic view on packaging performance, where the system boundaries include the whole

supply chain, can enable cost efficiency from improved logistics and transport efficiency and

reduced product waste. It is important to note that packaging can also increase sales by attracting

consumers using design features, and by providing convenience for consumers when using

packaging. The holistic view emphasizes the need to manage trade-offs related to numerous

requirements on packaging in order to maximize the packaging performance.

Because packaging has many roles and functions, it is a complex matter of maximizing

packaging performance. Packaging should protect, contain, unitize, apportion and sell products.

It should also provide convenience and communicate with supply chain members and

consumers, and enable efficient logistics and transport operations. This leads to several

economic, environmental, ergonomic and legal requirements on packaging — which should be

fulfilled in the best way through a number of packaging features, such as protection, stackability,

volume efficiency, material-handling efficiency and promotional attributes.

The complexity of maximizing packaging performance is also affected by the fact that several

departments in a company have a stake in packaging, and that different companies in the supply

chain have different requirements on it. For instance, in one company, the marketing department

emphasise the role of packaging to increase sales, and the logistics department focuses on

increased material handling and transport efficiency. In another part of the supply chain for the

same packaged product, there can be other logistical requirements from a logistics department in

another company.

In addition, the packaging requirements are not fulfilled by a single package, but by a packaging

system, which adds complexity. A packaging system consists of primary packaging, which is in

contact with the product. It also has secondary and tertiary packaging, which contains a number

of primary packages and secondary packages respectively. This adds complexity as the primary,

secondary and tertiary packaging interacts with each other. For instance, if the secondary

provides sufficient protection, the need for product protection in the primary packaging may be

reduced.
To obtain high packaging performance, the complex situation with many, sometimes

contradictory requirements on a packaging system and its inherent interactions must be managed

effectively. This includes understanding and making informed trade-offs on different packaging

features with maximizing the overall packaging performance as the target. Preferably, packaging

should fulfill requirements from various organizational units or areas, like logistics, marketing,

production, sourcing and consumers. Packaging should also have a minimal environmental

impact and fulfill ergonomic and legal requirements. However, the different requirements are not

often fully compatible. For example, a producer may emphasize filling efficiency and low

packaging cost, a transport provider may focus on volume and weight efficiency, while a retailer

may accentuate promotional attributes, product information and handleability for sufficient

replenishment.

Managing Trade-Offs on Packaging Requirements

The key to maximize packaging performance is to apply a systems approach. This means

viewing the usage of packaging in a supply chain as a system where the packaging system is a

subsystem. With this approach, the packaging system design and selection is guided by the

overall packaging performance. This can be operationalized by using a number of existing

methodologies, frameworks, and models and analysis tools.

A packaging performance methodology helps to collect data in a structured manner, measure the

performance of a packaging system within a supply chain, evaluate and identify improvement

areas of packaging systems in supply chains, and visualize underperforming packaging features

both within the packaging system and between companies in the supply chain. The packaging

performance methodology helps to first map the packaging system for a product throughout the
 supply chain. It then captures data for the system performance in the supply chain. As a third

step, it evaluates and visualizes the system performance. Finally, it helps to improve the

packaging system.

Several available frameworks can facilitate this systems approach. For instance, an existing

framework describes the supply chain effects of e-commerce and their general implications on

the packaging system. The framework helps to understand implications on the packaging system

in e-commerce in order to improve packaging performance. Another example of a framework

explains where in a supply chain packaging supplies and packaging waste occur. This helps to

maximize the packaging performance in terms of waste management and recycling. Many

detailed frameworks support parts of the process to improve packaging performance. An

example is a framework, which helps to identify and structure where primary, secondary and

tertiary packaging affect different operational processes in the supply chain. This is useful to

understand potential trade-offs if a packaging feature is changed. For instance, if handles are

added to a secondary package to simplify the replenishment in stores, it may affect the picking

process in warehouses, but not transport providers if they only handle tertiary packaging.

