Why and how to reduce packaging waste in e-commerce fulfilment centres

Part I: The need for change

E-commerce companies are facing vast packaging challenges. On the one hand, the global e-commerce packaging market size is projected to grow from $49.74 billion in 2023 to $86.93 billion by 2030 (CAGR of 8.3%)¹. On the other hand, there is an increasing aspiration for more sustainable packaging – a drive that is enhanced by four main market forces: global commitments, regulation & legislation, consumers, and investors. If e-commerce companies want to remain relevant and competitive, they will need to make considerable changes.

Global commitments
Companies representing 20% of all plastic packaging produced globally have committed to 2025 targets to help realize a common vision: tackling plastic pollution at its source. And their targets are quite ambitious, too. For instance, they strive for 100% reusable, recyclable or compostable plastic packaging and aim to move from single-use towards reuse models where relevant. Also, they want to decrease the use of virgin plastic, increase the share of post-consumer recycled content target across all plastic packaging, and eliminate unnecessary or problematic plastic packaging.²

Regulation & legislation
Next to shared ambitions and aspirations in the field of sustainability, there are also regulations and laws to comply with. The European Commission's proposed Packaging and Packaging Waste Regulation (PPWR)³ brings forward essential considerations for businesses. First, the Minimum Size, economic operators who supply products to end users must ensure that the size of each unit is minimized. Second, there’s the Empty Space Ratio, which is a cap for maximum empty space in packaging at 50%. This means that no more than 50% of the total volume of packaging can be empty space. The third consideration concerns the Reusable Packaging System – companies must establish a system for reusing reusable packaging. Finally, there’s the Harmonisation of Labelling regarding efforts to harmonize packaging and packaging waste rules across the EU, to reduce administrative and financial burdens on companies.
 

Consumer requirements
Sustainability, including sustainable packaging, is increasingly becoming a matter of interest for consumers. According to recent research in Europe, 80% of consumers are interested in refillable packaging. When it comes to price, 82% of consumers claim that they are willing to pay more for sustainable packaging, and 29% of them would even pay 10% or more for sustainable packaging.
 

Investors interest
The fourth main market force, investors, have also been using turning their focus to sustainable packaging. For instance, in 2023, over 180 investors (managing $10 trillion in assets) signed a statement urging consumer companies to cut their use of plastic packaging amid rising costs and risks. The statement primarily targets global companies in the fast-moving consumer goods and grocery retail sectors. Also, in 2022, The Alliance to End Plastic Waste and a group of investors announced their shared intention to launch a new circular plastic $500 million fund for scalable solutions to remove plastic waste from the environment, to increase recycling, and to drive the global transition towards a circular economy.⁴

Part II: Impact on packaging innovation

All four market forces have had - and will continue to have - a significant impact on packaging innovation and the overall operations and financial performance of companies. For instance, a few Dutch e-commerce players have introduced a packaging automation machine to pack items with minimum required air.⁵ Another global e-commerce player has invested in machine learning approaches that thrive on big data to enable minimum empty space in boxes, considering product mix and layout limitations. This solution reduces per-shipment packaging weight by 36% and eliminates more than a million tons of packaging, which is the equivalent of more than 2 billion shipping boxes.⁶
 

Operational excellence and process management
Operational excellence in fulfilment centres and their packaging outputs has become strategically important, driving savings, sustainability and customer satisfaction. What does this mean in terms of packaging? Let’s focus on what happens when plastic poly-bags are replaced by paper bags, or when packaging would become obsolete altogether - which obviously requires agreement and support from vendors. From a material perspective, the change can be straightforward. However, its impact on the entire process flow in a fulfilment centre and downstream can be significant, from receiving (trucks unloading) to shipping (ship container handling and fill rate), to delivery at the consumer's doorstep (damages).

Hence, when Operations and Finance leaders are planning and executing such changes, they need to fully understand their Operational Excellence situation and assess the impact on safety, sustainability, productivity, quality, and delivery, while ensuring customer fulfilment. Elimination of risks and maximization of value from such a change often require process optimization or full-blown process transformation. Take, for instance, optimization of the packaging physical process flow via packaging station layout optimization based on new boxes dimensions and pack mix changes. This mainly supports ergonomics and productivity. Or, transform the outbound process flow by eliminating unnecessary packing process steps where shipments are eligible to be sent without packaging. This mainly enhances productivity, capacity and speed.
 

Packaging traceability
This is an important capability that enables measurable impact value tracking from packaging changes. From a regulatory point of view, the PPWR draft already addresses labeling requirements that include mandatory recycling instructions and the indication of container reusability and % of recycled content, where applicable. Reusable packaging must have QR-codes that provide information about the product, its packaging, and how to properly reuse or recycle it. Various methods already exist to track reusable packaging, including Barcode Scanning, RFID Tags, GPS Tracking, and Digital Product Passport.
 

