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Ecommerce Supply Chain Playbook

Plays for each important initiative that makes up the modern ecommerce operations stack.

How to Decide Shipping Box Sizes & Packaging Options  per Fulfillment Center

Shipping accounts for about 75% of supply chain costs on average.

That number still shocks me every time I see it.

Digging in, inbound and other types of shipping like transfers can be large individual expenses, but are inherently more optimized at a cost-per-unit level because of how items are batched, which results in them being a small part of the 75%. Conversely, outbound shipping is a very big chunk of the 75% because each individual item needs to be shipped to a customer.

There are so many levers to optimize outbound costs. We have focused a lot on the specifics of carrier methods and how much distance plays a role, which in general are the most impactful areas.

But other meaningful optimizations exist, too.

How you optimize shipping box sizes and packaging is an important component regularly overlooked. Some studies show optimizing your packaging mix can save around 20% of outbound shipping costs. That's a lot!

Early-stage companies usually aren't thinking about this area of optimization, and that's okay given their comparatively low amounts of complexity. A young and small company will inherently have fewer SKUs, fewer variations, lower shipment volume, and less opportunity to make a meaningful impact on operating expenses than larger organizations.

Meanwhile, on the other end of the spectrum, Fortune 50 companies like Walmart, Amazon and Target have this aspect down to a science.

It's somewhere in between that a company must flip a switch and make key decisions around packaging size usage that meaningfully impact cost, customer experience, and scale. It's usually triggered by volume of shipments and variability of SKU size and weight, but is unique to each company.

We argue that companies should look at it sooner rather than later. This article will break down all the considerations to a smart packaging strategy for ecommerce fulfillment, which you can take away and determine if the ideas and timing make sense for your business.

Why packaging matters

Much like printing a label, picking a package size (like a box) to ship purchased goods is an essential requirement to every order. Outside of a few edge cases where products might be shipped in their manufacturer packaging (e.g. appliances), you physically can't ship an order without a box. Packaging is existential, in a sense.

Here's how packaging typically works:

Fulfillment Centers (FCs) structure their pick-and-pack processes around someone, usually a person, deciding which type and size of packaging to select for a given order. Rarely is the entire pick-and-pack process fully automated or owned entirely by robots.

That person receives an order consisting of one or more SKUs. She then goes and gets those SKUs from storage in the FC.

Now with the SKUs in hand, she needs to decide which packaging is the right fit. Certain categories might use softpacks or envelopes, but for the vast majority of companies, it's boxes.

She must decide which box is the right size for the order. Sometimes it's a straight-forward decision: 

  • A single shirt might be put in a softpack. 
  • A single SKU sized 8x5x3 will elegantly fit in the 9x6x4 box size. 
  • A subscription service that's always the same SKU in the same packaging every order. 
  • And so on.

But more commonly, the associate is dealing with multiple SKUs and hard geometrical puzzles. The greater the complexity, the slower the decision making, the greater the chance of the least efficient choice being made, and in general just worse throughput performance.

Operations can make her life easier with a combination of smart defaults and even better software.

Let's walk through some considerations.

Know the customer to know thyself

The first step towards package optimization is getting a handle on the profile of your orders and shipments.

Note that those are two different things.

Orders

Orders in this case means the properties and attributes of goods included in an order. Your profile is highly contextual to your business. What matters are the physics around the order: shape, dimensions, weight, vulnerability, and the variability amongst each.

  • Some businesses might see the majority of their orders be one SKU. A specialized equipment brand might be an example.
  • Others might see the majority of orders include several SKUs. An essentials retailer is an example.
  • Some might be large SKUs (appliances) while others small (medicine/wellness).
  • Some businesses might include hazardous items (batteries). Others might include perishable items (food).

You get the idea.

The goal is to get a handle on the physical properties and variability of what you sell.

Variability typically tracks with a more complicated packaging strategy.

Along with variability, you must analyze volume. Which products ship more than others? What combinations are more frequent than others?

Shipments

While linked, the profile of orders is different than the profile of shipments.

Shipping analysis depends on understanding the performance and attributes of your fulfillment network, primarily the carriers.

  • Does UPS or FedEx perform better for fast shipments?
  • Which carrier and method is best for lighter packages? Heavier?
  • When shipping long-zone, who is the cheapest option? The fastest?

With many more questions to ask. We talk about shipping profiles here.

One or more FCs

You need to know what you typically ship (orders), and how they typically ship (shipments).

If you have one FC, then orders usually equal shipments in the sense that there is little variability between how the what is shipped, so to speak.

But if you have two or more FCs, then additional variability is injected.

You are likely to have more splits, which can be an efficiency drag if unmanaged.

The key understanding stems from the chance that an order profile being shipped from FC East might have a totally different shipping profile than if it was shipped from FC West, for example.

