Realm of Reverse Logistics Services Ripe for New Business Opportunities: Pallet Suppliers in Position to Expand
Reverse Logistics: Pallet companies that effectively coordinate trucking, have warehouse space and a well-managed workforce are poised to steer into reverse logistics services; Rick LeBlanc explores the basics of this emerging field.
By Rick LeBlanc
Date Posted: 7/1/2007
A business that effectively coordinates trucking services, supplies warehouse space and a well-managed workforce can be poised for success in areas beyond the pallet industry’s traditional mainstays of manufacturing and recycling. Some of these business opportunities fall within the broader scope of reverse logistics.
A distributor I visited a few months ago was still seething after a visit from his fire insurance company. An insurance company inspector told him the distributor was storing too many empty pallets in the warehouse; they were stacked too high with inadequate spacing between stacks.
Faced with that dilemma, the distributor turned to his primary pallet supplier, a pallet recycling business. He told the recycler that he needed dock sweep services and just-in-time delivery in order to address the concerns of the fire insurance company – to reduce the number of empty pallets in his warehouse. From what he could sense, however, the pallet recycler was not interested in providing those kind of services.
A beer distributor I know has been under pressure from management to remove foreign beer kegs that he is accumulating and storing in his building for eventual return overseas. The company needs the space, which he values at about $10 per square foot annually. If his pallet supplier had offered to remove the kegs and store them for a reasonable cost, I am sure the distributor would have personally rolled them into a truck himself.
These are just a few real examples of the potential business opportunities that fall within the realm of reverse logistics. As in the case of the beer distributor, they do not all involve pallets.
Of course, companies that are willing to outsource some reverse logistics and other functions must be willing to make it profitable for their pallet supplier or another provider. However, with warehouse space at a premium and an insurance inspector or fire marshal making threats, an off-site service provider may seem like a breath of fresh air.
According to Going Backwards: Reverse Logistics Processes, by Dale S. Rogers and Ronald S. Tibben-Lembke, reverse logistics is defined as:
The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
Compared to the pallet industry, reverse logistics is a huge business, almost 10 times bigger in revenues. Although it only accounts for an estimated 0.5% of the Gross Domestic Product, reverse logistics is a $66 billion industry.
Certain areas of the pallet business fall within the realm of reverse logistics. Typically they include the services related to recovering, refurbishing and reusing pallets and perhaps the tracking, retrieval and return of pallets. However, there are many other opportunities for pallet companies to expand into related reverse logistics services and earn new sources of revenue. Increasingly, businesses are looking for suppliers or contractors to help shoulder the load of reverse logistics functions.
Generally, reverse logistics is centered on products and packaging. There are a number of activities associated with each, and they represent potential business opportunities for third-party logistics specialists.
Reverse logistics activities associated with products include returns to suppliers, reselling, selling via an outlet, salvaging, reconditioning, refurbishing, remanufacturing, reclaiming materials, recycling and landfilling. For packaging, the principal activities are re-using, refurbishing, reclaiming materials, recycling and salvaging.
There are four principal areas of opportunity for reverse logistics services: returns and residuals from retail outlets, sorting and storing obsolete retail fixtures, off-site pallet and container storage along with container washing and just-in-time return, and retrieving parts for refurbishing.
Returns and Residuals
Supermarkets traditionally handle their own returns of packaging and product, but times are changing. Many distribution centers are strapped for labor, equipment and space. If their reverse logistics activities can be performed by a supplier or third-party provider, it frees up resources for their core activities of delivering food products. Out-sourcing reverse logistics functions is looking increasingly attractive to grocery businesses.
The grocery industry has a number of reverse logistics functions associated with the recovery of distribution residuals from retail outlets. These activities include retrieving baled or loose cardboard and plastic, pallets, reusable plastic or wire containers, recalled or damaged product and obsolete store fixtures. Some grocery chains collect and retrieve a variety of other residuals, such as waste from meat department operations and spoiled produce, for composting. Every chain does things a little differently in terms of what residuals they recover and whether they are palletized, baled or shipped loose.
