Embed Size (px)
Citation preview
Implementing a New Corrugated Packaging Machine in a Mid
Sized Manufacturing Company
by
Wolfe Parzyck
A Research Paper Submitted in Partial Fulfillment of the
Requirements for the Master of Science Degree
III
Technology Management
The Graduate School
University of Wisconsin-Stout
May, 2011
1
Author:
Title:
The Graduate School University of Wisconsin-Stout
Menomonie, WI
Parzyck, Wolfe C.
Implementing a New Corrugated Packaging Mac/line in a Mid Sized
Manufacturing Company
Graduate Degree/ Major: MS Technology Management
Research Adviser: James Keyes, Ph.D.
MonthlYear: May, 2011
Number of Pages: 54
Style Manual Used: American Psychological Association, 6th edition
Abstract
2
Currently the corrugated packaging industry relies on high volumes to reduce cost. This
leads to obsolescence, excess inventory, and inventory damage. This study will quantify the
results of an implementation of a corrugated machine (Packsize) in a midsized furniture
manufacturing company. This study will also relate basic Lean Manufacturing principals to this
implementation.
The Graduate School University of Wisconsin Stout
Menomonie, WI
Acknowledgments
3
I would like to thank my family, friends, and instructors who supported me throughout
my education. I would also like to thank all of my coworkers who helped me with this project.
4
Table of Contents
.................................................................................................................................................... Page
Abstract ............................................................................................................................................ 2
List of Tables ................................................................................................................................... 7
List of Figures .................................................................................................................................. 8
Chapter I: Introduction .................................................................................................................... 9
Statement of the Problem ................................................................................................... 11
Purpose of the Study .......................................................................................................... 11
Assumptions of the Study .................................................................................................. 12
Definition of Terms ............................................................................................................ 12
Methodology ...................................................................................................................... 13
Chapter II: Literature Review ........................................................................................................ 15
Current State of Traditional Packaging ............................................................ 15
Supply Chain ................................................................................ 15
Number of SKUs ........................................................................... 16
Lead Times ................................................................................. 16
Obsolescence ................................................................................ 17
Labor and Floor Space For Boxes ....................................................... 18
Lean Manufacturing .................................................................................. 18
History of Lean ............................................................................. 18
Key Concepts of Lean ..................................................................... 19
Lean Tools and Packaging ......................................................................... 20
5S ............................................................................................. 20
5
Just in Time .................................................................................. 21
Kan-Ban ..................................................................................... 22
Kaizen ........................................................................................ 22
One Piece Flow and Line Balancing .................................................... 23
Assembly Cells ............................................................................. 23
Single Minute Exchange of Die (SMED) ............................................... 24
Value Stream Mapping .................................................................... 25
Wastes in Packaging ....................................................................... 27
One Piece Flow in Packaging ............................................................ 27
Reorder of Materials Kan-Ban vs. ERP ................................................. 28
Internal and External Lead Time ......................................................... 28
Benefits ofIncreased Inventory Turns ................................................... 29
Package Design ...................................................................................... 29
New Packaging Method (Boxes on Demand) .................................................... 31
Summary .............................................................................................. 32
Chapter III: Methodology .............................................................................................................. 33
Subject Selection and Description ..................................................................................... 33
Instrumentation .................................................................................................................. 36
Data Collection Procedures ................................................................................................ 36
Limitations ......................................................................................................................... 39
Summary ............................................................................................................................ 39
Chapter IV: Results ........................................................................................................................ 40
Item Analysis .................................................................................................................... 40
6
Floor Space Reduction ..................................................................... 40
Reduce Costs ................................................................................ 42
Increase Inventory Turns .................................................................. 42
Purchasing Corrugated fanfold with Kan-Ban Reorder System ...................... 43
Reduce Con'ugated SKUs ................................................................. 45
Packaging Department Will Design Their Own Boxes ................................ 46
Produce Boxes in Small Batches ........................................................ .48
Chapter V: Discussion ................................................................................................................... 49
Limitations ........................................................................................................................ 49
Conclusions ........................................................................................................................ 50
Recommendations .............................................................................................................. 51
References ...................................................................................................................................... 53
7
List of Tables
Table 1: Corrugated box, fanfold costs and labor hours for packaging department ......... .42
Table 2: Inventory Turns .............................................................................. 43
Table 3: Costs of Purchase Orders Before Implementation and after Implementation .. .... .45
8
List of Figures
Figure 1: Value Stream Mapping ................................................................. 26
Figure 2: Floor Layout ............................................................................ 40
Figure 3: Corrugated Box Storage ............................................................... 41
Figure 4: Fanfold Corrugated Storage .......................................................... 41
Figure 5: Fanfold Corrugated Watermark ...................................................... 44
Figure 6: Fanfold Watermark Levels .......................................................... .44
Figure 7: Packsize Machine ...................................................................... 46
Figure 8: Box Designs ............................................................................ 47
9
Chapter I: Introduction
The use of corrugated cardboard boxes is widespread throughout the world. Generally
the supply chain relies on large fast equipment to produce large batches of boxes at a low cost.
Today "Lean Manufacturing" embraces a reduction of inventories and batch sizes. Traditional
corrugated manufacturing techniques fall short on meeting these needs. If a customer of
corrugated packaging demands smaller batches, most likely they will incur a larger cost or the
corrugated manufacturer will hold inventory to ship "Just in Time". A solution long embraced in
Europe is moving the conversion of corrugated boxes closer to the customer and creating only
what boxes are needed when they are needed from a common size or sizes of fanfold corrugated.
With this system great reduction in inventory can be achieved along with a reduction of material
handling costs, and the risk of obsolescence is eliminated. Boxes can also be designed to fit each
product to deliver better protection and less waste because boxes can be produced in quantities of
one to one million (Rohleder, 2004).
XYZ Corporation, looking for ways to increase efficiencies in all aspects of its business,
found a company (Packsize or Emsize as it is known in Europe). Packsize has partnered with a
Swedish company that manufactures a computer controlled box making machine to produce
finished boxes. The machine itself has no tooling to change and has nearly no setup time. The
machine uses fanfold corrugation in virtually any flute or finish. The machine itself occupies
about 500 square feet and is capable of a takt time of about 4 to 10 seconds (Rohleder, 2004).
This paper quantifies cost savings, inventory reduction, reduction of floor space, and the
streamlined reorder process of implementing a machine to produce boxes on demand in a mid
sized furniture manufacturing company. The company described in this paper will be referred to
as XYZ Corporation. XYZ Corporation is a mid-sized furniture manufacturing company with
10
approximately 200 employees. XYZ Corporation produces a wide selection of furniture for the
Educational market. Approximately 25% ofXYZ's sales volume is custom designed furniture.
XYZ's product line had evolved through its 43 years in business. Corrugated boxes were
purchased from a traditional box manufacturing plant to ship most XYZ's Corporations products.
XYZ's high product mix that changed over the years and custom product led to a vast inventory
of obsolete boxes. The boxes that were used on current product had to be stored without getting
damaged or lost. Procurement also had to manage the buying of hundreds of boxes to ensure on
time delivery ofXYZ's Corporation's products. These factors are what led XYZ Corporation to
implement the Packsize c0l111gated machine.
Prior to the introduction of the Packsize machine at XYZ Corporation, the inventory of
corrugated boxes occupied 7500 square feet of floor space or 140,000 cubic feet of warehouse
space. Many of these boxes, were for products that were obsolete. Packaging tried to use some
of these old boxes but this led to adding extra filler material and increased the potential for
damage. Costs for the boxes that were purchased from the box manufacturer had risen to almost
$400,000 per year and the inventory was only turned 2.5-3.5 times per year. To handle this
inventory it required a full time material handling person to move and locate this inventory for
use in the packaging department. Procurement had to manage the inventory levels to make sure
the boxes would arrive from the box manufacturer on time. Many times during an introduction
of a new product or when a custom product was ordered, this led to a late shipment. When new
products or custom products were ordered, product development had to work with the box
manufacturer to develop the new box design. This could take up to six hours per product. Many
times six months to one year supply of boxes were ordered to get a price reduction, but many
times this proved wasteful because these boxes might never be used.