Packaging materials

With a comprehensive understanding of customers and shipping in hand, the first decision is to pick the packaging type.

  • Envelopes are ideal for flat items like paper (obviously). What you might not know is how big of a difference carriers treat the packaging type. USPS is hard to beat on cost for this type.
  • Soft packs are ideal for apparel and other amorphous products that can not be broken in transit. They are a huge cost saver compared to boxes for the right SKU types.
  • Most everything else will be boxes.

There are several types of boxes, which we won't get into here, like cold storage companies needing cold packs, or very heavy SKUs needing sturdier materials. As always, use whatever is best for your business.

Branding

Branding on the outside of boxes can be a savvy marketing play, an expensive distraction, or both.

A typical cost/benefit calculus determines if it's a good idea for your business. For example, an additional $0.05/box might be worth it for some businesses but not for others.

The mistake is computing the calculation purely based on hard costs like ink. The pitfall to avoid is found in complexity added to process.

For example, if the strategy consists of sending branded boxes to Customer ABC but not to Customer XYZ, that will create immense downstream costs. Pick-and-pack processes will get more complicated, storage will increase (store 9x6x4 of both branded and unbranded), and human decisions will regularly be wrong.

It's a requirement that the selection process be simple if you desire to use branded boxes.

A few other considerations:

  • If you own your channel, branded boxes make sense. For example, Chewy.com is a retailer of thousands of other brands and products, yet branding their boxes as Chewy made sense.
  • Similarly, do not provide branded opportunities to partners if you are a retailer or marketplace. For example, Chewy does not have branded boxes for Purina. Doing so will be impossibly complex to manage.
  • If the goal is advertising, branded boxes make the most sense if those who handle or see the box in transit could be potential customers or advocates. Chewy ships millions of pet supplies a year. Every pet-owning delivery driver or neighbor could be a customer. There are enough pet owners in the country to justify it. In certain instances if others around the customer could also be customers, it might make sense. For example, if your product is for college kids and is delivered to dorms, or if you are a recycling service and your box is left on someone's porch for a few days for all the neighbors to see it.
  • If the goal is brand immersion and customer delight, then the best justification is comparing the cost to digital advertising metrics like CPM. For example, if the incremental cost for a branded box was $0.25 with the goal of customers sharing the custom box on social media, then the calculus depends if you think the $0.25 is better spent with AdWords or otherwise. It gets further complicated if only 1 in 10 customers share online.

The last point is a relevant synopsis of the topic:

The incremental operating cost for branded boxes is tied to growing the top line.

In reality, it might be financially smarter to save that money or put it towards optimizing other fulfillment components — from packaging to shipping to returns — that impact savings and the bottom line. Branded boxes are a controversial topic that shines a light on which metric matters most to your business: growth or profit.

In the end, only you will know what's best for your business.

Inserts and promotions

Raise your hand if you saw a 20% Door Dash coupon when opening your Blue Apron subscription box.

Inserts and promotions are increasingly becoming common, but they are extremely divisive throughout the industry.

They are indicative of how a box is packed, so let's recap a typical packing strategy.

Dunnage is first. Associates will include materials to ensure safe and efficient transit of goods. It serves a purely functional purpose.

Second is a packing slip, or a list of all items included in the package. This is helpful in most cases, but critical if your fulfillment process takes advance of split shipments. Packing slips are potentially the cheapest and best impact on toppling promotions, however. If slips are a longer sheet of paper, it is straight forward to advertise a new product line to customers on the slip itself. Customers are usually in the midst of a positive experience, unboxing something they have been eagerly waiting for, so a promotion at that moment works well. The trick is to ensure the generic nature of the promotion on the packing slip: Make it universal to all customers to keep variability and engineering costs to a minimum.

Then comes marketing materials like inserts. Marketing folks have a favorable view. Operations folks typically don't. Both have a point. What matters is what makes sense for your specific business, but more importantly what matters for your specific customer.

A few considerations:

  • Promotions could be just a card, but it could be free samples, too.
  • It's important to align promotions with customers. For example, using Chewy.com again, sending a cat food promotion to a dog owner is ineffective. Or if a general retailer, sending a women's clothing promotion to only women customers is hard to determine and almost certainly overly expensive at the FC.
  • If you decide to do promotional cards, limit the number you include. We have found through experience that 5 is the maximum to consider. Furthermore, if we assume you have 5 promotions, strongly consider against dynamic selection of those promotions, i.e. one order gets 2 of the 5 while another order gets 2 different of the 5. In a perfect world, somewhere between the order management system and pick-and-pack line, software to analyzing order information and telling the associate which promotions to include. This is almost always much harder to set up than people realize, so in general it's best to be all or nothing.
  • If including a free sample, consider how it changes dimweights or the type of package. For example, if the sample has a battery, now all orders must be marked as hazardous and can only be send via slower ground methods. And for size, weight will matter more than dimensions: packages might often be just under 1 pound, and big price increases typically happen at the 1 pound mark. Adding a sample might be a few too many extra ounces, thus dramatically increasing shipping prices and making the promotion a negative ROI.

