Amazon’s Relentless Focus on Customers and What That Means for Pallets Going Forward
Customer First… the Amazon Effect: How the online retailer is changing logistics and could impact palletization in the future.
By Rick LeBlanc
Date Posted: 3/7/2019
One of the things that industry analysts have been asking the last few years is how e-commerce in general, and Amazon, in particular, are affecting pallet usage. It seems like a reasonable question to ask. After all, those billions of packages delivered by the Postal Service and through other providers aren’t coming palletized.
But the good news, at least from a pallet industry perspective, is that pallet usage is still critical to the Amazon fulfillment cycle prior to the “last mile” delivery run. And it uses pallets by the millions.
To answer the question posed above, Amazon uses a lot of pallets, and no, it doesn’t seem to have had much of an impact on the overall pallet market, at least not yet. Concerns that e-commerce would deter pallet usage have failed to materialize. Standard GMA (48x40-inch) pallets that would have been used to ship consumer products to bricks and mortar stores are used to palletize inbound Amazon freight instead, as more business has shifted to it from conventional retailers.
There are three important things to keep in mind about Amazon, however. It is enormous, still rapidly scaling, and it embraces change at a breathtaking rate. Such changes, although they have not impacted pallet usage as of yet, could potentially disrupt the pallet market in the future.
“The ‘Amazon Effect’— the online empire’s impact on consumer expectations and its ensuing business disruptions — doesn’t just have wide-reaching consequences for retailers,” cautioned Peter Brereton, President and CEO of TECSYS, a supply chain software provider. As he noted recently in Supply & Demand Chain Executive, “It (Amazon) touches all points of the supply chains, meaning those who manage those chains and wish to remain competitive must be informed and proactive.” His point was that Amazon is not only a direct threat to other retailers. More broadly, suppliers of supply chain services and products would also do well to pay attention to Amazon.
But I’m getting ahead of myself. Here is a brief snapshot of how Amazon’s fulfillment system works, including pallet usage.
Looking at the Amazon Fulfillment System and Pallet Usage
Amazon uses a variety of warehouse types and sizes in its system. Worldwide it operates around 175 facilities, totaling 150 million square feet. At risk of oversimplifying a complex network, its facilities include a range of buildings. Many warehouses have specialized functions related to order fulfillment (pick, pack and ship), while others receive items in large volume and distribute them to fulfillment centers as needed. Other operations include specialty warehouses for more specialized items or seasonal requirements, and sortation centers which help accelerate delivery by sorting packages by zip code for delivery to the US Postal Service (USPS). There are also delivery stations, which prepare orders for last-mile delivery.
A lot of product movement takes place on pallets. My understanding is that goods are received both palletized on 48x40 wood pallets and unpalletized. Products are also palletized for movement within the Amazon network, so empty pallets are reused.
At sortation facilities, products are palletized for delivery to an appropriate post office facility. These are palletized on plastic postal pallets. (USPS typically supplies plastic pallets free to its customers for shipping mail to it.)
In terms of pallet and equipment interface, pallet handling equipment involves powered industrial trucks such as forklifts and walkie riders. There is also a large robot called the Robo-Stow. It is a powerful robotic arm that picks up unit loads of merchandise with forks to place them up onto a mezzanine level. Facilities also have pallet racking systems.
Regarding pallet requirements, Amazon’s pallet policy requests 48x40 “GMA Standard B Grade or higher pallets.” For grocery products, it requires a “GMA 1A Grade,” while for health and personal care it requires either a GMA 1A or a 1B.
Amazon further advises to:
• Ship only on pallets that are in good condition.
• Broken and damaged pallets are not acceptable and may be rejected at the seller’s expense.
A few recyclers I talked to who pull cores from Amazon facilities generally cite poor core quality, although quality seems to be better at some facilities than others.
Will Autonomous Pallet Handling Equipment Result in Pallet Changes?
