How Green Are Your Pallets? A Closer Look at Sustainability and the Pallet Industry
Consultant Andrew Mosqueda explores the real world experiences that can undermine sustainability claims when bad forecasting leads to greater supply chain costs.
By Andrew Mosqueda
Date Posted: 9/1/2010
A corporate sustainability policy is an outline on how the company approaches environmental concerns on a social, legislative and eco-friendly level. No matter your political or social view, the market has made environmental sustainability a requirement in doing business. Beyond the noise of environmental debate is the truth that operations and logistics designed to limit impact to nature have economic benefits. Large retail distributors like Walmart, Costco and others have policies that require vendors to meet minimum standards. So the question is, “Are the numbers and statistics that vendors report real?”
If you imagine how a company operates, it is like an onion when it comes to environmental sustainability. If you take their reported numbers and stats you get a perspective of the whole onion being reported. Now take each claim and start peeling back the onion to reveal the incomplete truths behind the sustainability arguments.
Claims like impact to global warming, ozone depletion and the number of trees saved by recycling or using alternative materials to wood go straight to environmental impact. Commerce and the environment must co-exist to sustain and replenish raw material supplies in order to create finished goods that lead to economic sustainability. Do sustainability policies cover up small things that can derail the real world impact of environmental claims? Do these policies do more damage than good for companies to blindly accept claims that let vendors slip through corporate policy requirements?
I will explore in this article the sustainability policies of various companies and the real world outcome of various pallet approaches. My aim is to unmask some of the little lies that can cloud the issue.
Walmart Drives Industry Sustainability
A little over a year ago Walmart announced plans to develop and implement a worldwide sustainable product index designed to increase quality, lower costs, and measure the sustainability of products. Walmart will use multiple sources to accelerate a research driven approach which includes universities, retailers, suppliers and non-government organizations (NGOs). Walmart identified several reasons why this index is needed, including:
• The world’s population is increasing; it will reach 9 billion people by 2050.
• The world’s natural resources are decreasing. According to Walmart, natural resources for everything we grow, eat, drink, make, package, buy, transport and throw away is outpacing the earth’s capacity to sustain it.
• Customers want more efficient, longer lasting, better performing products. They want to know: the materials in the product are safe, that it is well made, and that it was produced in a responsible way.
There are three index steps that are being implemented by Walmart. It all starts with a supplier assessment that will be utilized in a lifecycle analysis database. Finally, Walmart will provide simple tools for consumers to educate them about the sustainability performance of various products.
The supplier assessment will provide Walmart’s 100,000 global suppliers a survey to determine their sustainability. The questions address energy and climate, natural resources, material efficiency, people and community. The lifecycle analysis will be funded by Walmart and administered by Arizona State University and the University of Arkansas. A consortium will be created that will include several universities, suppliers, retailers and NGOs to develop the lifecycle database. A scoring label will be developed by the sustainability consortium.
Beyond the success or failure of the program, Walmart made product sustainability a priority by increasing vendor responsibility. A trend has begun, and a real business opportunity identified. Raw materials are finite. As a result when supply is limited, prices go up. Whether raw material shortage is due to the economy, accessibility, or truly limited supply, how a company approaches supply chain efficiencies impacts financial performance. Walmart is not the only company to push for sustainability. In 2006, Costco and others addressed waste in packaging and changed how companies approach DC practices.
Whatever You Can Do…I Can Do Better…
Both of the two largest pallet rental companies (CHEP and iGPS) have conducted their own life-cycle studies. And they even provide environmental calculators to identify how they benefit the environment. Just for fun, I decided to enter some numbers on the CHEP calculator at www.chep.com/know. I entered that I use 5000 pallets and I am going to convert 50% from white wood to CHEP. Here are the results:
• Barrels of oil saved – 5
• Pounds of solid waste saved – 1409
• Million BTU’s of energy – 31
• Pounds of CO2 gases – 1063
Providing for the same usage, plastic provides for even better results when converting to CHEP:
• Barrels of oil saved – 6
• Pounds of solid waste saved – 1321
• Million BTU’s of energy – 37
• Pounds of CO2 gases – 3279
CHEP is not the only pallet company to provide a calculator; iGPS calculates load weight, fuel consumed and greenhouse gas results at www.igps.net/advantage/calculator.