While divisive, inserts and promotions can be beneficial if this single principle is adhered: Market an additional product you think your customers will really like, versus a product that pays the most to be included. If the thing being promoted doesn't align with your customer, you will almost always experience a negative ROI no matter how much that partner paid for the opportunity to promote.

The Plays

The following plays are for companies who must use boxes and can't simply anchor on simpler packaging like softpacks for all orders.

Historical analysis

Look at all orders (not shipments) that left each FC last year on the same day. It will be the closest approximation of anticipated order profile and volume. (People don't tend to order winter jackets in June, for example.)

Do a theoretical analysis of single-shipments for those orders. If every SKU was a single shipment, what is the variability and frequency of dimensions and weights?

Right-sizing your box sizes

With this analysis in hand, figure out the maximum number of boxes to support each FC. This is an answer that is part art and part science.

To illustrate the point, consider polar maximums. If the goal was to optimize shipping costs as much as possible, you'd have a unique box size for every SKU to ensure zero air is ever shipped. But that is practically impossible.

On the other end, if the goal was to optimize the cost of box management, you'd simply stock one box size. That would give you the maximum volume discount, would streamline storage, and make selection easy. But that would never support all the shipment configurations needed.

Each business is somewhere in between. The variation and sizes needed are contextual to your business. With that said, a few considerations:

  • It's more complicated to procure more boxes. If there is too much variation, you will lose out on volume discounts. Similarly, if utilizing a big mix, not all vendors will carry all box sizes you might need, which makes purchasing complicated.
  • More boxes means more process choice for humans. If an associate needs to pick between 100 box sizes available to her, there will be too much mental overhead as she consternates between the 9x6x4 and 9x5x3 sizes, for example. That's a process cost that shows up in throughput metrics.
  • Storage matters. Procuring many box sizes means each station must be stocked with those sizes. If stocking 50 box sizes, the associate must have 50 boxes on the pick-and-pack cart, which could be difficult.
  • Too few boxes will result in shipping "air" too frequently, and higher shipping costs.

The statistical analysis is conducted as follows: 

  • Take the box sizes you currently use.
  • Look at the “fullness” of the closest box option to a historical order. This consists of computing the square footage of the SKUs and the square footage of the box. The delta between the two measurements determines how much "air" was shipped. Assign a financial value to that measurement.
  • Meanwhile, assign a financial measurement to the hard and soft costs of box management. That includes calculations like procurement costs with and without volume discounts, pick-and-pack throughput (associate mental overhead), and storage.
  • Compare the two financial measurements to see which is higher.

If it turns out the financial costs for shipping air are higher than the process/storage costs of available boxes, iteratively introduce another box size. Re-run the calculation. Keep doing so until you near equilibrium.

If, on the other hand, it turns out the financial costs are less than the process/storage costs of available boxes, then iteratively remove a box size. Keep going until you near equilibrium.

From what we have seen, the sweet spot is between 5-10 box sizes, with most companies finding the optimal selection around 8.

It may surprise you that the number is this low. On average, this range has tended to be the right mix of optimizing the competing priorities of:

  • Volume discounts when procuring boxes
  • Storage costs at facilities
  • Duplication along stations
  • Associate pick-and-pack mental overhead
  • Shipping the least amount of 'air' per order
  • Incremental branding costs

The analysis can be done by hand with spreadsheets, but it is possible to employ machine learning and software to determine the results.

How Shipium Helps

The Shipium platform offers a Carrier Selection product which integrates at a given FC.

The product helps determine the cheapest/fastest shipping method available per-order based on probable performance, not based on the generic carrier SLA. (A 5-Day Ground method might arrive next day, for example.)

Carrier Selection also offers a box sizing API. Customers tell us the dimweights of the SKUs for an order, and we return the most optimal box size to pick based on available sizes. It helps ease the pick-and-pack burden for the associate and streamline decisions, while minimizing the amount of "air" shipped on an annual basis, thus helping reduce shipping costs.

Ecommerce Supply Chain Playbook

Plays for each important initiative that makes up the modern ecommerce operations stack.

What is the Ecommerce Supply Chain Playbook?

Certain situations call for a unique set of processes and tasks—or "plays"—to get the job done. We collected the best approaches to common ecommerce supply chain situations and codified them into a playbook for operations professionals. Each play pulls from industry best practices as well as intimate lessons learned during our time building the supply chains that power Amazon Prime and Zulily.

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Upcoming plays

  • Connecting a Delivery Promise to Carrier Selection
  • Adding a Free Shipping Program
  • Managing Splits Across Multiple FCs