1 1
After reviewing the proposal from Packsize, and touring two local users of the same
technology, (Andersen windows and Crystal Cabinets), XYZ Corporation decided to go forward
with the implementation of the Packsize machine. The potential benefits greatly outweighed the
costs for implementation. The estimated implementation costs were $25,000 and a deposit of
$5000 for spare parts. The reason the implementation costs are so low is that the machine was
not purchased. It was installed with the agreement that all fanfold material would be bought
from Packsize. This eliminated the need to justify the machine with a traditional return on
investment calculation. In return, Packsize agrees to maintain the machine and perform all
preventative maintenance activities.
Statement of the Problem
To quantify the waste reduction gained through the implementation of a packaging
system that produces corrugated packaging on demand in small lot sizes in a midsize
manufacturing company with a high product mix low volume production.
Purpose of the Study
The goals of the study are to quantify the results ofthe implementation in the following
areas and how these benefits support "Lean Manufacturing" methodology:
• Floor space reduction
• Reduce costs
• Increase inventory turns
• Purchasing of corrugated will be done with a kan-ban visual reorder process
• Reduce con-ugated SKUs
• Packaging department will design their own boxes
• Produce boxes in small batch sizes as needed
12
Reduction in floor space required for inventory allows use of floor space for value added
activities or for the company to expand. Reducing costs adds to the bottom line, and allows for
capital to be invested back into the organization. Increasing inventory turns leads to less wasted
activities and frees up capital and floor space for other activities. Purchasing of the corrugated
via kan-ban visual systems with less SKUs frees up procurement for other activities. The
designing of the corrugated boxes in the packaging department frees up the product development
department and procurement department for other activities. The production of boxes in small
batches eliminates waste.
Assumptions of the Study
Labor data and costs from XYZ Corporation's enterprise resource planning system are
accurate for the purposes of this study.
Definition of Terms
ERP System. Enterprise Resource Planning software (Bartholomew, 1999)
SKU. Stock keeping unit (SKU, 2011)
Lean Manufacturing. A methodology to reduce wastes in manufacturing or other
organizations (Womack, Jones, 2003)
Corrugated packaging. Paper-based material consisting of a fluted corrugated sheet and
one or two flat linerboards (Corrugated Packaging, 2011).
Fanfold Corrugated. Corrugated sheet in a continuous length 1000-1500 feet long
(Rohleder, 2004)
RTA furniture. Ready to assemble furniture (RTA furniture, 2011)
Packsize machine. An automated machine to covert fanfold corrugated board to finished
boxes (Rohleder, 2004)
13
Takt Time. Takt time is defined as the available work time per shift divided by customer
demand rate per shift. Takt time is used to synchronize the pace of production with the "pull" of
the customer. (Womack, Jones, 2003)
Inventory turns. The number of times inventory is sold during a year, or the yearly
inventory used divided by the average inventory (Inventory turns, 2011).
WIP. Work in progress (Womack, Jones, 2003)
Bliss Box. A box made from three pieces, two end panels glued to a larger body panel
that forms the bottom, and two sides with flaps. (Paper Task Force, 1995)
Limitations of the Study
This study is limited to the implementation at XYZ Corporation. The results quantified
in this study were in the first two years of implementation in comparison with the year prior to
the implementation of Packsize machine. This study is limited to the major cost impacts listed
above. Other cost impacts might exist, but this study focuses on these specific cost impacts and
how they relate to lean manufacturing. This study focuses on the business model of Packsize.
Other machines exist that produce boxes on demand in small volumes, but this study focuses on
the implementation of the Packsize machine at XYZ Corporation.
Methodology
This study will describe basic Lean Manufacturing concepts and how they relate to the
implementation of this corrugated box machine at XYZ Corporation. This study will also
discuss current packaging trends and systems and how they affect similar sized companies. Data
will be collected from XYZ Corporation's enterprise resource planning system to quantify the
results from the past two years. Measurements will be also taken to confilID the reduction in
floor space used. These results will be displayed with conclusions at the end of this study.
14
Floor space was measured using a tape measure and CAD drawings of the building.
Measurements were taken before the implementation and during the two years after the
implementation. Costs for the boxes purchased for the year prior to the implementation were
collected from enterprise resource planning system. Costs were then collected for the fanfold
cOlTugation during the two years following the implementation from the enterprise resource
planning system. The labor for packaging was collected from the year prior to implementation
and the two years after the implementation from the enterprise resource planning system.
Inventory turns were measured by dividing the cost of cOlTugated boxes for one year and
dividing it by the average inventory. The inventory turns for the fanfold cOlTugated were
measured by dividing the annual cost by the average inventory for the first two years after
implementation. This inventory data was obtained from the enterprise resource planning system
and the annual inventory report, as well as physical measurements. The savings of the
implementation of the kan-ban system for reordering corrugated products was measured by the
reduction of purchase orders for cOlTugated products before and two years after the Packsize
implementation with data from the enterprise resource planning system. The number of SKUs
was also obtained from the enterprise resource planning system prior to implementation. The
time saved by the packaging department designing their own boxes was measured by the number
of new product numbers created for cOlTUgated boxes in the year prior to the implementation and
the two subsequent years prior. This data was obtained from the enterprise resource planning
system. The sizes of box orders were obtained from the enterprise resource planning system and
observation of the packaging depmiment as they produced boxes on demand with the Packsize
machine.
15
Chapter II: Literature Review
The system described within this paper is relatively new in the United States. Literature
directly discussing the process is relatively limited but many of the reasons for implementing this
type of system are outlined in earlier works. Many of the benefits for implementing this type of
machine are outlined in sources describing the benefits of Lean Manufacturing. In this chapter
connections between Lean Manufacturing benefits and the introduction of the new packaging
machine and system will be made.
The machine and system the study focuses on is a computer controlled reprogrammable
packaging machine that process multiple sizes of fanfold corrugated into finished boxes. This
machine requires little or no setup and produces a box in a few seconds. The packaging machine
and system described in this study is Packsize. Packsize partners with a Swedish company to
manufacture these machines and provides the machines to its customers. Packsize sets up an
agreement with its customers to basically give them the machine to use as long as the raw
material or fanfold is purchased from Packsize. A small installation charge is necessary as well
as a deposit on some spare parts for maintenance.
Current State of Traditional Packaging:
Supply Chain
Traditionally, packaging in small to mid-sized manufacturing companies can be a source
of much waste or non-value added activities. The purpose or the main value added for the
customer is to have the product arrive undamaged. The current supply chain for corrugated
packaging for small to mid-sized manufacturing companies generally involves purchasing boxes
from a local converter of corrugated sheet. These converters of corrugated sheet stock are
generally set up to produce large volumes of products. Because of the high set up costs with the
16
high volume machinery, generally small batch runs can cost between two and four times more
than the cost oflarge volume runs (Rohleder, 2004). This forces the customers of these boxes to
purchase more than is needed for current production and inventory the rest of the unused boxes.
Lean Manufacturing describes inventory as one of the seven wastes (Womack & Jones, 2003).
Also, when the corrugated converting plant is focused on large volume runs, their lead time tends
to increase and this forces the consumer of the boxes to buy additional inventory for safety stock.
Number of SKUs
In a company with a high product mix and low volume production the number of SKUs
of boxes becomes overwhelming to handle, and many times products are obsolete and the
inventoried boxes are no longer usable (Rohleder, 2004). XYZ Corporation fits into this
category, and 25% of their sales is considered custom product that may not be repeated again.
XYZ Corporation had approximately 500 SKUs related to boxes. Each of these SKUs had to be
managed by procurement.
