Case study: Packaging

MS. Tăng Minh Hưởng

CASE 11.1 THE ADELAIDE DAIRY COMPANY
 The Adelaide Dairy Company (ADC) is an Australian milk-processing company. Its plant
near Adelaide currently produces infant milk powder for the domestic market. Recently,
ADC won its first international customer when a retailer in Singapore placed orders for
60,000 3-kilogram tins of milk powder to be delivered progressively over 6 months. ADC’s
initial plan (which we refer to as Option A) was to package the milk powder in tins at its
plant and ship the tins by sea to Singapore. ADC’s production cost, before packaging and
logistics, was $3 per kilogram. The existing tin design was cylindrical and measured 21
centimeters in diameter and 22 centimeters in height externally. Each tin cost $3 from a
local packaging materials supplier and weighed 0.3 kilogram. Therefore, each tin that was
filled with milk powder weighed 3.3 kilograms. These tins would have to be palletized and
shrink-wrapped to withstand a sea journey, before being loaded into temperature-
controlled shipping containers. The internal dimensions of these containers were as
follows: 2.28 meters wide by 2.12 meters high by 11.84 meters long. To stack and fit well
within such a container, each palletized load must not exceed 1.067 meters in length, 1.067
meters in width, and 1 meter in height. Each wooden pallet (including shrink-wrapping
materials) weighed 15 kilograms, cost $25, and was good for one-use only.
CASE 11.1 THE ADELAIDE DAIRY COMPANY
The loaded containers would be trucked from the processing plant to the Port of
Adelaide at a cost of $500 per container. The total shipment weight could not exceed
20,000 kilograms per container because of highway weight restrictions. Insurance
costs were 3 percent of the value of the shipment ready to be loaded aboard ship in
Adelaide (that is, all of the company’s costs up to this point). The ocean freight cost
from the Port of Adelaide to any address in Singapore was $2,500 per container. For
Option B, ADC’s supplier proposed a new tin design, so that pallet density could be
increased. This new 3-kilogram capacity tin was also cylindrical, but measured 19.4
centimeters in diameter and 24.5 centimeters in height. Compared with the existing
design, 20 more tins of the new design could be packed into the standard pallet under
a triangular packing arrangement (similar to a honeycomb pattern). However, this
redesigned tin would only be procured in smaller quantities, for the international
market, and hence cost slightly more at $3.10 each.
CASE 11.1 THE ADELAIDE DAIRY COMPANY
To reduce wastage of packaging materials, ADC was also evaluating Option C.
This involved first shipping milk powder in bulk (using unpalletized stackable
drums loaded into shipping containers) from Adelaide to Singapore. Each
airtight cylindrical drum, measuring 1 meter in height and 0.75 meter in
diameter externally, had a capacity of 200 kilograms and weighed 32
kilograms when empty. Although a new drum cost $100, it could be resold for
$80 in Singapore to be reused by a transporter of hazardous waste. A qualified
contractor could then be hired in Singapore to repackage the milk powder into
3-kilogram tins identical to the ones in Option A. While the repackaging
contractor could supply these tins for just $2 each, it would charge a further
$0.50 per kilogram to repackage and deliver the milk powder locally to the
retailer’s warehouse.
CASE 11.1 THE ADELAIDE DAIRY COMPANY
QUESTIONS
1. How many tins of milk powder can be loaded into a container under Option A?
2. How many tins of milk powder can be loaded into a container under Option B?
3. How many drums of milk powder can be loaded into a container under Option C?
4. What are the total costs of delivering the milk powder to the retailer under Option A?
5. What are the total costs of delivering the milk powder to the retailer under Option B?
6. What are the total costs of delivering the milk powder to the retailer under Option C?
7. Which option would you recommend? Why?