End-2-end value tracking (Operations/Finance)
Traceability, however, does not only provide the above benefits. It is also a foundation for powerful analytics capabilities that enable projects to improve customer experience, decrease costs and improve sustainability. This is done by improving operational KPIs that create end-2-end value for the organization. Each of the operational KPIs can be translated into monetary impact to create sound financial and operational business cases for change. For instance, KPIs for fulfilment centres could be Pack productivity and compliance, and Packages quality defects (e.g. damages). For Transportation, KPIs could be Packages external cube, Ship Container Fill Rate, and Trucks fill rate (mid-mile). Customer KPIs could be Package type fill rate and Concessions Defects, and Sustainability KPIs could be GHG emissions from trucks/vans and Weight per Shipment.

Part III: Next steps

Considering the above, e-commerce players are facing risks as well as opportunities. In order to address these, they should first assess their current situation, identify gaps, set priorities and work on a roadmap of initiatives to close the gaps. The roadmap should become a ‘living document’ to enable continuous improvement programmes in the field of packaging performance. This will enable the e-commerce company to stay ahead of dynamic customer and regulatory expectations.

Key questions
Prior to designing and using the roadmaps, e-commerce companies could ask themselves a few key questions:

1. What are my objectives?
2. How do I prioritize low effort, high impact initiatives (e.g., quick wins)?
3. How do I track value creation?
4. What are my success criteria and key metrics?
5. What skills does my team need?
6. Is my business case methodology reliable and complete?

We are here to help
If you are not sure how to answer any of these, please reach out. Deloitte is here to help. Reducing consumer packaging waste in e-commerce fulfilment centres is part of our focus on the Sustainable Supply Chain. From assessing the impact of customer and employee demand on the one hand, and regulation on the other hand, to overseeing the technology transformation to enable verifiable, evidence-based annual reporting. Value chains are often international - if not global - in nature, requiring a feet-on-the-ground approach near every link in the chain. Good news then that Deloitte offers the world’s largest global network, with a presence in every key location.

Acknowledgments

The authors would like to thank: Adele Panenko, Kamal Kishore and Floris Ganzeboom.

References

Part I: The need for change
^1. https://www.fortunebusinessinsights.com/e-commerce-packaging-market-104885
^2. https://www.ellenmacarthurfoundation.org/global-commitment-2022/overview
^3.https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52022PC0677
4 https://esgbroadcast.com/broadcast/global-investors-with-10-trillion-in-assets-sign-joint-statement-demanding-corporate-action-on-plastic-pollution/ 
https://www.fortunebusinessinsights.com/e-commerce-packaging-market-104885
https://www.ellenmacarthurfoundation.org/global-commitment-2022/overview
ECOM-Position-paper-PPWR-April-2023.pdf (ecommerce-europe.eu)
EUR-Lex - 52022PC0677 - EN - EUR-Lex (europa.eu)
02 2023 | A European Green Deal | Revision of Directive 94/62/EC on Packaging and Packaging Waste (REFIT) (europa.eu)
Revision of the Packaging and Packaging Waste Directive (europa.eu):
EU packaging waste directive implications for e-commerce – ecosistant
EU plans crackdown on excessive packaging through e-commerce restrictions (packaginginsights.com)
ECOM-Position-paper-PPWR-April-2023.pdf (ecommerce-europe.eu)
Sustainable Ecommerce Packaging: Facts and the Future (unsustainablemagazine.com)
Understanding the Sustainability Impact of E-Commerce Packaging - Sealed Air
https://www.reuters.com/business/sustainable-business/investors-managing-10-trln-urge-faster-corporate-action-plastics-2023-05-04/
https://esgbroadcast.com/broadcast/global-investors-with-10-trillion-in-assets-sign-joint-statement-demanding-corporate-action-on-plastic-pollution/
https://endplasticwaste.org/en/news/new-fund-will-target-plastic-waste-as-an-investible-opportunity

Part II: Impact on packaging innovation
^5. https://pers.bol.com/nl/nieuws/multi-inpakmachine-van-bol-com-s-werelds-eerste-die-meerdere-artikelen-op-maat-in-een-doos-verpakt/
^6. https://www.amazon.science/latest-news/deep-learning-machine-learning-computer-vision-applications-reducing-amazon-package-waste
https://pers.bol.com/nl/nieuws/multi-inpakmachine-van-bol-com-s-werelds-eerste-die-meerdere-artikelen-op-maat-in-een-doos-verpakt/
https://www.amazon.science/latest-news/deep-learning-machine-learning-computer-vision-applications-reducing-amazon-package-waste
https://www.youtube.com/watch?v=QKSQg4_15PI
https://www.grandviewresearch.com/industry-analysis/ecommerce-fulfillment-service-market
European Commission’s plans to reduce packaging waste - Ecommerce Europe (ecommerce-europe.eu)
Packaging & Packaging Waste Regulation (PPWR) 94/62/EC (1994) / Circular Economy Action Plan
How does the EU Circular Economy Package impact your packaging? | Article | Packaging Europe
Managing and Tracking Reusable Assets | Reusable Packaging Association (reusables.org)
Tracking Returnable Transport Items (RTIs) | RFiD Discovery
How businesses could cut plastic waste with a track and trace system (theconversation.com)

Part III: Next steps
https://www.linkedin.com/pulse/5-ways-improve-your-end-line-packaging-efficiency-matt-goddin/
https://www.6sigma.us/kaizen/kaizen-equals-success-just-ask-jeff-bezos/