One method to try to reduce the number of SKUs and reduce the piece part cost is box
consolidation. The main drawback to using a common shipping container is that you have to fill
voids in the container that adds to shipping cost because of weight and size, and potential for
damage (Rohleder, 2004). The actual efficiency of consolidation relies on consistent product
sizes. As new product sizes are introduced, the efficiency goes down.
Lead times
Lead times for the procurement of boxes through traditional box supply chain had ranged
from four to eight weeks for XYZ Corporation. These lead times often were the result of box
manufactures operations emphasis on large runs. The lead time for new product introduction
could also be longer due to a cycle of sample boxes being built and quoted prior to a production
17
run being ordered. This lead time had to be managed by procurement and has lead to excess
inventory because safety stock needed to cushion the lead time. According to Hopp, Spearman,
and Woodruff, shortening oflead times has some of these affects:
• Ability to quote better delivery times to customers
• Reduce impact of cancelled orders
• Lessen the need for forecasts for future sales demand
• Improve quality by reducing damage, and defect detection
• Reduction of work in process inventories
• Decrease disruption due to engineering change orders
• Fewer jobs on shop floor to keep track of
Shorter lead times would not be considered beneficial if quality or throughput is seriously
affected (Hopp, Spearman, Woodruff 1990).
Obsolescence
Obsolescence and shrinkage due to damage is always a factor when dealing with any type
of inventory. Losses can be as high as 20-30% with corrugated boxes (Rohleder, 2004).
Reasons for losses can range from physical from handling and banding to shortages from the
vendor. The longer the inventory waits the more chances it has for damage or loss. All
inventories can potentially become obsolete if an order is not placed to use that inventory. XYZ
Corporation many times fell into the trap of ordering more boxes than they needed to get a price
reduction. Many times as the product was no longer ordered (in the case of a custom product),
the product changed size, or the product was discontinued. These extra boxes were then stored
indefinitely because accounting did not want to file a loss at the end of the year. This created a
need for more storage space for these boxes, and somebody had to count all off this inventory at
18
year end. If the inventory was scraped, labor costs were incurred to dispose of the inventory.
The use of Packsize machine allows XYZ Corporation to wait until a box is needed to convert
the raw material (fanfold) into a finished box.
Labor and Floor Space for Boxes
Many times the labor associated with moving and storing inventory is placed into general
overhead that can lead to poor visibility and to how these costs affect the bottom line of each
product (Rohleder, 2004). Floor space to store inventory is also generally placed into general
overhead and the real cost to produce an individual product is lost. Many times the costs to
inventory boxes because of material handing overhead due to floor space can be greater than the
box itself. These factors will be more impOliant as many companies provide custom solutions to
customers, creating a high mix, low volume production models.
Lean Manufacturing:
History of Lean
Many of the concepts that we consider Lean Manufacturing were developed by Henry
Ford in the 1920's, although many American companies did not embrace these techniques until
competition forced them to. After World War II a Toyota executive, Taiichi Ohno identified the
first seven types of waste or "muda". Toyota then began to attack and reduce this waste in all
levels of their business (Womack & Jones, 2003). The Toyota production system developed by
Ohno continued to evolve to involve all members of the production team. He developed a
method of retrieving ideas from the production floor for improvement called "kaizen". This
allowed Toyota to create a culture of continuous improvement. In the 1980's Toyota began to
build manufacturing plants in the United States and started to show impressive gains in
efficiencies. Today, Toyota is one of the largest auto-manufacturers in the world (Rubrich,
19
Watson, 2000). The tenns or buzzwords have changed over the last few decades from JIT or Just
in Time to "Lean", but the base concepts have remained the same. Today lean concepts are used
all over the world and in various industries other than automobile manufacturing. Lean concepts
have also spread to other areas of business besides manufacturing.
Key concepts of Lean
Essentially, the goal oflean is to reduce the wastes and produce more with fewer
resources while adding value to the customer (Dennis, 2007). This is accomplished through
establishing a process that pulls the product through based on customer demand in a continuous
flow in small batches while continually driving out wastes. These wastes must be identified by
involvement of all areas of an organization from the top to the front line worker.
During the delivery of any product or service there are two types of work: value and non
value added work (Hobbs, 2004). Value added work is something the customer is willing to pay
for such as a packaging worker placing a product into a box for shipment so it is protected and
arrives to the customer in good condition. In contrast, if that same worker has to walk across a
warehouse 100 feet to locate that box, the walking time would be considered a non-value added
activity. The main principal behind lean is finding ways to drive out the non-value added
activities or wastes. These wastes were identified by Taichii Ohno as
1. Over production: Making more than needed, too quickly, or before it is needed.
This sometimes leads to other wastes or hides other wastes.
2. Transportation: Unnecessary movement ofraw materials, finished goods, or WIP.
This increases the chances of items getting lost or damaged also.
3. Inventory: All forms of inventory whether it is in raw materials, WIP, or finished
goods are an investment of capital that if not quickly convelied to income is a waste.
20
4. Motion: Excess motion during the processing of an item by a worker or a machine.
5. Defects: Whenever defects occur, this creates increased costs and is a waste.
6. Over-processing: Doing more work on a piece than the customer requires.
7. Waiting: When goods or people are idle and no work is being done.
An eighth waste is often referred as the waste of human potential or skills. This is important,
because in any lean setting, the skilled cross trained employees are very valuable for continuous
improvement and to keep things running smoothly producing a quality product (Womack, Jones,
2003).
Lean Tools and Packaging:
Lean manufacturing has principal tools and techniques. Listed are some of the common
tools and techniques.
5S
Ss which stands for sort, set in order, shine, standardize, and sustain. Ss is often considered a
starting place for a lean implementation and important for ongoing operations. The Ss system is
designed to create an organized visual workplace with employee involvement. Ss allows
elimination of non-value added activities or wastes through organization. Each element is
defined as follows (Rubrich, Watson, 2000):
• Sort: Cleaning and organizing and eliminating unnecessary items
• Set in order: Organize and arrange everything in a work area for most efficient use
• Shine: Keeping everything clean and in order
• Standardize: Creating a system to maintain the organization gained
• Sustain: Maintaining accomplishments achieved
21
5s creates a workplace that puts all items for production easily accessible and eliminates items
that are not needed for a particular work area (Dennis, 2007). No excess clutter or mess can be
tolerated. A 5s program is also a good indicator on how a company can implement other lean
principals. Benefits that can be expected are shorter lead times, quicker changeover times, and
improved safety.
5s concepts were used during the implementation of the Packsize machine in XYZ
Corporation. All items and old corrugated were sorted and tagged for use, sale, or to be scraped
out during the implementation. Areas were created for the storage of the new fanfold raw
material with appropriate watermarks for reorder. Areas were designated for all the tools
necessary. The floor was painted and new brighter lights were installed. The packaging
department has been able to maintain this level of organization during the two years following
the implementation.
Just In Time
The concept of Just in Time (JIT) basically is the efficient movement of material in a
production system at the right time in the right amount. JIT relies on logistics and vendors to
fulfill the needs of the production system. The materials only should arrive when the production
system needs them. Any shortage will hold up or stop the process or production line. JIT can
lower inventory levels which in turn frees up floor space and capital (Dennis, 2007).
The implementation of the Packsize machine at XYZ Corporation allows the concept of
Just In Time to be utilized by being able to produce boxes at the time of need rather than
ordering boxes based on a forecast weeks ahead of the need. Generally boxes are made as the
product is being packaged, with the exception of products that are packaged at another location.
These boxes are produced 24 hours in advance. The lead time for the fanfold corrugation
22
material for the Packsize machine is closer to Just In Time because the lead time is about ten
days instead of six weeks.
Kan-ban
A kan-ban is a visual system of replenishing parts or materials. All of the information
needed to process the product or material is located on the item. As the product or material is
pulled through the system, bins or shelves are emptied, visually signaling the operator to fill that
bin or shelf. Kan-ban systems can come in many forms but provide a more efficient, les wasteful
means of pulling product through as quickly as possible (Dennis, 2007).