Models and analysis tools for packaging performance refer to computerized packaging selection

models, often contextualized to specific industries. They can be based on minimising costs and

the environmentally impact. The environmentally based tools are usually inspired by life cycle

assessment. For industrial packaging, here is an evaluation model with five factors, which

together determines the performance of industrial packaging:

 Packaging material: impact of all packaging material

 
 Transport: Impact of packaging on transportation in all parts of the system

 Material handling: impact of packaging on material handling activities in plants and in warehouses

 Waste handling: include waste, recycling and reuse of packaging systems as well as damaged

components because of insufficient packaging

 Capital: impact of packaging on capital costs of components in inventory

To determine and improve packaging performance, the combined effect of these factors should

be analyzed.

Standardization vs. Lock-in Effects

The performance of packaging in logistics operations are highly affected by the level of

standardization of packaging, material handling equipment, vehicles and information and

communication technology. Standardization facilitates economy of scale principles, and aims to

eliminate waste, duplication of work and redundant activities. In general, a high level of

packaging and logistics standardization often leads to lower logistics cost. Thus, it should be

considered as a key in obtaining high packaging performance.

However, the risk of lock-in effects should be considered in the decision to standardize. For

example, a perfect match between a standardized packaging assortment and the current products,

vehicles and material handling equipment may become inefficient over time, if the

characteristics of the product assortment or the supply chain change. Because of high investment

in standardization, it may be costly to change equipment and packaging assortment, but still
necessary to improve packaging performance.

Competitive Advantage and Greening Operations Through Packaging

Managing packaging systems in a conscious and smart way by making informed decisions

enables companies to create competitive advantage and greening operations through cost- and

resource-efficiency in material handling, transportation and packaging material usage, combined

with minimal product waste from sufficient packaging protection. To maximize performance, a

number of methodologies, frameworks, models and analysis tools can be applied, as they help to

apply a systems approach on packaging and its usage. Research and insights from the industry

clearly show that a majority of companies have much to gain by putting more emphasis on the

overall performance of packaging systems. It is then possible to better adapt packaging

performance to changes in the business environment (e.g. globalization and short lead times),

and to be proactive toward new legislation and continuously increased consumer awareness of

the environmental performance of packaging. A specific opportunity space lies within e-

commerce, where packaging performance has been overlooked so far.

PACKAGING

Alan Rushton, Phil Croucher & Peter Baker (2006) states that when talking about the

physical nature of a product it is rarely seen in a logistics function in its primary form.

The typical forms, which the final products are consisting in a logistics chain, are packages and

unit loads. Hence, these two elements are bound to any relationship of the

product and logistics. Alan Rushton, Phil Croucher & Peter Baker (2006, 116)

Broadly the packaging is defined as a product promotion or product protection. The

latter function is particularly relevant to logistics. There are also other important factors

that need to take under consideration when making the decision of the design of the

packages for logistics purposes. In addition to product protection, packages should be

simple to handle, convenient to store, promptly identifiable, secure and the shape should

enhance the best use of space. Usually the cubical design is the most preferred form.

Alan Rushton, Phil Croucher & Peter Baker (2006, 116)

It is important to understand that in logistical operation the package is the product that is

stored and transported which means that in every possible occasion it should rather help

than to be an obstacle to the logistical operation. Alan Rushton, Phil Croucher & Peter

Baker (2006, 116)

Packaging is very much a part of the total logistics function, and the design and use of

packaging has an impact to other functions such as production, marketing and quality

control, as well as for the total logistics cost and performance. Alan Rushton, Phil

Croucher & Peter Baker (2006, 117)

The other important form is the unit load, where use of a unit load enables goods and

packages to be grouped together and then handled and transported more efficiently using

mechanical equipment. Alan Rushton, Phil Croucher & Peter Baker (2006, 117)

Distribution and logistics is largely structured around the concept of a load unitization

and the choice of a unit load, which are determined by the type and size. It is vital for

the effectiveness and economics of a logistics operation, because choosing the most

appropriate type and size of a unit load minimizes the rate of material movement.

27

Moreover the right unit load allows the standard storage and handling to be used with

optimum equipment utilization. It also minimizes loading and unloading times and improves
product protection, security and stockaging. Alan Rushton, Phil Croucher & Peter Baker (2006,

117)

Considering the packaging that should enhance the logistical operation in any occasion

on the way in the supply chain and should not be in any circumstances an obstacle to the

linked operations. Metso MAC DC Europe has set clear requirements for the packages

that are been launched and introduced to the suppliers. The visual guidelines, which is a

report designed to emphasize the new packaging requirements to Metso MAC items,

introduce the new era of the packaging in the company’s history, giving a clear message

of the high quality and strong brand. The boxes, which are to be launched, are designed

to be as clear, clean and consistent as possible. The only graphical elements on the

packages in addition to the brand elements are the handling symbols and the packaging

marks for SSCC lists. Toni Helsten. Visual Guide Lines (2011).

