Benefits of a Closed-Loop Pallet Ecosystem

By: Cory Lehman, Contributor

Buying and shipping one-way pallets is an extraordinarily wasteful and costly process. Image courtesy of iGPS

Until 2020, the average person probably didn’t spend much time thinking about the global supply chain. People go online and make their purchases — whether it be from Amazon, Walmart or any number of major retailers — and a package arrives as if by magic. But in recent months, as the pandemic has continued to challenge businesses and disrupt daily life, supply chain topics are in the mainstream news almost daily. We are seeing headlines about cargo ships sitting at anchor off the coast of California because there are no workers available to unload them … and about the cost of shipping containers from China to the United States doubling … and about driver shortages that are keeping badly needed trucks off the roads. And adding to the strain is a huge demand for products and perishables, fueled by more people working and vacationing at home. It’s no wonder that Amazon added about 500,000 workers last year alone.

While I certainly can’t promise that the holiday season’s hottest gadgets will be easy to find this year, I can attest that the industry is making significant strides to develop leaner, more optimized systems and operations. By introducing new efficiencies to eliminate wasted time and excess miles, retailers, manufacturers and their partners are helping offset some of the headaches caused by the ongoing pandemic.

Adopting New Practices

One of these efficiencies is the pallet pooling ecosystem. In an industry where ounces quickly accumulate to tons and minutes quickly add up to hours and days, any opportunity to streamline is a “win” for both businesses and consumers.

Just like any other asset, a shipping pallet must be stored, repaired and accounted for. While there may be advantages to certain companies owning a supply of pallets, there are also associated headaches:

• Pallets are costly assets that must be tracked.
• Pallets take up valuable storage space on trucks and in warehouses.
• Pallets have finite lifespans, which are shortened by increased trips and handling.
• Depending on the type of damage, broken pallets must typically be sent to a depot for repair.
• Pallets at the end of their lifespans must be disposed of and replenished.

Large enterprises that maintain their own supply of pallets are essentially in the business of operating an entirely separate supply chain: one to manage their products, and another to oversee their fleet of pallets. Or perhaps they are buying and shipping one-way pallets that they’ll never see again — an extraordinarily wasteful and costly process. In virtually all cases, there is a pallet depot between the retailer and the manufacturer, but this extra step requires additional truck miles on the road, which not only burns up time and fuel, but also contributes to increased climate change. Because the largest part of the average company’s carbon footprint — by far — is generated by the supply chain, we as an industry have an obligation to create a more sustainable planet by shaving excess greenhouse emissions from this process.

This is why so many companies have embraced the pallet pooling model, in which pallets are rented. Companies that work with pallet poolers have a better chance of always having only as many or as few pallets as they actually need on hand, in accordance with the ebb and flow of their business. And this concept can be taken a step further with the implementation of “closed-loop” systems in which pallets travel between the manufacturer and the retailer in a continuous circle, introducing significant efficiencies into the process.

Here at iGPS, for example, we have partnered with retailers nationwide who act as pallet depots. In this model, the manufacturer sends the finished product to the retailer (such as Costco) on pallets. The retailer performs a quality inspection of the pallets and sets aside the small percentage that have reached the end of their lifespans (plastic pallets typically last about 100 trips, after which time they are simply recycled into new pallets.) The retailer receives a fee for this service, which creates a revenue stream and incentive to participate. The pallets are then shipped back to the manufacturer in a fully cubed-out truck, and the process begins again.

The benefits of this model are numerous:

• Fewer trips/less handling increases pallets’ lifespans
• Less handling also minimizes the potential for pallet loss, or worker injury
• Fewer “deadhead” truck miles
• Faster cycle times — greater efficiency
• More cost-effective model helps combat rising product costs
• Less fuel consumption and fewer greenhouse emissions

The implementation of backend technology processes (for example, an online customer ordering and forecasting portal that enables pallet inventories to be monitored, along with scannable bar codes and embedded RFID chips to facilitate pallet tracking) introduces further optimizations into this model.

Let’s face it: although the industry is doing its best to move beyond the challenges of the pandemic and accommodate ever-increasing consumer demand, the ripple effects of 2020 will be felt for some time. Meanwhile, whatever steps we can take to eliminate waste and create more closed-loop models in the supply chain will be well worth the effort. WMHS

Cory Lehman is the Director of Asset Management at iGPS Logistics, which provides pallet pooling (rental) solutions to over 100 leading manufacturers who ship to more than 2,000 locations at major distributors, wholesalers and retailers. For information about a sustainable shipping solution that eliminates the need to purchase and maintain pallets visit www.igps.com.