A kan-ban system is used at XYZ Corporation for the reorder of the fanfold material that
the Packsize machine uses to create boxes. A watermark was established based on the lead time
and the average usage. When one of the sizes of raw materials falls below the watermark level,
the packaging supervisor notifies purchasing to reorder more materials.
Kaizen
The lean manufacturing concept was inspired by the kaizen. Lean manufacturing is a
methodology of continuous improvement of a process involving members of a group at all levels
(Ortiz, 2006). A kaizen event generally involves a small cross functional group of people
brought together to concentrate on one area of the organization that needs improvement (Rubrich
Watson,2000). Kaizen events generally seek to make rapid changes in the system. For kaizen
events to be successful, a clear plan has to be developed my management. Management also has
to make sure the members of the kaizen team have the tools, resources, and time to complete the
changes needed (Huthwaite, 2007). Many companies create a kaizen committee to manage all of
the kaizen events and to make sure no constraints or roadblocks exist to successful
implementation of the ideas created.
23
XYZ Corporation has formed teams to solve various problems and launch new products. Prior to
the implementation of the Packsize machine, a cross functional team was formed to address all
issues involved.
One piece flow and line balancing
The ideal lean manufacturing line would have a layout that would allow a product to
move through one piece or product at a time (Rubrich, Watson, 2000). This allows the wastes
discussed earlier to be minimized. For the production line to be most efficient, the work tasks
done within the line need to be balanced to avoid wastes or one person doing too much or too
little. The time that each item spends at a work station is considered cycle time. Cycle time for
each process needs to be established because usually the cycle time can differ from each
operation to another. This again can lead to waste and longer lead times. When a line is balanced
or has flow, this allows the product to be pulled downstream. The rate at which product is
produced in relation to the available amount of time to produce a product is referred to as takt
time (Womack, Jones, 2003). This value is used to regulate the rate that the line produces
product to match the demand of the customer.
The Packsize machine allows for one piece flow with respect to the production of boxes.
Boxes can be made in a quantity of one as the product flows through the packaging department.
The Packsize machine will produce boxes faster than the demand from XYZ Corporations
customers. The Packsize machine allows the packaging department to balance the tasks involved
with each product because of the speed of the machine and ease of use.
Assembly cells
An assembly cell is another version of an assembly line. The ideal assembly cell would
have all tools, machines and materials contained within the cell to create the specific product
24
(Baudin, 2002). Assembly cells are generally flexible from a staffing standpoint to allow for
variations in product demand. The close proximity of workers allows for better communication,
cross training and quality. A V-shaped assembly line is often utilized, but other shapes have also
worked well.
The packaging area of XYZ Corporation is set up with all machines and tools necessary
to complete the packaging function including the making of boxes. The workers are cross
trained in the usage of all equipment. The packaging area allows for fluctuation of demand and
the ability to add additional workers when needed.
Singe Minute Exchange of Die (SMED)
The goal of SMED is to identify and reduce the non-value added time involved in the
setup of a process (Rubrich, Watson). SMED seeks to provide a rapid, efficient, and repeatable
way of setting up or changing over a machine or process. The reduction of setup or changeover
time is necessary as lean manufacturing seeks to reduce the batch size to a one piece flow. The
lead time of a process will shorten as the batch size is decreased. The first step in SMED is to
analyze the steps or movements involved during the changeover. Many methods, including time
studies, video recording, and worker interviews are used to document the current process. The
second step is to separate the elements of the changeover or setup between internal and external
setup. Internal setup items require the machine to be shut off, stopping production. External
setup items are ones that can be performed away from the machine without stopping production.
An external setup item could be finding tools necessary for the changeover. The third step
involves determining if any steps can be moved to external setup. The fourth step then seeks to
streamline all aspects of the setup or changeover operation whether they are internal or external
items. Set up reduction is important to any process and my impact the process by (Shingo,
1985):
• Lowering setup cost
• Reducing Lot size
• Lowing setup enors
• Inventory reduction
• Reduce setup cost
• Increase capacity of bottleneck equipment
• Reduce scrap
• Improve quality
25
If the Packsize machine was to produce boxes in batches as small as one efficiently, the
machine has to keep up with XYZ Corporations customer demand. One important factor was the
changeover between box styles or sizes. The Packsize machine requires less than a minute to set
up a new box size once the common box styles or programs are loaded into the computer
controller for the machine. There are two common ways the machine is set up to make a box. If
the product has been packaged previously, the product number is entered into the machine and
the box is created based on a saved program. The second method is if a new product needs a
package, a design is picked, the product is measured, and the box is made. This program is then
saved by the product number so it can be repeated later.
Value Stream Mapping
Value stream mapping is a visual tool that lays out the individual work processes within a
manufacturing process (Rother, Shook, 2003). Value stream mapping seeks to identify and
decrease non-value added activities or wastes within a process. Value stream mapping is based
26
on actual activities that occur on the shop floor. Information flow and the flow of raw material
are also documented on a value stream map. Usually, a value stream map focuses on families of
product or a group of products that flows through similar operations (Mascitelli, 2007). Many
times a value stream map can be sketched out on a paper showing all process including the
procurement of material to the product being shipped to the customer. Figure 1 is an example of
a value stream map. Generally, a current state map is produced and areas for improvement are
identified. A future state map is then produced and that is the guide to drive the continuous
improvement of the value stream.
~~ r---~ (EHS'l I Receiving I!\ ~
~ MIlling
CIT·2mn 0'0 = 2 hr L~i~=7;\'l,
H.Jl. Wntf .. Sib.
Mark,t For"lIIt '::.-----' -.....::---
CIT"" mn 00-31>( t.\?t<m=61% Hal. \'lute. Z()lbl
Total Lud TI~ • MI.J!i!Yj V:I" ... o At:<dcd Tl~ • .1i.!!:!r!
err = 7 mn CtO .. 4hl l,;pb~ =4S'/, H>:. W~!t." 60 Ib~
Figure 1. Value Stream Mapping (epa.gov, 2011)
CIT" 2 mi'l C/O .. 30mn l.\lb~" ~3Y.
Prior to the decision being made to implement Packsize machine at XYZ Corporation,
members of the Kaizen team drew up a rough value stream map to determine the layout of the
packaging department cUlTently and a future state map with the Packsize machine. Information
flow was also considered. This helped XYZ Corporation determine the impact of the
implementation as well as a starting point for the layout of the department.
27
Wastes in Packaging
Many of the seven wastes can be identified in the production and use of traditional
corrugated packaging. These could include excess inventory, excess motion, overproduction,
and waiting (Womack & Jones, 2003). Inventory of packaging materials can be considered
wasteful for many reasons. First, the capital investment in these packaging items ties up cash
that could be used for other things or to pay down debt. Secondly, inventory ties up valuable
floor space that could be used for other activities. Inventory also can be damaged or stolen.
Excess motion is involved when items have to be located and pulled from a warehouse by a fork
truck or other means. This can be another opportunity for damage also (Goldsby, Martichenko,
2005). Overproduction occurs many times when extra corrugated boxes are purchased because
of lead time or to reduce the piece part cost. Many times these extra boxes are never used.
Waiting can occur when shipments of boxes from a vendor do not arrive on time.
One Piece Flow in Packaging
The material flow of a process can be affected on how the product is packaged before
shipment. Generally it is less wasteful to have all processes grouped together as closely as
possible and strive for a one piece flow through the production process (Rubrich & Watson,
2000). Traditional packaging producers and machines generally rely on large high volume
machines that require considerable time to set up and produce product. If the setup time is
reduced to a minute or two then it is not as important to use large runs, therefore creating less
inventory and waste. If one piece flow is obtained, the machines involved have to be 100%
reliable and all preventive maintenance must be performed so there is no downtime (Rubrich,
Watson, 2000). The people as well as the machines have to be cross trained, because there is no
inventory to provide a safety stock. TPM or Total Productive Maintenance is a system to
28
maintain machine reliability and can be used to ensure machine uptime. The Packsize machine
is able to produce different boxes by simply keying in a different program. This generally takes
less than a minute. Therefore the raw material is only converted to a box when that box is
needed.
