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How IKEA Saves Millions Through

Packaging Optimization
By
Tom Blanck (https://www.chainalytics.com/author/tom-blanck/)
29 June 2015

In a recent article published in the Wall Street Journal

entitled “IKEA Can’t Stop Obsessing About Its Packaging
(http://on.wsj.com/1GLpBlj),” reporter Saabira Chaudhuri
(http://topics.wsj.com/person/A/biography/7359)
highlights many of the ways Swedish furniture retailer
IKEA is cutting waste and boosting efficiency through
optimizing its packaging.
IKEA CEO Peter Agnefjäll’s mantra is simple: “We hate air,” which echoes a guiding principle that we follow
at Chainalytics when consulting with clients on packaging matters. It is quite inspiring to see IKEA grabbing
packaging optimization by the horns and realizing true value. That’s something that requires a trained eye
and an understanding of supply chain operations that can be difficult for some companies to see. What can
be surprising is how seemingly minute changes, as small as a fraction of an inch, can cascade through the
supply chain and can end up saving millions of dollars. Most companies have undiscovered opportunities –
sometimes in plain sight – just waiting to be tapped.

Packaging’s Ripple Effect on Supply Chains

The benefits of an optimized package are amplified throughout the distribution cycle. When working with
primary packages, structural changes can optimize cases, which drive more SKUs fitting on a pallet and
more product in a trailer or container. Besides the potential cost savings attributed to packaging materials,
even greater savings result from decreased handling, storage and transportation costs. To illustrate how
quickly small packaging optimizations compound through supply chains, consider the change one of our
clients made to the primary packaging of a frozen pizza box. Our redesigned package reduced dimensions
by only 1/8” x 1/8” x 1/32”. Visually indifferent to the consumer’s eye, it does not sound like a drastic
change, but the client realized over $600,000 in annual cost savings as a direct result of this minute
change. Some efficiencies derived directly from these changes equate to:

133 fewer truckloads per year

66,500 miles of transit eliminated

Decreased transit costs by $133,000

9,500 fewer gallons of diesel fuel consumed per year

Over $175,000 in reduction of material costs

146 tons of corrugate and paperboard material eliminated

Educate Sales & Marketing Teams to Save Sooner

Marketing departments are focused on developing packaging that increases visibility on store shelves and
attracts customers. Working with graphic artists and brand managers, optimizing packaging for the supply
chain is simply not on their minds and is often unnoticed and undervalued. With attention on driving sales
and brand recognition, not much emphasis is placed on the physical distribution or trailer utilization of the
package itself. There is an opportunity – and responsibility – for packaging and supply chain professionals
to educate sales and marketing departments on the importance of structural packaging optimization and
the numerous cost benefits it can provide. More and more companies are giving supply chain managers
more powerful voices as they realize the the vital role of distribution efficiency in competing effectively.
Getting involved in packaging development decisions earlier in the process is an excellent use of that voice.

Engineer Costs Out of the Supply Chain

At Chainalytics, we love the cost saving multiplier effect that small packaging changes have on bottom
lines, but things get really interesting when these optimizations are integrated with product design. IKEA
saves €1.2 million every year because company engineers figured out how to break its Ektorp sofa into
several different pieces, reducing its packaging size by 50%. This is a great example of how including the
supply chain perspective early in development processes can create huge benefits. The WSJ article
highlights that, [tweet_dis]“IKEA is increasingly designing things with packaging and manufacturing in mind
from the start.”[/tweet_dis] This touches on what we at Chainalytics call “Designed for Distribution”
(https://chainalytics.com/designed-for-distribution/) and is the direct result of including the supply chain
perspective early on in the development process. Another element of this “Designing for Distribution”
(https://chainalytics.com/designed-for-distribution/) concept is engineering both the product and the
packaging requirements to survive in transit. Damage during transport can wreak havoc on supply chain
costs and have detrimental service implications. An integrated engineering approach should be taken
during product development, considering both product hardness and the hazards it will encounter during
distribution to produce a satisfactory consumer experience on all fronts. For example, Chainalytics helped
3-D printing company Stratasys minimize shipping damages on its Mojo printer
(http://www.supplychainbrain.com/content/latest-content/single-article/article/packaging-focus-brought-
into-design-of-desktop-3d-printer/?
utm_source=Chainalytics&utm_medium=Chainalytics&utm_campaign=Chainalytics) by tweaking both the
product design and the packaging early on in the development process we were able to optimize the
shipping unit, reduce risk, and ensure customer satisfaction. Thus far there have been zero failures, zero
returns of Mojo (http://www.stratasys.com/3d-printers/idea-series/mojo).

Money Isn’t the Only Green Benefit of Packaging Optimization

Another intangible benefit of these efficiencies is sustainability. It can be challenging for many companies
to make a business case solely based on sustainability as a primary objective and actually gain traction.
While this may be the case, [tweet_dis]green and efficient supply chains aren’t mutually exclusive but
mutually dependent[/tweet_dis] as such, sustainability is almost always a positive net result of packaging
optimization (http://www.supplychainquarterly.com/departments/20140613-chain-reactions/?
utm_source=Chainalytics&utm_medium=Chainalytics&utm_campaign=Chainalytics). That same frozen
pizza box initiative that saved our client so much money, ALSO eliminated 100 tons of CO2 emissions and
saves nearly 3,000 trees each year.

What You Do With the Savings Is Up To You

One striking thing about the savings IKEA is realizing from its packaging optimization efforts is how they’ve
chosen to leverage them: IKEA passes the savings directly to the customer providing a competitive
advantage for themselves in the market. Reducing the size of Ektorp’s
(http://www.ikea.com/us/en/catalog/categories/series/07488/) packaging allowed the company to reduce
the purchase price by 14%. That makes great sense for a company that caters to cost sensitive consumers
that love great deals, but don’t want to sacrifice quality. Agnefjäll summed up the pursuit of efficiency nicely
by saying, [tweet_box]“We are engineering costs out of our value chain that don’t contribute
anything.”[/tweet_box] At Chainalytics, we couldn’t agree more. To learn more about how packaging can be
used to reduce inefficiencies, I am hosting a free webinar (http://www.scl.gatech.edu/news-
events/event.php?nid=407441) with the Georgia Institute of Technology on “Optimizing Packaging’s Impact
in the Supply Chain” (http://www.scl.gatech.edu/news-events/event.php?nid=407441) Wednesday, July 29
at 1:30pm EST. As bonus, webinar attendees will receive a discount code for a 2-day Packaging
Optimization (http://www.scl.gatech.edu/professional-education/on-campus-courses/course.php?
id=opisc) class September 1-2, 2015 on the same topic as part of Georgia Tech’s Supply Chain
Management certificate program (http://www.scl.gatech.edu/professional-education/certificates/).

Chainalytics’ combination of package engineering experience and wide-ranging supply chain expertise
delivers packaging optimized for your product, your bottom line, and the planet. Reach out to us
(https://www.chainalytics.com/contact-us/) and see how Chainalytics can simultaneously optimize your
packaging and your supply chain impact.

Tom Blanck (https://chainalytics.com/who-we-are/our-team/management-team/principal-practice-leader-

tom-blanck/) helps leads the Packaging Optimization (https://chainalytics.com/what-we-do/supply-chain-
analytics-and-advisory/packaging-optimization/) Practice at Chainalytics where he manages the delivery of
supply chain packaging optimization and complex package engineering services as well as packaging
value improvement programs.

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