How Car Makers Can Use Green Containers and Cut Costs

Editor’s Note: The SCM thesis Optimizing Returnable Transport Item Repositioning in a Global Supply Chain was authored by So Ikeya and Lisandro de Latorre and supervised by Dr. Özden Tozanlı. For more information on the research, please contact MIT Supply Chain Management Master’s Program Executive Director Maria Jesus Saenz ([email protected]).

The public’s concern about sustainability issues has been growing steadily over the last several decades. Some common initiatives toward minimizing the impact on greenhouse gas emissions include recycling food containers and the use of reusable grocery bags. How do companies implement similar actions in their supply chain processes? Car makers have been using returnable cases to ship materials from suppliers to plants for several decades now. The idea is to avoid consolidating car parts in wooden crates or cardboard boxes that need disposal at the end of their use and instead use containers made from durable materials that will typically last for three years or more.

Despite larger initial investments due to design costs and higher manufacturing and material costs, using returnable packaging is more convenient in the long run than disposable packaging, especially because they can be reused several times and can be repaired when broken. On the downside, returnable cases are emptied out at their destination, put in inventory for further use, and then wait for empty return trips to their origin site (i.e., suppliers). This inefficiency is typically offset by the savings obtained by buying fewer cases, so it is a major cause for concern when low or unsteady demand makes it difficult to facilitate forecasting and in turn packaging procurement.

After-sales supply chains complexity and how to face it

Our sponsoring company’s after-sales supply chain is small in volume but incredibly complex, with hundreds of thousands of spare parts coming from thousands of suppliers to replenish markets in more than 170 countries. After-sales is all about repairs, special services, and spare parts. Forecasting spare parts demand is a difficult task due to several factors such as high variability, unpredictable recalls, and variable product lifecycles. It is known that spare parts demand will decrease over time in line with the expected vehicle life expectancy, however, the rate of this process is difficult to forecast.

Unstable or erratic demand leads to returnable packaging stagnation and shortage. This means that the empty packing waits at the wrong location (stagnation) for a quantity of demand on the origin end that justifies the empty return costs (shortage). On an international level, the company only permits returnable packaging on high-volume, bilateral routes where two countries ship the cases back and forth. As a result, the implementation of returnable packaging has seen very little success in this side of the business. Our capstone project focused on investigating global supply chain opportunities to increase the use of returnable packaging. Our initial hypothesis is that multilateral trading would allow more circulation of returnable packaging and avoid stagnation. Using the idea of pooling, we wiped the blackboard clean and redesigned a fully connected supply chain between the 10 countries with the highest volume, allowing for all possibilities of returnable or expendable packing flow between them, using mixed-integer linear programming. Our objective was to minimize costs and CO2 emissions for this newly created network.

The trade-offs of getting results

Our results show that, on average, countries export materials using returnable packaging to five other countries instead of just one country, as bilateral trading allows. Savings amount to 3.6% of the total budget spend, with an increase of CO2 emissions of 1.3%. The use of expendable packing can be decreased by 51%. Are these great results? Well, on the one hand, they validate our hypothesis that pooling returnable packaging inventory among several countries leads to cost savings. On the other hand, they also demonstrate that returnable packaging use and CO2 emissions both increase at the same time, an expected but undesirable result.

Implementing returnable packaging in a multilateral trade setting is an initiative worth exploring further. Not only car makers, but also other manufacturing companies with complex after-sales supply chains will find a methodology to calculate the returnable packaging quantities and flows that lead to cost savings.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’ (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.

These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

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