When I was a kid in the '60s, my brothers and I had newspaper routes. It was a dynasty, really. Among the three of us we delivered hundreds of morning and afternoon dailies to most of the homes on the south end of our modest Midwest village. We knew our customers well and parlayed our relationships by concocting a new entrepreneurial enterprise: a couple of times a month we wandered through the neighborhoods collecting 8-packs of "returnable" 16 oz. pop bottles from the housewives who were often too busy or too inconvenienced to return them to the grocery store themselves. We traversed the elm-lined streets of town, stacked rows upon rows of "empties" in a red wagon and in our bicycle baskets - normally reserved for newspapers - and herded our convoy of chattering glass bottles down to a local tavern. There, a gruff barkeeper handed us a fistful refund, equal to 40 cents per 8-pack. On the way home we returned to the houses from where we collected the bottles and split the proceeds with the owners, 50/50. That was during the Kennedy and Johnson administrations and we had a good run of it. But then, soft drink bottlers introduced non-returnable glass and by the late '60s they had replaced glass altogether with "disposable" cans. Sadly, our little enterprise fizzled.
We didn't know it then, of course, but my brothers and I had actually formed a niche 3PL; we were a middleman service in the supply chain for returned, reconditioned and reused soft drink packaging. This was a simple example of pay-per-use packaging that was economically viable because a nickel-a-bottle was a lot of money in those days, and the network for return logistics was well established - essentially any outlet that sold soft drinks.
It's ironic that this business model is emerging once again in, of all places, the healthcare packaging industry.
There is a developing trend among packaging providers of insulated packaging systems to issue to its customers pay-per-use, high-performance insulated packaging. In the world of active containers, this model has long existed. Now, driven by the growth of temperature-sensitive healthcare products, the advent of new and more sophisticated packaging technologies, and the ubiquitous clamor to be more environmentally sensitive and responsible, both providers and users of tertiary packaging systems are turning to more creative ways to meet the needs of the market. "We are starting to see the life science companies opening up to analyzing their packaging solutions from a total cost of ownership perspective," said Brian Kohr, president and chief executive officer of AcuTemp Thermal Systems. "These often very large companies are used to performing this financial analysis throughout their operational decision making processes, however it only recently has been applied to packaging."
Indeed, there has been an evolution - bordering on revolution - on the visibility of total cost of acquisition to be inclusive of packaging, distribution and transportation decisions, especially for temperature-sensitive products as current cost efficiencies in packaging and logistics are beginning to reach diminishing returns. "The costs associated with cold chain shipments are often contained within several budgets and thus, they are more difficult to analyze," Mr. Kohr stated. "For example, the cost of packaging, warehousing, logistics, labor, spoilage, distribution, customer service and quality are all usually contained within different budgets; however, they are very much intertwined as it relates to cold chain shipment requirements. Though a company's packaging budget may need to be increased on the front end, there are greater decreases in expenses provided to the other departmental budgets resulting in a better financial decision and an overall benefit to the company and shareholders, without increased risk to product integrity."
The implementation of qualified reusable insulated packaging systems is an adaptable solution that makes sense in a growing number of markets, from predictable steady forecast commercial product deliveries, to unpredictable clinical trials and product launches, where time is of the essence and lead times are short. It incorporates sophisticated, high-tech and thermally robust shipping containers: active, passive and hybrids, which often come with intelligent temperature controls that document the protection of the products they transport. The latest generation of reusable containers are more rugged than their traditional "corrugated and foam" counterparts, capable of greater thermal performance and greater protection from physical damage. They are lighter weight with increased payload efficiency, reducing freight costs. The cost of return logistics - an insurmountable cost barrier in the past - is reduced and sometimes eliminated by employing a vast network of depots for reconditioning, storing and reallocating assets. This reduces the cost-per-trip for the shipper and the expense can be considerably less than the total capital outlay for purchasing, warehousing, shipping and disposing of a container and for managing the assets, all of which is placed back on the packaging provider.
The variety of schemes and contracts behind total cost of ownership packaging models are as diverse as the packaging systems themselves. John Howe, chief executive officer of Active CC Boxes, provider of the Kodiak line of insulated packaging products, commented, "Some are straight-ahead rental programs where the container is ordered from the packaging provider. It arrives already conditioned and ready to accept the customer product. The product is loaded into the container and it is shipped to the consignee. The consignee removes the product and the container is then sent to the nearest packaging provider depot for reconditioning and reallocation."
Mr. Howe noted that leasing is another option: a combination of cost for use and cost of ownership of the total shipping system. "The leased containers are not the property of the customer so they do not contribute to total cost of ownership. Any fixed assets required to handle leased containers including storage racks, freezers or refrigerated rooms to condition the cooling elements and other warehouse support equipment, life science customers are likely to have anyway. The depreciation on this equipment will contribute to the total cost of ownership side," Mr. Howe remarked.
So, one might ask, if pay-per-use is such a great alternative to buying an insulated packaging system, why haven't companies done it sooner? "They have been doing it for years!" said Kenneth Maltas, vice president of Engineering, ThermoSafe Brands. "Every time a healthcare company contracts the use of a truck to transport their goods, they are doing so on a pay-per-use basis. They don't know where the truck was previously, or what was in it, nor do they know where it will be headed next; but this is not such an issue with healthcare companies because they have quality standards in place with their providers along with certain expectations on levels of service, usually in the form of a written quality agreement. There is no reason this can't be done for the transport of products in tertiary parcel packaging."
The leasing of active containers for temperature-sensitive shipments, a vital and growing service to the healthcare industry, has used such a model very successfully. In fact, they practically invented it. Mr. Maltas added, "They lease the same containers to multiple companies because they have dedicated inventory specifically for healthcare products and have good, reliable quality processes in place for reconditioning, repositioning and reallocating their assets. There is no regulatory precedent for not shipping in a reusable container since there is no direct product contact involved. And from a provider perspective, proper maintenance, tracking and recovery of assets are essential to any pay-per-use program."
"The success of a lease model is dependent on trained sales channels, partners and a network of third party service providers, who are an extension of the packaging supplier," said Stephen Maietta, Envirotainer's director of Sales for the Americas. "From the perspective of the total cost of ownership for packaging, leasing also allows for great flexibility. The model proves beneficial on single and multiple trade lanes, whether distribution schedules are regular or infrequent, and for multiple sized volumes or lot sizes. It's a good means of controlling financial risk because there is no significant capital investment and it significantly reduces the need for on-hand inventory and warehousing constraints."
He added, "A lease model for packaging systems is a cost effective and efficient component in the manufacturer's supply chain. However, challenges are constantly measured and managed, specifically quality and availability. To ensure standards are met it is critical that key performance indicators (KPI's) are applied."
So what will it take to convince industry to "think outside the box"? Implementation of this process will take time and there are many misconceptions and misperceptions to overcome along with a few kinks in supply chain logistics. But the future of expanding leased, high-performance insulated packaging systems for healthcare products looks bright. It is an idea whose time has come. Cost barriers have been overcome, logistics networks are capable and providing greater sustainability in packaging is a global responsibility and moral imperative.
Perhaps I should give my brothers a call and have them oil up the red wagon. I sense all kinds of opportunity!
Kevin O'Donnell is director and chief technical advisor to industry at Tegrant Corp., ThermoSafe Brands. He can be reached at email@example.com. His blog, Where Cooler Heads Prevail, can be found at http://www.coolerheadsblog.com/blog/