Reorder of materials Kan-Ban vs. ERP
Many small and medium size companies rely on enterprise resource planning or ERP
systems to handle the purchasing of the thousands of raw materials and components. These
systems can be helpful, but they count on accurate data and timely interpretation of the data.
Generally, an experienced information technology person is required to maintain these systems
also. This can lead to inaccurate forecasting and buying decisions as well as shortages. In
contrast, if a Kan-Ban system is employed, a visual system is set up to trigger a reorder of a
material or component. This can lead to better accuracy and elimination of data entry functions
(Bartholomew, 1999). Also, fewer delays exist to trigger the reorder, in turn shortening the
overall lead time to replenish the item. If boxes are created as needed utilizing a Packsize
machine, 2-4 sizes of fanfold cOlTUgated are used to produce all sizes of boxes instead of
purchasing and handling hundreds of SKUs. The reorder of the 2-4 sizes of fanfold cardboard
can be accomplished by a simple visual Kan-ban system instead of an enterprise resource
planning system.
Internal and external Lead time
The lead time of a particular item like packaging materials, can have many effects on the
production of a product. The first problem with an item that has a long lead time is that usually a
larger amount of inventory is required for a safety stock. This is one of the wastes discussed
earlier (Goldsby, Martichenko, 2005). Secondly, the longer the lead time is for a material or a
29
component; the longer it will take to manufacture and package a product. If an error occurs
during the ordering of a long lead time item, this can create late orders and waiting, another form
of waste. Internal lead time with respect to packaging can differ by product, but if the process
can be set up quickly and changeovers occur quickly, the batch size can be reduced. That will in
tum shorten the lead time for the packaging step in the operation. The lead time for the fanfold
corrugated material used in the Packsize machine is much less than finished boxes, generally 10
days instead of 6 weeks.
Benefits of Increased Inventory Turns
Inventory management consists of three areas, how much to have, where to keep it, and
how to transport it (Goldsby, Martinchenko, 2005). Reducing the lead time to receive materials
or components makes managing these areas easier and minimizes the variation or uncertainty.
The lower lead time will also allow the inventory to be turned more times in one year. This will
lower the capital investment in the inventory as well as reduce the overhead costs to store the
inventory (Kroll, 2004). The raw material or fanfold corrugated used by the Packsize machine
allows the inventory to be turned more often in a year, reducing the overhead cost and capital
investment.
Package Design:
Package design many times is affected by volume and box piece price rather than getting
the product to its destination in one piece. If boxes are created as needed, specific to that
product, the size of the box and style can be optimized to fit that specific product (Rohleder,
2004). Box design can be done based on the product needs rather than volume pricing. Many
times filler boxes are unnecessary and can be eliminated. This contributes to substantial savings
in package cost and shipping cost. Packsize provides design assistance to set up some of the
30
standard types of corrugated containers. Those standard types are then changed by size for a
particular product. The packaging personnel can modify the standard box types on the fly as the
different product orders come in. Engineering and purchasing now have less involvement as
new products are developed, because an outside vendor does not need to be contacted for
samples, and new SKUs do not need to be set up in the enterprise resource planning system.
According to a white paper published by the Environmental Defense Fund, some of the
following ways can be used to reduce the cost and environmental impact of corrugated boxes
through package redesign (Paper Task Force, 1995).
1. Optimize the box size: Corrugated boxes should match the product size as closely as
possible. This will reduce the box cost and might reduce transportation costs.
2. Reduce the size of the box flaps: This can be done by locating the opening on the
smallest side of the box. Boxes with open sides or half slotted containers can be used. A
bliss box can be used to lessen the overlap of the flaps or also, by simply making the
flaps of the box smaller or leaving a gap in the overlap of the flaps.
3. Redesign outer or inner packaging: The use of bulk packaging by placing multiple items
in one box can reduce packaging costs. Dividers and cushioning materials can be
evaluated for effectiveness and need. The minimization or elimination of internal
packaging can also reduce the outer box size. The thickness or grade of the board can be
evaluated for the patiicular product.
4. Redesign the actual product: The product can be designed to optimize the size of the
container. Products can be designed to be nested together and sold in a concentrated
form.
31
The Packsize machine allows for cost reduction through some of the previous methods by
being able to be flexible with the design of the packaging depending on the product or customers
need. For example if a particular custom orders a large amount of product for one location, a
bulk package can be designed to reduce the cost of the packaging compared to individual
packaging. This decision can be made at the point the order is being packaged instead of weeks
earlier.
New Packaging Method (Boxes on Demand):
This process of creating boxes on demand at the point of use has been used in Europe for
many years, but until recently the United States has not discovered the benefits (Rohleder, 2004).
Packsize, the maker of the machine that produces the boxes on demand, not only makes the
machines but provides a system that is mutually beneficial. Essentially the machine is installed
at the customer's facility free of charge other than some set up costs and spare parts deposit. A
minimum of one million square feet annual usage is required for a customer to enter this
program. The raw material or fanfold corrugated is then required to be purchased exclusivity
from Packsize. They are able to provide this fanfold corrugated at a competitive price because
they purchase a large volume of this product. All maintenance is performed by Packsize and as
new technology is created new machines are rotated into place (Rohleder, 2004). Some major
companies also have adopted this technology, including Steelcase, and Andersen windows
(Rohleder, 2006). They have realized many of the potential cost savings and reduction of
wastes. To date, other machines exist to produce boxes on demand but none of them offer the
machine for a lend/lease type of agreement. You simply have to buy the machine and maintain it
yourself.
32
Summary:
Over the last few years manufacturing companies have been forced to cut costs and do
more with less while maintaining quality and delivery to the customer. Packaging and its
associated costs are often overlooked as an area for improvement. XYZ Corroboration's product
mix and volume had made the packaging for its product a significant source of waste and
unnecessary cost. Lean manufacturing and its associated tools focuses on the reduction of waste.
The implementation of the Packsize machine allows many of these wastes to be reduced through
package design and the way the corrugated packaging is produced. Through this chapter the
author has explained some key lean manufacturing concepts and tools and how they relate to the
implementation of a new packaging machine. These concepts are the basis for this
implementation, and results in the next chapter will reinforce this.
33
Chapter III: Methodology
The purpose of this study was to quantify the results of the implementation of a new
packaging system at XYZ Corporation. The results that this study focuses on are floor space
reduction, direct cost reduction, increasing inventory turns, procurement through kan-ban
process, reduction of corrugated SKU s, operator design of boxes and producing boxes in small
batches. This chapter will describe how information was collected to quantify the results of the
implementation in these areas. Nearly every product that XYZ Corporation produces uses some
amount of corrugated packaging to ship its products to its customers. Through the history of
XYZ Corporation, its products had evolved and grown, thus creating many wasteful activities
with respect to the packaging of its products. This chapter will outline the packaging process
used currently at XYZ Corporation as well as the old process that this implementation replaced.
Subject Selection and Description
This study focuses on the packaging process at XYZ Corporation. XYZ Corporation is a
mid-sized furniture manufacturing company that has a high mix low volume product mix.
Approximately 25% ofXYZ's sales volume comes for custom designed product. The sizes of
XYZ's products range from small accessories that can be lifted by hand to large items that
require the use of a pallet and a pallet jack or forklift to move.
The old packaging process at XYZ Corporation involved purchasing individual boxes in
large volumes from a box manufacturing company. XYZ Corporation has designed thousands of
products through its 43 years in business. Generally as a new product was designed, before it
was released to production, a product designer worked with a supervisor from the packaging
department to determine if the new product needed a new box or an existing box could be used.