Residuals typically are returned to a distribution center or warehouse to be sorted, processed and reloaded. A good part of this work simply involves cross-docking. In cross-docking, a pallet of returned goods or packaging is removed from a trailer by a forklift or pallet jack across the dock and reloaded onto another trailer.
For example, a stack of CHEP pallets would be pulled off a trailer having returned pallets from a store, and it would be put into another trailer being loaded solely for CHEP. Likewise, bales of cardboard may be unloaded from a trailer of returned goods and packaging and reloaded onto a trailer that later will haul the cardboard to a recycling plant or paper mill. Pallets of empty milk crates would be unloaded and reloaded onto a designated trailer going to the dairy, egg baskets would be loaded onto a separate trailer, and so on. Some materials may require processing on the dock, such as baling reclaimed plastic wrap or sorting and repairing pallets. Some facilities will wash and sanitize reusable containers. Another service may be delivering the sorted materials, pallets and containers to various recycling facilities or the next point of use.
Retail chains are looking to free up their employees and warehouse space by outsourcing perspective. By partnering with a business that can provide reverse logistics services, grocery chains also may be able to free up their trailers to pick up backhauls of products from suppliers instead of returned merchandise or packaging.
Obsolete Store Fixtures
Sorting, storing and disposing of returned obsolete retail fixtures is a smaller business opportunity than returns and residuals, but it is nonetheless an important reverse logistics function that is a headache for retailers.
Upscale major retailers regularly update and replace fixtures in stores to keep their retail image fresh and new. One of the problems faced by their dedicated distribution centers is what to do with these obsolete fixtures. Often they are bulky and difficult to efficiently store, and they continually arrive at a warehouse as stores are being remodeled.
If you ever enter a distribution center with a lot of floor space tied up with obsolete store furnishings, management is probably begging to get rid of them. An attractive solution would be a specialized business that picks them up, sorts them, refurbishes fixtures, inventories them as necessary and arranges for the disposal or sale of the remaining fixtures.
Pallet Storage, Container
Washing, J-I-T Return
There is nothing like a warehouse director with a compliance order in his hand from a fire marshal to get him interested in a pallet supplier who can provide ‘just-in-time’ delivery.
As noted above in the case of the beer distributor, many warehouses have run into a ‘perfect storm.’ They do not have the labor or space to deal effectively with empty pallets and containers, and they increasingly face tough restrictions by fire professionals on storing pallets and containers in their warehouse or distribution center.
Another issue that is receiving growing attention: safety in the food supply chain. There is more interest in food safety than ever before, including washing returnable plastic containers and pallets. Members of the food industry supply chain may not have the room or interest to install automated washing equipment, but they are increasingly interested in having this service.
One solution to the various issues listed above: a single partner that performs dock sweeps, pallet and container sorting and repair, container washing and possibly other services, and delivers pallets and containers on a ‘just-in-time’ basis.
Used Automotive Parts
Another opportunity for a third-party provider of reverse logistics services is in the used automobile parts industry. Before the emergence of sophisticated reverse logistics partners, automobile repair shops individually shipped used parts to the re-manufacturer. Freight costs were high on a per-unit basis, and shops were slow to receive credit from the parts re-manufacturer.
Retrieving used automotive transmissions, sorting them and returning them to companies that will refurbish them is one of the most important business sectors in the realm of reverse logistics. The major auto companies increasingly use reverse logistics partners to retrieve, fix and resell used automotive parts, including automatic transmissions, power steering racks and CV axles.
Build on Existing Business
Distribution centers and warehouses are busy, short on staff and space. Business partners that can effectively manage some or all of their reverse logistics functions are becoming more and more attractive.
Pallet companies often already have successful relationships with distribution centers and warehouses. Pallet suppliers that have well managed fleets, facilities and employees may be able to position themselves to increase value to these customers. They may be able to meet these sometimes pressing reverse logistics needs that are a hindrance to a warehouse or distribution center.
Your customer may not be looking for ‘just-in-time’ service now, but in 10 months, after a tough visit from a fire inspector, he may.
In the months ahead we will look at some of these reverse logistics business opportunities in greater detail and explore other potential opportunities in the domain of forward logistics.
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