These symbols enhance the processes in the transportation phase since they indicate

how the packages should be handled in the different circumstances. The symbols are

vital when the transported products require double handling, since for example in the

ports the transit times are kept minimal and this might have an impact in the way the

packages are handled. This requires also that the packages are strong enough to handle

the rough conditions in the warehousing and transportation.

Since the supply chains have developed tremendously in the past decade and considering the

transportation journey they have become really long. Metso MAC DSC Europe

will have the SSCC serial number in the packages for enhancing the whole supply

chain. SSCC is a shortening of Serial Shipping Container Code and it is an 18-digit

number used to identify logistics units. The whole supply chain benefits from SSCC

since its basic operating principle is to communicate information about the transported
package to the whole chain. The idea is that the consignor produces the SSCC, which is

exploit throughout the whole supply chain and it will be encoded always when it is

passing over the organizational borders. This will intensify the follow up and the tracking of the

shipment. ISO web site. Updated, 28.11.2011, www.iso.org

28

With these new designed packages new possibilities are available. The follow up of the

shipments might get easier and this could intensify the tracking. With strong packages,

which have clear symbols how they should be handled, could decrease the amount of

mistakes in the way. Using this type of packaging might also have an impact to the

throughput times during pit stops in the supply chain, which would also decrease the

overall lead time. Over all these would enable to allocate the scarce resources of the

company and enhance the total service level.

3.1 Impact of packaging in the Metso MAC supply chain

One of the most important factors is not yet brought up, which is the cost. What kind of

an impact this kind of a packaging would have in the final cost of the product? There

are several hidden costs in the supply chain and every time the packages are received

and again dispatched additional costs occur. These costs require managing and like

mentioned in the logistics chapter, if one element of the supply network fails, the impact

might be tremendous. Like mentioned in the operative purchasing chapter the items are

procured with:

PO, which stands for purchase order and is made when purchasing items that are

stocked to the warehouse and also to the parts that are only purchased against customer

requirements.

MTO, which stands for made to order and is purchased from a supplier that will supply
parts, which are custom, made for Metso MAC crushers. Made to order is more or less

the same type as a normal purchase order. These parts are not usually stocked in the

warehouse and are mainly purchased against customer requirements.

STO, which stands for stock transfer order and is made in occasions where the supplier

cannot supply outside the Finnish borders and the part has to be dispatched from the

warehouse in Belgium. There are also occasions where the part can be transported more

quickly from the own warehouse to another than the supplier. Of course this requires

that there is available stock in the other warehouse.

Considering all this inbound movement of the purchased items one can clearly see that

the parts are transported and stocked at least one time before they will be dispatched to

29

the customer. In some scenarios the part might have several pit stops before it is dispatched and

every time the shipment is received and again shipped several costs occur.

This brings a lot of pressure to the supply chain, since the items should be transported to

the customer to most cost efficient way.

The warehousing chapter gave a picture about the basic processes that are likely to take

place in every warehouse. These included receiving, inspection, stocking, picking,

packaging and dispatching the items. All of these executed operations include a cost.

The outbound processes when the packages are finally dispatched the transit phase

might have several variables before the package reaches the customer. If the package is

to be transported for example outside the European union there are several phases to be

considered. The package is usually first loaded to the truck and the transported to another

location for short preservation. Usually near to the harbor or airport. Then the packages are

stacked to containers, in case of ocean freight shipment, or stacked to aircraft.

When the shipment has arrived to the destination harbor or airport, the packages are

unloaded and again loaded to the trucks for transportation to the destination determined

by the customer. As mentioned before, when there are double handling included to the

operation, it requires always an additional cost.