If a current box was used, the part number was placed in the bill of materials and purchasing
34
would monitor the demand with the enterprise resource planning system to determine when to
reorder more boxes based on lead time. The use of common boxes often led to having to use
filler materials. As the variation in different products and box sizes grew, it became difficult to
find an existing box that would work. If a new box size or style was needed, the first step was to
contact the box manufacturer and set up a meeting. During this meeting the size and
requirements were discussed for the particular product. The box manufacturer would then
produce prototypes to be used for testing. Many times this took multiple tries to get an
acceptable solution. When an acceptable solution was developed, a quote was given by the box
manufacturer. This quote generally had large discounts for volume buys. This led to the
tendency to purchase more boxes than were needed, especially in the case where custom product
was being packaged. These new box part numbers were added to the enterprise resource
planning system and the bill of materials for the product that used it. Purchasing then would
monitor the enterprise resource planning system for demand and reorder boxes based on lead
time. As products came through production to the packaging department the bill of materials on
the work order listed the particular boxes needed for the product. A material handling person
would then use a forklift to locate the boxes in the warehouse and bring them to the packaging
line. After the run of a particular product was packaged the material handling person had to
return the remainder of the boxes to the warehouse. Generally the material handling of these
boxes required one full time person. This activity also led to damage of the boxes. Many times
when a custom product was ordered, the design department did not develop new packaging for a
product because of the small size of the order or they simply forgot. This led to much confusion
and the potential for damage and late shipments.
35
This process continued on for years and the inventory of corrugated boxes had grown to
occupy about 7500 square feet of warehouse space. XYZ Corporation's product was low
volume high mix and about 25% of their sales were for custom product. As new products or
custom products were produced, many new box variations were added and generally purchasing
bought more boxes than were needed for the initial order because the price breaks for increased
quantity were considerable. Every year during inventory a person had to count all these boxes,
many that were obsolete and would never get used. Attempts were made to use some of the
obsolete boxes, but generally this led to higher costs due to adding more filler material. This
also increased the potential for damage.
The current process was set up first by detelmining the optimal widths of fanfold
corrugated to use in the Packsize machine. Packsize engineers took a history ofXYZ's
Corporations boxes and came up with three different widths of fanfold that would minimize the
scrap. The bill of materials was updated to include a square foot usage of one part number to
capture the cost of the raw material only. The reorder of the three widths of fanfold corrugated is
done though a kan-ban system. A visual watermark of safety stock is located behind the
Packsize machine. When this watermark is reached, the packaging supervisor notifies
purchasing to reorder a truckload of fanfold corrugated. Packsize engineers then helped set up
various box programs and trained operators based on current box designs. These designs then
can be modified by size for different products. As new or custom products are developed a
technician works with the packaging supervisor to determine an estimate of square feet of
fanfold corrugated used in a particular product. This amount is placed on the bill of materials
and used of costing purposes only. This usage can be easily corrected if the box size or type is
modified. As new products go to the packaging department, the packaging supervisor
36
determines the best box design to use for the particular product. The product is then measured
for size and the box is produced as needed. The program is then saved by product number on the
Packsize machine so the next time the product is ordered the box design can be repeated.
Programs can be called up on the Packsize machine in less than a minute so minimal setup is
involved. Custom products based on a current design can utilize the same box design. A new
box can be made just by modifying the length, width, or height. The scrap fanfold corrugated is
compacted in a compactor next to the Packsize machine and sold. Material handing is kept to a
minimum because all sizes of boxes can be made from the three different widths of fanfold
corrugated, and the inventory is stored directly behind the Packsize machine. Generally boxes
are made as products are being packed with exception to some products that are packaged in
another building these boxes are made one day in advance of when they are needed.
Instrumentation
The primary tools used to collect the data used in this study were XYZ's corporation's
enterprise resource planning system, CAD drawings, tape measure, and stopwatch. These tools
were used to collect labor and setup data, inventory amounts, material costs, SKU quantity, floor
space consumed, and purchase orders generated.
Data Collection Procedures
Floor space was measured using a tape measure and CAD drawings of the building.
Measurements were taken before the implementation and during the two years after the
implementation. The portion of the warehouse that was dedicated for storage of boxes was
compared to the storage space that was needed for the average fanfold material, and the addition
of the Packsize machine. The space that was needed for various other packaging lines, strapping
machines, stretch wrapping machines and various material handling equipment was not
considered in the comparison. This floor space was identical before and after the
implementation.
37
Costs for the boxes purchased for the year prior to the implementation were collected
from enterprise resource planning system. Previously XYZ Corporation purchased all of its
corrugated boxes from one vendor and that was the only product that was purchased from that
particular vendor. A repOli was run on the enterprise resource planning system to compile all of
the invoices from the corrugated box vendor for 2007. Costs were then collected for the fanfold
corrugation during the two years following the implementation from the enterprise resource
planning system. The fanfold for the Packsize machine has to be purchased from Packsize. A
report for the total invoices for fanfold corrugated was compiled using the enterprise resource
planning system for the years of2008 and 2009. The labor for packaging was collected from the
year prior to implementation and the two years after the implementation from the enterprise
resource planning system. Production work orders are separated by department the labor hours
for 2007 were compared to the department labor hours for 2008 and 2009 by running a report for
the labor hours for the packaging department for the years of2007, 2008, and 2009.
Inventory turns were measured by dividing the cost of corrugated boxes for one year and
then dividing it by the average inventory. The inventory turns for the fanfold corrugated was
measured by dividing the annual cost by the average inventory for the first two years after
implementation. The annual costs for the corrugated boxes for 2007 were obtained by compiling
the invoice totals for 2007 for this particular vendor as described earlier. The fanfold costs for
2008, and 2009 were obtained by compiling the invoices from Packsize who provides the fanfold
corrugated material as described earlier. The inventory data was obtained from the enterprise
resource planning system and the annual inventory report, as well as physical measurements.
38
XYZ Corporation performs an annual full physical inventory count every year in January, and
this data was used to determine the average inventory for the corrugated boxes. Physical
measurements were taken on the area that the fanfold corrugated is stored and an average
inventory was determined by the average amount of fanfold corrugated on hand between a
delivery and the point when the watermark is reached for reorder.
The savings of the implementation of the kan-ban system for reordering corrugated
products was measured by the reduction of purchase orders for corrugated products before and
two years after the Packsize implementation with data from the enterprise resource planning
system. The number of purchase orders was obtained for 2007 by counting all of the purchase
orders for the corrugated box vendor. The number of purchase orders was then counted for 2008
and 2009 for Packsize the vender for the fanfold corrugated material. An amount of $1 00 per
purchase order was used to quantify a cost difference.
The number SKUs were also obtained from the enterprise resource planning system prior
to implementation. XYZ Corporation had one supplier of corrugated boxes and a repOli was run
for that vendor for 2007 showing how many items that vendor provided. The two years
following the implementation of the Packsize machine, three SKUs were used to produce all
corrugated packaging. These three SKUs consisted of the three widths of fanfold used by the
Packsize machine.
The time saved by the packaging department designing their own boxes was measured by
the number of new product numbers created for corrugated boxes in the year prior to the
implementation and the two subsequent years prior. This data was obtained from the enterprise
resource planning system. A report was run for 2007 to determine how many item numbers were
added in 2007 for this particular vendor. An amount of $400 per item number was used to
39
quantify the results. The addition of a part number could take about six hours considering the
mUltiple meetings required with the box vendor and the data entry required.
The sizes of box orders were obtained from the enterprise resource planning system and
observation of the packaging depmiment as they produced boxes on demand with the Packsize
machine. A report of the purchase orders for the corrugated boxes for 2007 was run and an
average run quantity was calculated. The run size for 2008 and 2009 was calculated by running
a report for the work order size for all work orders processed in the packaging department.
Limitations
The goal ofthis study was to quantify the major impacts of the implementation of the
Packsize machine at XYZ Corporation. Other cost impacts might exist, but this study is limited
to the impacts described. The data and results only apply to the particular company in the study.