Based on 5000 pallets here are the iGPS results:
• Average weight savings per truckload – 1,390 lbs
• Total annual weight savings by switching to iGPS – 133,893 lbs
• Average annual fuel savings by switching to iGPS – 65 gallons
• Annual reduction in greenhouse gases by switching to iGPS – 1,432 lbs
The argument of which is better for the environment rages on, but these are the data points Walmart wants to see. The approach varies depending on an individual company basis with results that are derived from material used in the most perfect scenario. Both iGPS and CHEP take environmental sustainability seriously because the market demands it. To get behind the hype to discover the true sustainability of any approach, we need to peel back a few layers. Let’s look at how CHEP and iGPS deliver their pallets to market and how they compete with white wood dealers.
White Wood Recyclers
Both iGPS and CHEP have used aggressive marketing to declare themselves as the answer to environmental sustainability. At the same time, they have painted the white wood market as the toxic destroyer of the supply chain. This seems to be the only thing these two companies have in common.
According to the U.S. Forest Service, pallet recyclers in the United States recover more than 460 million used pallets annually and less than 1% end up in landfills. Additionally, over 33 percent of municipal landfills reject pallet waste. Secondary users such as composite wood manufactures and energy companies use old pallets as raw materials in the creation of their products and services.
An example of a company using old pallets as raw material for new product is Woodstream. They create injection moldable wood-plastic composites. Woodstream helps injection molders reduce their exposure to oil price fluctuations by providing an eco-friendly material.
By combining wood and plastic waste, Woodstream claims to provide the best of both worlds. According to Julian Ilson, president and CEO of Woodstream, they save pallets from being dumped at waste sites.
Ilson said, “Pallet manufacturing companies and emerging pallet poolers are now in a position to make a giant environmental leap forward and trigger lasting sustainable change in their industry. By largely replacing petroleum-based plastics with renewable resources in a market as voluminous as pallets, serious inroads can be made towards reaching the sustainable ideal of closing the loop in resource-extraction.”
Ilson added, “With modern advancements in wood-plastic composite technology, we can now injection-mold pallets with less than 40% plastic without compromising the moldability or recyclability.”
Even though pallet recycling by its very nature tends to be a green activity, recyclers are starting to see the importance of having their own sustainability policies. Many recyclers take their pallets to energy companies like Covanta which uses bio-fuels to create power for thousands of houses and businesses and other applications providing eco-friendly alternatives.
Operational Practices and Challenges Meeting True Sustainability Targets
Any company can spout sustainability claims that will allow them to work with large companies like Walmart and Costco. Examining those numbers in the context of real world practices is what the market should focus on. Operational realities can eliminate any benefit a company’s model could have on the environment.
A white wood dealer typically has a 150 mile delivery radius to maintain its return on capital investment. Every mile a pallet company travels to make delivery adds to the cost and environmental impact of the pallet. Large companies, such as CHEP, iGPS and IFCO, manage millions of pallets for a long list of national accounts.
Regional and small pallet companies provide pallets to local companies. The difference between the two is that national pallet providers must maintain accurate inventory in regions all over the country. Accurate forecasting is required. Even a somewhat small forecasting error can cause a logistics nightmare. This may especially be true out West where rental pallets may be in short supply or for certain product categories, such as produce, that have very acute seasonal demands.
For example, CHEP claims to issue 300-350 million pallets in the US annually. The pallets must be distributed throughout the country accurately to meet seasonal and year around demand. If they are off on their forecasting it could mean delivering pallets outside the 150-mile delivery radius or moving pallets from one region to another.
Poor asset management will eliminate any environmental benefit a company claims. A rental pallet company can burn through thousands of gallons of fuel to provide inventory to an area short of pallets. The grow-at-all cost strategy Brambles has used in the past, and
iGPS is currently using makes it almost impossible to accurately forecast
needs in all regions. Based on my experience, any reports to the contrary should be met with skepticism. Another advantage for white wood recyclers is the increasing use of pallet management companies, such as PALNET. These organizations provide for national accounts using local recyclers, reducing the need for accurate forecasting and providing efficient sustainability alternatives. These local networks and recyclers tend to be where rental companies turn for assistance when they are in forecasting trouble.
So the question is which is better? Local white wood recyclers, national white wood dealers, pallet management organizations, and rental pallet companies all have claims of superior sustainability.
My advice to retailers and distributors is to peel back the layers and look beyond the hype and the eco calculators on Websites. There are many factors that determine true sustainability. And some of the most critical are tied to operational efficiencies. If you are using a pallet rental solution, watch out for inaccurate forecasting or rush deliveries that may be reducing the environmental benefits of pooling. If you are working with a pallet recycler, find out about its waste stream and sustainable practices. You may be surprised how green your current supplier really is when you get beyond marketing to real world numbers.
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