Industry Articles
Do you pay too much for zero risk in the cold chain?
Author: Stefan Braun, Managing Director, SmartCAE
| Update : 24th February, 2022 |
A central task in temperature-controlled logistics is choosing the most cost-effective thermal protection for a shipment: it must maintain the dedicated product temperature for the current lane temperature conditions, and it should not be overengineered to avoid unnecessary costs.
But how to find an objective way to identify the most cost-effective solution? There are so many solutions on the market VIP, EPS, Thermal Covers, PU, Waterbased, PCM and many more.
Is the best solution simply the one that has no excursions, which is a popular proposition among vendors?
Maybe the "no excursions" are just a result of good logistics and have little to do with the packaging. Even if the packaging solution is as perfect as promoted, it can end up being so expensive that you invest more in the packaging than in the product. Often it turns out it is more economic to accept a little risk. Also, it is important to match the packaging to the logistics service level: if you invest in a particularly secure packaging, you can be a bit more lax on the logistics side, and vice versa. So there are a lot of possible scenarios.
The Total Cost of Ownership, TCO, is a financial estimate of all costs involved in a system. In temperature controlled logistics it can be defined as:
TCO = CP + CS + CC + CPL
with the components:
- CP, cost of packaging: base price of packaging plus the price for component preconditioning. CP is provided by the packaging vendor.
- CS, cost of shipment: the price per mass and/or volume of the shipment. CS is available from the logistics provider. It depends on mode of transportation and service level.
- CC, cost of compliance: when a product temperature excursion occurs, a CAPA process is triggered, with its associated costs. CC is determined by the number of excursions.
- CPL, cost of product loss: costs associated with product loss are determined by the fail rate and the value of the product.
In traditional processes based on physical testing alone, it is a long process to determine CC and CPL. It requires extensive periods of testing and live shipments, typically for about a year or more, to gather statistically sufficient data. In modern processes, which make use of the Virtual Cold Chain (VCC) and its simulation capabilities, CC and CPL are immediately available.
Consider an example where products are shipped from Dusseldorf via Atlanta to Chicago. The market demands 5’000 shipments per year.
Transport costs for general pharma service are $ 4 per kg. The pharmaceutical payload has a value of $ 10’000 per shipment. A CAPA process is triggered whenever the product temperature is outside its label range of 2-8°C. Associated process costs are $ 6’500. Product loss occurs if the temperature is outside a 1°C safety margin, i.e. below 1°C or above 9°C. There are five prequalified packout options from different vendors.
Using VCC, the performance of each packaging is simulated for the lane temperature conditions of each day during the last 5 years. Excursion simulation results for each month are shown in the overview figure. Green indicates no excursion, other colors indicate at least one excursion.
This summary shows the excursion:
This summary shows the product losses:
This picture shows the ambient temperature at the top and the corresponding product temperature at the bottom:
This picture shows the statistics for a box for all profiles:
The results provide estimates of CC and, analogously, CPL for each system. These are used to determine the TCO, see table.
The best solution according is the All Season EPS packaging with a TCO of $ 945’000 per year. Even though excursions occur for 0.6% of the shipments, the associated compliance costs are outbalanced by the lower costs for the packaging. The savings potential compared to the second best solution is $ 135’000 per year. Compared to the vacuum-panel box, although showing good lane performance with no excursions or fails, the savings potential is almost $ 2’000’000 per year.
Excursions of the summer packout over the year:
Excursions of the All-Season packout over the year:
If the company processes allow for seasonal packaging, the TCO analysis shows that in this case an extra $ 236’000 per year can be saved by using the cheaper Summer packaging during May-Sep, and the All Season EPS otherwise, see last row in the TCO table.
This kind of TCO analysis can be performed for any shipping lane on the globe, and any packaging system on the market. And the best thing is: it can be performed upfront, before any physical test shipment has been carried out. This approach not only provides a transparent way to cut costs by selecting the most adequate packaging, but it is also a huge time saver in the qualification process, as it replaces months of physical testing.
About SmartCAE
SmartCAE (CAE = Computer Aided Engineering) is a small team of highly qualified, motivated and enthusiastic engineers and physicists.
SmartCAE provide software solutions for engineering tasks mainly in but not restricted to the area of thermal engineering for more than 15 years and customers in a wide range of branches.
The "Smart" in our company’s name we want to be understood as opposite to "Brute Force": We are convinced that it is not always the most involved mathematical model and the highest computing capacities that lead to the best results. Furthermore we believe that "CAE" should not produce colorful pictures but useful answers. Our focus thus is on software that is easy to use and computation models that are appropriate to the given tasks. Our demand is to always deliver maximal possible benefit for minimal possible expenses.
Read more about SmartCAE here