The data gathered from the enterprise resource planning system assumes accuracy of reporting
and data entry. The time frame that was focused on was the year prior to implementation and the
two years following the implementation of the Packsize machine. The average inventory for the
corrugated boxes was taken from the annual inventory report for the year prior to the
implementation of the Packsize machine. The author felt this annual inventory would represent
closely an average inventory.
Summary
The methods used to collect the data for this study are simple, but provides data to show a
clear impact of the cost savings associated with the implementation of the Packsize machine at
XYZ Corporation. In a company with more efficient process or less diverse product lines, the
cost impact might not be as significant or other methods of evaluation might be necessary.
Chapter four will quantify these impacts.
40
Chapter IV: Results
The purpose of this study was to quantify the results of the implementation of a new
packaging system at XYZ Corporation. The results that this study focuses on are floor space
reduction, direct cost reduction, increasing inventory turns, procurement through kan-ban
process, reduction of corrugated SKUs, operator design of boxes, and producing boxes in small
batches. This chapter lists the detailed results for these seven areas. These results were taken
from the year prior to the implementation of the Packsize machine and the two years after the
implementation.
Item Analysis:
Floor Space Reduction
The storage of corrugated boxes prior to the implementation of the Packsize machine
occupied about 7500 square feet. After the implementation of the Packsize machine the floor
space to store the fanfold material and the floor space that the machine occupied was about 900
square feet as shown in figure 2. This change equaled a savings of 6600 square feet.
Figure 2. Floor layout
Figure 3 shows how the corrugated boxes were stored.
Figure 3. Corrugated Box Storage
Figure 4 shows how the fanfold corrugated is stored.
Figure 4. Fanfold Corrugated Storage
41
42
Reduce Costs
Annual costs for the cOlTugated boxes for the year previous to the implementation of the
Packsize machine are shown in table one. Table 1 also shows the costs of the fanfold material,
the Packsize machine uses, for the two years following the implementation. The methods for
gathering the material cost data is listed in chapter three. Labor hours for the packaging
department are shown in table one for the year prior to implementation and the two years
following the implementation. The methods for collecting the labor data is listed in chapter
three. XYZ Corporation's total sales decreased by 3.2% in 2008 and increased by 4.4% in 2009.
Material costs are rounded to the nearest one thousand dollars and labor hours are rounded to the
nearest hour.
Table 1
Corrugated box, fanfold costs and labor hours for packaging department
Year
2007
2008
2009
Increase Inventory Turns
Packaging Labor Hours
6,919
6,550
7,601
COlTugated Box or Fanfold
COlTugated Cost
$395,000
$246,000
$312,000
Table 2 shows the inventory turns for the cOlTugated boxes used in the year prior to the
implementation of the Packsize machine, and the inventory turns for the fanfold material used in
43
the two years following the implementation of the Packsize machine. The annual cost is the
same figure used in table one this figure is divided by the average inventory to get the inventory
turns per year. The methods for gathering the average inventory are listed in chapter three.
Table 2
Inventory Turns
Year Annual Inventory Average inventory Inventory Turns
Cost Cost
2007 $395,000 $134,262 2.9
2008 $246,000 $21,000 11.7
2009 $312,000 $21,000 14.9
Purchasing of Corrugated with Kan-Ban Reorder System
The use of a kan-ban system to reorder the fanfold material that the Packsize machine
uses allows for a cost savings by reducing the number of purchase orders that procurement has to
produce in a given year, table 3 shows the number of purchase orders generated for corrugated
packaging material during the year previous the Packsize machine implementation and the two
years following the Packsize machine implementation. An amount of $1 00 dollars per purchase
order is used to show the administrative cost associated with processing a purchase order. Figure
5 shows the watermark level for the fanfold corrugated. The safety stock level is shown in figure
6 when one of the watermark bales is placed in the machine the packaging supervisor generates a
list of fanfold cOlTugated needed and sends this to procurement to order a full truckload of
fanfold material.
Figure 5. Fanfold Corrugated Watermark
Figure 6. Fanfold Watermark Levels
44
45
Table 3
Costs of Purchase Orders Before Implementation and after Implementation
Year
2007
2008
2009
Reduce Corrugated SKUs
Number of Purchase orders
184
7
10
Administrative Cost of
Purchase orders
$18,400
$700
$1,000
The implementation of the Packsize machine at XYZ Corporation allowed the number
SKUs associated with cOITugated packaging to be greatly reduced. The Packsize machine
produces many different box types on demand from a continuous length of fanfold corrugated
bale. XYZ Corporation uses three widths of bales 30", 45", and 68.5" these bales are 1200 feet
long. All three sizes can be loaded on machine at the same time as long as the total width is less
than 197 inches with four inches between bales. The Packsize machine automatically selects the
best width available to minimize the scrap. Figure 7 shows the Packsize machine with the three
different widths of fanfold corrugated loaded behind the machine. Previous to the
implementation of the Packsize machine XYZ Corporation had 503 active SKUs associated with
corrugated packaging. The change to the Packsize machine allowed XYZ Corporation to reduce
the number of SKUs it managed by 500.
Figure 7. Packsize Machine
Packaging Department Will Design Their Own Boxes
46
The implementation of the Packsize machine at XYZ Corporation allowed boxes for new
or modified product to be designed by the personnel in the packaging department. Packsize
engineers worked with XYZ Corporation to set up some common programs based on their
current product line. These programs could then be modified by size to fit a particular product.
Figure 8 shows the different box programs that were set up. The ability of the packaging
department to design their own boxes on demand resulted in cost savings. Prior to the
implementation of the Packsize machine at XYZ Corporation all of the corrugated boxes were
purchased from a traditional box manufacturer. When new products were designed or modified
products were ordered a person from product development and the packaging supervisor had to
meet with a representative from the box manufacturer. It took a minimum of one meeting to
develop the specifications for the new box and another meeting to review the prototype box.
47
Figure 8. Box Designs
If the prototype was acceptable a new item number was created and added to the enterprise
resource planning software. Then this number was placed on a bill of materials for the new or
modified product. Procurement would then look for a demand to be placed against the new
number they would then place an order. A value of $400 per occurrence was placed on this
activity to evaluate the cost. In the year prior to the implementation of the Packsize machine at
48
XYZ Corporation 46 new box numbers were added resulting in a cost of $18,400. After the
implementation of the Packsize machine these costs were eliminated.
Produce boxes in Small Batches
Previous to the implementation of the Packsize machine at XYZ Corporation all
corrugated boxes were ordered from a local box manufacturer. Price reductions tended to be
significant as larger quantities were ordered. This led to extra boxes being ordered to get the
price reduction. This activity led to waste as discussed in previous- chapters. The quantities on
the 184 purchase orders for the year prior to the implementation of the Packsize machine were
averaged. The result was the average quantity of boxes purchased per line item was 431. In
contrast with the Packsize machine it can produce boxes in a batch size of one with a set up time
of less than one minute. The batch size for boxes produced from the Packsize machine generally
ranges from one to fifty. The higher quantities are for items packaged at another building were
the boxes are produced 24 hours in advance of the demand. This allows XYZ Corporation to
only produce what is needed when it is needed.
49
Chapter V: Discussion
This study has described an implementation of a new packaging system in a mid-sized
manufacturing company. The author has described the packaging process at XYZ Corporation
prior to the implementation of the Packsize machine and the two years following the
implementation. The author has made connections between Lean Manufacturing principals and
tools and how they relate to packaging. The study lists the methods of data collection to quantify
the results of the implementation in the areas of floor space reduction, direct cost savings,
increased inventory turns, purchasing of corrugated through kan-ban reorder process, reduction
of corrugated SKUs, package department designing their own boxes and the reduction of the
batch sizes for corrugated boxes. The study then lists the results in these seven areas.