There are also human factors to be considered on top of all these other factors named

before. If, for example, the package gets lost, time consumed finding it will have an

impact to the customer’s point of view and sometimes when this happens the customer

requires some kind of compensation. If the customer receives the item damaged, the

item has to be recovered back to Metso MAC DC Europe warehouse and a new part

needs to be sent to the customer. This might also include several obstacles such as the

stock situation. If the item is not stocked in the warehouse and is only ordered against

the sale the through put time when it is manufactured along with the lead-time when the

product will be at Metso MAC DC Europe warehouse could take considerable amount

of time, which will also have an impact to the final cost.

Theoretical review

The Theory of Attractive Quality

Inspired by Herzberg’s Motivator-Hygiene Theory (M-H Theory) in behavioral science,

Professor Kano and his co-workers developed The Theory of Attractive Quality. A distinction

between satisfaction and dissatisfaction was first introduced in the two-factor theory of job

satisfaction by Herzberg, Bernard, and Snyderman (1959). In essence, the theory posits that

the factors that cause job dissatisfaction are different from the factors that cause job

satisfaction. The Theory of Attractive Quality is useful to better understand different aspects
of how customers evaluate a product or offering (Gustafsson, 1998). Over the past two

decades this theory has gained increasing exposure and acceptance and it has been applied in

strategic thinking, business planning, and product development to demonstrate lessons learned

in innovation, competitiveness, and product compliance (Watson, 2003).

According to Kano (2001), The Theory of Attractive Quality originated because of the

lack of explanatory power of a one-dimensional recognition of quality. For instance, people

are satisfied if a package of milk extends the expiry date of milk and dissatisfied if the

package shortens the expiry date of milk. For a quality attribute such as leakage, people are

not satisfied if the package does not leak, but are very dissatisfied if it does. The onedimensional

view of quality can explain the role of expiry dates but not leakage. To

understand the role of quality attributes, Kano et al., (1984) present a model that evaluates

patterns of quality, based on customers’ satisfaction with specific quality attributes and their

degree of sufficiency. On the horizontal axis in the Kano diagram (see Figure 1) the physical

sufficiency of a certain quality attribute is displayed and the vertical axis shows the

satisfaction with a certain quality attribute (Kano, et al., 1984). The theory explains how the

relationship between the degree of sufficiency, and customer satisfaction with a quality

attribute, can be classified into five categories of perceived quality: ‘attractive quality’,

‘onedimensional quality’, ‘must-be quality’, ‘indifferent quality’ and ‘reverse quality’.

According to Kano et al., (1984) their ideas are similar to quality theories suggested by Mizuno

and Ishikawa, but in addition to theory, Kano and his co-workers also provide us with a

methodology for use.

Attractive quality attributes can be described as surprise and delight attributes, and

provide satisfaction when achieved fully but do not cause dissatisfaction when not fulfilled

(Kano, et al., 1984). These are attributes that are not normally expected e.g., a thermometer on

a package of milk showing the temperature of the milk. Since this type of quality attributes

often unexpectedly delight customers, they are just as often unspoken. An example of this is

the late Dr. W. Edwards Deming’s rather bantered statement: “The customer never asked Mr.

Edison for a light bulb” (Watson, 2003). Researchers have emphasized the importance of

attractive quality creation (Kano, 2001, Yamada, 1998) since it seems like this dimension has

been neglected by quality specialists who have tended to focus on how to eliminate things

gone wrong (Kano, 2001).

One-dimensional quality attributes result in satisfaction when fulfilled and result in

dissatisfaction when not fulfilled (Kano, et al., 1984). These attributes are spoken and are the

ones with which companies compete (Gustafsson, 1998). For example, a new milk package

which is said to contain 10% more milk for the same price is likely to result in customer

satisfaction, but if it actually only contains 6% more milk, it is likely that the customer feels

misled which results in dissatisfaction.

Must-be quality attributes are taken for granted when fulfilled but result in

dissatisfaction when not fulfilled (Kano, et al., 1984). In our example with the package of

milk these attributes can be represented by leakage. Customers are dissatisfied when the

package leaks, but when it does not leak the result is not increased customer satisfaction.

Since the customer expects these attributes and views them as basic, it is not likely that they

are going to tell the company about them when asked about quality attributes. They assume
that companies understand these product design fundamentals (Watson, 2003).

There are two more quality dimensions; indifferent quality attributes and reverse quality

attributes (Kano, et al., 1984). The first one refers to aspects which are neither good nor bad

and consequently they do not result in either customer satisfaction or customer dissatisfaction.

