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Markets in Transition: A Tale of Two Opportunities
When a pallet company is arranging a rental or cost per trip program moving from a supplier to a retailer, it is essential that the latter will accept financial responsibility for failure to return.
By Rick LeBlanc
Date Posted: 11/1/2007
For individual pallet companies considering venturing into the realm of cost per trip or retrieval services, one of the basic steps is to consider the supply chain situation of the potential customer. Two general types of logistics scenarios present two types of opportunity for reusable pallet and container programs.
In the first type, unit load supply lines from various suppliers converge towards a specific manufacturing location. Materials or parts are unloaded from the pallet during production. Empty reusable pallets and containers are accumulated and returned on a future delivery back to the part supplier.
Both 3rd party retrieval and plastic pallets have made inroads into this type of supply chain which can be relatively simple to control. Pallets emptied at a single location accumulate rapidly, reducing potential for loss, while frequent delivery can facilitate empty pallet return without undue dwell time at the customer’s plant. In cost per trip or 3rd party retrieval applications, the pallet service provider will arrange pallet return and inspection/repair prior to return to the part supplier.
The second type of logistics model is more typical of consumer products. It involves many suppliers shipping to many customers. Clyde Witt, Editor-In-Chief at Material Handling Management Magazine recently told me his magazine refers to this type of logistics system as a supply “web.” The image is one of greater complexity, where supply lines from many suppliers and customers crisscross in a web pattern. In the world of reusable pallet and container programs, this is more typical of the “open loop.” This is the type of system where it is often more difficult to institute a custom reusable pallet and container program. It can be done but it requires either a huge investment, as in the case of CHEP, or else purposeful cooperation from a shipper to agree to custom pack or palletize, and from the customer to sort the reusable pallet and accumulate for return.
Where a pallet company is arranging a rental or cost per trip program moving from a supplier to a retailer, it is essential to obtain a guarantee that the latter will sort and accumulate pallets, and accept financial responsibility for failure to return. For a large distribution center processing tens of thousands of pallets weekly, there is often reluctance to accept this sort of responsibility from an individual supplier. The process involves training of all personnel involved in pallet sorting, as well as potentially people at retail outlets and in transportation. There are a lot of places where a retail pallet system can spring a leak, and instituting tight control measures can involve training for hundreds of people.
This is not to say that a large retailer will not look at a cost per trip scenario from somebody beyond the heavy hitters. Revenue in the form of sorting fee or rebates may win the day, and other agendas such as the trialing of a new pallet type in the supply chain or environmentalism may be a factor. Some companies experience success operating cost per trip programs for white wood, but again this hinges on the retailers willingness to sort to a agreed upon quality and return. Where the retailer participates in a 3rd party dock sweep, there may be another layer to negotiate. One change is going on that may hamper this opportunity going forward - more and more major retailers are now only accepting white wood pallets on a one way basis, and no longer offering exchange.
These are only two basic examples of logistics systems, and there are many variations of the above. It is important to remember, however, that the inbound manufacturer system can be more straightforward for the control of pallets, while the consumer goods supply web often poses more complexity, either for the retailer if adopting to a product supplier request, or for the supplier, if trying to meet a specific retailer request, such as the RPC or RFID initiatives from Wal-Mart. When venturing into the world of cost per trip and retrieval offerings, be sure to be mindful of a potential customer’s supply chain and target your approach accordingly.