The Arduous Life of a Pallet: Part II
As described in The Arduous Life of a Pallet: Part I, designing the right pallet is a rigorous endeavor that requires calculating and recalculating to optimize packaging parameters.
A pallet’s existence only becomes more complex, however, once it graduates into the workforce. Keeping track of pallets, and who owns them, is surprisingly fraught with political power plays, multi-million dollar lawsuits and sweeping supply chain restructuring in corporations, as well as the rise and (looming) fall of industry giants.
All over a pile of boards.
For years after pallets became popularized in the 1940s, most companies who needed pallets to ship their goods would purchase them from a pallet manufacturer. Once bought, the company owned the pallet completely. A company would track their pallet down, if they had to, after sending it off to another warehouse.
Now, there are companies that specialize in advising other companies on how to manage their pallets. The Nelson Company, for example, helps their clients determine which is the best type of pallet for their cargo and whether they should try to retrieve their pallets after sending them off or just let them go into the great beyond. They also facilitate a tracking interface called Nelson-ART, which allows clients to track their pallets using barcodes.
For a company that owns or manufactures pallets, creating the most effective yet least expensive pallet is critical to budgets and keeping clientele. The premium on pallet technology, strategy and design is so much so that in an interview with lab manager Samantha Phanthanousy from the Virginia Tech pallet lab, she could not answer, “What’s the most interesting pallet you’ve every worked on?” because it violated client confidentiality.
But over the last twenty years, the 60-year legacy of decentralized, regional pallet manufacturers has been slowly undermined by a new model.
The new model takes the design and ownership burdens away from companies, but at what cost?
Lamar Johnson of the University of Texas at Austin McCombs School of Business is a former executive of Procter & Gamble (P&G). He explained that large retailers began to gain more clout about 25 years ago. Walmart entered the picture and Kroger centralized its operations.
For years, P&G (a goods manufacturer) had used clamp trucks to move their goods into containers on trucks and over to a retailer, which was more efficient for P&G, but took much longer for a retailer to unload a P&G truck because they had to do so by hand if they didn’t own a clamp truck. Clamp trucks move unpalletized goods.
Yet the power shift in retailers’ favor began influencing P&G’s supply chain decisions in the mid 1990s. Walmart and other retailers prefered palletized loads, and hypothetically had the power to outright refuse to sell a manufacturer's goods if they didn’t begin to palletize loads. Yet, the expense of converting an entire supply chain to pallets from unpalletized clamp truck loads would be quite significant for P&G.
But, there was a lifeline on the horizon. After various analyses, P&G realized that between adopting a new pallet pool system and reducing product damage from removing clamp trucks, they could make a palletize supply chain work.
A major part of the puzzle was the discovery of CHEP.
CHEP is a pallet rental service (also known as pallet pooling) that would alleviate some of the sticker shock of including pallets into P&G’s supply chain. CHEP owns all of their pallets, and rents them out to companies. It minimizes the capital cost of a big organization like P&G, while CHEP takes on all the responsibility of recovering and repairing their pallets since they are the owners.
Today CHEP — known for their signature blue pallets — operates in more than 50 countries and has more than 230 million pallets in circulation.
P&G’s early adoption of CHEP was shrewd, considering the power of big retailers hasn’t waned.
In 2010, Costco not only mandated the use of pallets from manufacturers, but specifically pooled block pallets, versus stringer pallets (which have less entry points for a forklift).
On the mandate, Pallet Enterprise, a trade publication, wrote: “Costco’s initiative may be only one lone retailer taking a stand, or it could be the beginning of a paradigm shift” and “there was no story that rocked the pallet industry like the announcement by Costco Wholesale Corp.”
While CHEP is a welcome solution for big manufacturers in these situations, not everyone in the industry greeted CHEP with open arms. An article in Cabinet describes the flip side of pallet pooling. Individuals and business that made a living on recovering damaged pallets, fixing them and reselling them (known as reverse logistics), found themselves in an antagonized and often directly confrontational relationship with CHEP, who came knocking for their pallets. In one legal battle, Ricky Mock won more than a half million dollars from CHEP, who had demanded pallets from him.
Now, CHEP is facing rivals, such as PECO Pallet and iGPS. Those regionalized pallet manufacturers at risk of losing market share to CHEP have worked together on a pooling system called Pallet Industry Management System or PIMS.
If palletization is this complex for major manufacturers — which includes food distributors — how many other headaches await food distributors using pallets?
As you’ll see in Part III, food distributors have an additional, special set of concerns when they load their foods onto pallets, such as food contamination and poisoning. Therein begins an entire debate of wood versus plastic.
What do you do when you discover that your pallets might have contaminated or damaged food? What will pallet manufacturers do to eschew blame?