While Amazon doesn’t appear to have had an “Amazon Effect” on the pallet market, it is useful to consider what automation changes are being considered, and if they would impact pallet selection. One announcement that caught my eye was Amazon’s $340 million deal announced this January with Balyo, the French-based supplier of autonomous forklift technology. It seems to be poised to go big into autonomous forklifts.
“We are very proud of the signing of this agreement,” stated Fabien Bardinet, chairman and CEO of Balyo. “It represents for Balyo an unprecedented opportunity to develop its business and confirms the relevance of our investments over the years to perfect our robotic solutions. “
In a seven-year deal, Amazon will “receive free share subscription warrants that will be exercisable based on Amazon’s purchase of products incorporating Balyo technology.” In order to exercise the warrants for 29% of the company, it needs to purchase $340 million (300 million euros) of equipment carrying the Balyo technology.
So, if Amazon adopts autonomous forklifts widely, would it cause a “Costco-like” shift in the company’s pallet policy? (Several years ago, Costco shifted from a high-grade GMA to block pallet requirements because of a change to double deep machines for unloading.)
I reached out to Mick McCormick, vice president of robotics and automation for Yale Materials Handling Corporation. Yale uses the Balyo autonomous technology. While he couldn’t speak to the case of Amazon or any specific company, he did offer a general comment.
McCormick stated, “As robotics continue to penetrate deeper in the conventional lift truck market, the consistency of GMA pallets and the consistency of any GMA2 pallets will be increasingly rigorous. He further suggested, “This drives customers and suppliers towards a more stringent definition of what an acceptable pallet is in a system with robotic equipment.”
Ultimately, it is not clear if Amazon would have to upgrade its specification, but at minimum, it would be more urgent to enforce its existing one.
When it comes to automation and autonomous vehicles, Amazon is moving fast. In February, less than a month after the Balyo agreement, it invested in Aurora, which CNN described as “a highly regarded Silicon Valley startup that develops technology to power fully autonomous vehicles.”
Amazon has been beefing up its delivery service, having ordered 20,000 new vans last September. The changing technologies give one pause to speculate. When Amazon gets onboard with autonomous trucks and vans, will autonomous pallet loading be far behind, and will that also have a further bearing on future pallet requirements? We’ll have to wait and see.
Amazon’s Relentless Pursuit of Customer Satisfaction: Why It Will Be Hard to Predict the Future of Pallet Usage at Amazon
Amazon has definitely steered its own path when it comes to warehouse automation. It has raised eyebrows every step of the way, from its purchase of Kiva and subsequent massive deployment of robots to its first announcement about drones in 2013.
When it comes to predicting what Amazon will do next, one can’t necessarily look to see what competitors are doing as a guide. That’s not the way Amazon is wired, because its focus is so customer-centric.
“Amazon is run off 14 key leadership principles,” David Bozeman, vice president of Amazon Transportation Services at Amazon.com, explained recently in a DCTV interview. “There is one that all of them support and celebrate, and that is customer obsession. I wake up every day, and I got to tell you, we go to war for our customers. And if I tell you that everything is about the customer, and everything else besides the customer doesn’t matter, that’s how it is at Amazon.”
When asked if Amazon pays attention to competitors, Bozeman stressed that its approach is to concentrate on customers rather than expending energy worrying about the competition. “It brings us into a laser focus about what we have to do,” he said. “That allows us to be clear on the decisions we have to make, be it on air freight, automation or going into drones. We obsess on customers.”
It is that type of approach, ultimately, that will continue to lead Amazon in the direction of supply chain decisions that will catch suppliers off guard both in terms of speed and direction.
As Brereton of TECSYS mentioned earlier, “those who manage those chains and wish to remain competitive must be informed and proactive.”
Paying attention to sudden and massive changes within Amazon, such as a projected shift to autonomous forklifts, can help pallet providers prepare for changes that could impact their businesses going forward.
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