Limitations
The goal of this study was to quantify the major impacts of the implementation of the
Packsize machine at XYZ Corporation. Other cost impacts might exist, but this study is limited
to the impacts described. The data and results only apply to the particular company in the study.
The data gathered from the enterprise resource planning system assumes accuracy of reporting
and data entry. The time frame that was focused on was the year prior to implementation and the
two years following the implementation of the Packsize machine. The average inventory for the
corrugated boxes was taken from the annual inventory report for the year prior to the
implementation of the Packsize machine. The author felt this annual inventory would represent
closely an average inventory. Some of the results like the corrugated reorder process and
packaging designing their own boxes had estimated costs used to show a value. The calculation
of this estimated value is beyond the scope of this study. Other impacts such as floor space
50
reduction, increasing inventory turns, reduction of cOlTUgated SKUs, and batch size reduction did
not have a cost value applied. These calculation are beyond the scope of this study.
Conclusions
This study has concentrated on seven impacts of the implementation of the Packsize
machine at XYZ Corporation. The areas of direct material cost, purchase order reduction, and
the reduction of time spent by the packaging department designing their own boxes yielded a
cost savings of$185,100 for 2008 and $118,800 in 2009. This was done with a minimal variance
in labor hours in the packaging department. XYZ Corporation's total sales declined by 3.2% in
2008 and then increased by 4.4% in 2009. The other impacts included a reduction offioor space
used for corrugated materials by 6600 square feet. Inventory turns for corrugated packaging
material were increased by 8.8 turns in 2008, and 12 turns in 2009. The number ofSKUs for
corrugated material that XYZ Corporation had to manage was reduced by 500 SKUs down to
three for all boxes used. The batch size of corrugated was also reduced by a minimum of 381.
Boxes could also be produced efficiently in the quantity of one for special or custom orders.
These impacts were realized with a minimal one time investment of $25,000 for the installation
of the Packsize machine and a deposit of $5,000 for spare parts.
The connections between lean manufacturing concepts described in the literature review
are evident in the following areas. The Packsize machine allows for waste reduction in the areas
of overproduction, excess inventory, and transpOliation. The Packsize machine allows for better
organization following 5S principals and the utilization of visual controls for the reorder of
material. The Packsize machine allows raw materials to be converted to boxes generally in less
than 24 hours of their need following just in time principals. The ability of the Packsize machine
to have a setup time or changeover time of less than a minute allows batch sizes to be
considerably smaller.
51
In conclusion, the direct cost savings realized at XYZ Corporation with the
implementation of the Packsize machine was one of the initiatives that allowed XYZ
Corporation to maintain profitability in a time where many other manufacturing companies
struggled to stay in business. The savings in floor space has been utilized to set up work cells for
large production orders of custom product. The increased inventory turns has freed up capital
that enabled purchase of new or updated machinery. The reduction in corrugated box SKUs has
allowed procurement to concentrate on improving relationships and quality standards with other
vendors. The reduction of batch size and producing boxes just in time has eliminated
obsolescence. Accounting no longer has to make the decision of what to scrap out at the end of
the year to reduce inventory because space is now available.
Recommendations
Further research could be done in the areas of floor space reduction, inventory turns,
SKU reduction, and batch size reduction. This research could attempt to quantify to cost savings
in dollars for each of these areas. Further research could also be performed on other machines
other than Packsize that convert fanfold corrugated to corrugated boxes on demand. Other
machines exist but most of them require the machine to be purchased. In some cases this might
lead to a savings because you are not required to buy the corrugated fanfold from one supplier.
The Packsize model for packaging is a very good fit for XYZ Corporation because of the
high product mix and low volume. XYZ Corporation also does not market its products through
its packaging. Other organizations might see similar results if they have similar product mix.
Organizations that have higher volumes and less product mix would have to concentrate on the
52
cost savings from some of the less direct cost impacts because the price of the corrugated box
will be more competitive from a traditional box manufacturer as the volume increases. Fanfold
corrugated can be purchased with printing on it but depending how the boxes are cut the
information printed on the fanfold might be cut off. Other companies thinking of implementing
a similar machine or process would have to evaluate their product volume and packaging
methods to determine if it would be beneficial. Traditional box manufactures might take notice
of Packsize or similar machines taking away their market share and respond with improved
methods of producing boxes more in line with modern lean manufacturing principals.
XYZ Corporation has used lean manufacturing principals in other areas of the company.
A pallet cell has been set up to produce pallets on demand for all of XYZ Corporations products
that ship out on a pallet. This cell produces pallets based on a kan-ban system of replenishment
and the raw materials for this cell are reordered based on watermarks. 5s principals have been
implemented in many areas of the facility. Assembly cells have been set up for standard product
as well as large runs of custom products. These cells concentrate on the balance of work tasks to
create flow and eliminate of waste. Machines have been moved to eliminate waste and create
manufacturing cells for specific production process that involved multiple machines.
References
Bartholomew, D., (1999). Lean Gets a Software Assist [Electronic version]. Industry Week,
October 2006.
Baudin, M. (2002). Lean assembly: The nuts and bolts of making assembly operations flow.
New York, NY: Productivity Press
Corrugated Packaging. (2011). Retrieved from
http://en.wikipedia.org/wiki/Corrugated_fiberboard
53
Dennis, P. (2007). Lean production simplified, second edition: a plain language guide to the
worlds most powerful production system. New York, NY: Productivity Press.
Epa.gov. (2011). Value stream mapping. http://www.epa.gov/lean/toolkUlch3.htm#introduction
Goldsby. T., Martichenko. R. (2005) Lean six sigma logistics: Strategic development to
operational success. Boca Raton, FL: Ross Publishing, Inc.
Hobbs, D. (2004) Lean manufacturing implementation: A complete execution manual for any
size manufacturer. Boca Raton, FL: Ross Publishing, Inc.
Hopp, W., Spearman, M., Woodruff, D. (1990) Practical Stratiegis for Lead Time Reduciton.
Manufacturing Review vol 3, no 2. June 1990.
Huthwaite, B. (2007) The lean design solution. Mackinac Island, MI: Institute for Lean
Innovation.
Inventory Turns. (2011). Retrieved fl:om http://en.wikipedia.orglwikilInventory_turns
Kroll, K.M.,(2004) The Lowdown on Lean Accounting [Electronic version]. Journal of
Acounting, July 2004.
54
Mascitelli, R. (2007) The lean product development guidebook: Everthing your design team
needs to improve efficiency and slash time to market. Northridge, CA: Technology
Perspectives.
Ortiz, C. (2006). Kaizen assembly: Designing construction and managing a lean assembly line.
Boca Raton, FL: CRC Press.
Paper Task Force (1995) Functionality Issues for Corrugated Packaging Associated with
Recycled content, Source Reduction and Recyclability. White paper no. 6A,
Environmental Defence fund. Retrieved April 14, 2011,
http://www. edf. orgl documentsl1614 _ WP6A. pdf
Rohleder, Ken (2004, May, 18). Boxes in small batches, Retrieved December 2, 2007,
from:http://www.packagingonline.com/paperboardpackaginglarticle/articleDetail.jsp?id=
9 5524&sk=&date=&%OA %09%09%09&pageID=2
Rohleder, Ken (2006, July, 22). Why steelcase went lean. Official Board Markets, 82(29)
Rother, M., & Shook, J. (2003). Learning to see. Brookline: The Lean Enterprise Institute.
RTA furniture. (2011). Retrieved from http://en.wikipedia.org/wiki/RTA_furniture
Rubrich, L., & Watson, M. (2000). Implementing world class manufacturing.Fort Wayne: WCM
Associates.
Shingo, S. (1985) A revolution in manufacturing: The smed system. Portland, OR: Productivity
Press.
SKU. (2011). In Encyclopcedia Britannica. Retrieved from
http://www.britannica.com/EBchecked/topic/124 2199/SK U
Womack, J.P., & Jones, D.T., (2003). Lean Thinking. New York: Simon & Schuster.