The latter refers to a high degree of achievement resulting in dissatisfaction (and vice versa; a

low degree of achievement resulting in satisfaction) and to the fact that not all customers are

alike. For example, some customers prefer high-tech products while others prefer the basic

model of a product and will be dissatisfied if a product has too many extra features

(Gustafsson, 1998).

The theory of attractive quality predicts that product attributes are dynamic, i.e., over

time an attribute will change from being attractive, to one-dimensional, to must-be, to

indifferent. Kano et al., (2001) provide empirical evidence for the dynamics of the remote

control for a television that has followed a life cycle such as the following: Indifferent

qualityÆAttractive qualityÆOne-dimensional qualityÆMust-Be quality. By investigating

customer perceptions of remote controls through Kano questionnaires in 1983, 1989, and

1998, Kano (2001) shows that the remote control was an attractive attribute in 1983, a

onedimensional attribute in 1989, and in 1998 the remote control had turned into a must-be item.

2.3 Conceptual framework

The packaging function assumes a crucial role in all activities along the supply chain (e.g.

purchase, production, sales, transport, etc.). It is transversal to other industrial functions such as

logistics, production, marketing and environmental aspects. The packaging function has to
satisfy different needs and requirements, trying to have a trade-off between them. Considering

the simplified supply chain of a manufacturing company, it is possible to analyze the role of the

packaging function for all the parties of the supply chain.

 Chapter three

METHODOLOGY

3.1 Introductions

This study used different methods, and methodology explains the process of research, design,

methods of data collection, sample selection, and ways of analyzing the data. Research is an

intensive activity that is based on the work of others and generating new ideas to pursue new

questions and answers. The main purpose of this paper was to identify the role and the impact of

the packaging in supply chain management. The buyer behavior of consumers is a dependent

variable that is influenced by the independent variables used in the study.

3.3 Data design

3.4 Data collection

The paper used both types of data, primary and secondary. The primary data was collected

through a structured questionnaire. Whereas, secondary data was collected from books,

textbooks, online articles, journals, etc.

This study collected data from respondents using a structured questionnaire in order to find out

the packaging elements that have an impact on the buying behavior of customers. The statistical

tools SPSS and Excel were used for data analysis.

 CHAPTER FOUR

DATA ANALYSIS, FINDINGS AND DISCUSSION

4.0 INTRODUCTION

This chapter includes a systematic presentation of data obtained from the survey about the role
and impact of the packaging effect on consumer buying process.

4.1 DEMOGRAPHIC OF RESPONDENTS

A structured questionnaire was sent to 460 respondents, but 395 responded it. Thus, the
respondents’ rate is about 86%. Table: 1 shows the number of respondents and their
demographic characteristics that participated in the survey. The study included different age
groups, different occupations, and origins of the respondents. There were 395 valid participants
who responded 14 questions of the structured questionnaire.

4.1 To find out the impact of packaging on the buying behavior decision.

4.2 The effect of packaging elements on the buying behavior.

4.3 The relative impact of each packaging element on the consumer.

4.4 Cost of packaging

As we can see from the figure (18) the annual packaging material costs are higher using the
New Design solution. Then again annual freight costs are less than using the Old Design.
Annual total packaging costs are a bit higher using the New Design solution.

Annual Total Costs

6 000
4 524 4 783
5 000 $

3 523
4 000
3 132
3 000 Old Design
1 651 New Design
2 000
1 000
1 000

0$
Annual PackagingAnnual Freight Cost Annual Total
Material Cost Packaging Cost
If we look at the annual total savings, the figure (19), it clearly indicates that using the Old
Design savings would be 650 €. Using the New Design solution, total annual freight costs
savings are 391 €. Annual total cost savings are 259 € using the Old De- sign.

Annual Total Savings

700 $
600 $ 650 $

500 $
400 $ 391 $
300 $
Old design
259 $
New design

200 $
100 $
0$

Annual Material Cost

Annual
Savings
Freight Cost Annual Total Cost
Savings Savings

If we take a look the total packaging costs using the Old Design in the figure (20), we can see
that the total packaging costs are consisting mainly from the freight costs with 78%. After that
come the material costs with 19% and last handling costs with 3%.