Intelligent Global Pooling Systems (iGPS), the all-plastic pallet pooler, has gone from kicking butt to being shown the door all in less than a year. It made a splash in June 2010 when the pooler lured ConAgra Foods away from its rival CHEP. As a major account in the consumer goods market, acquiring ConAgra was seen by some as a validation of the iGPS system. The rapid loss of the account back to CHEP in May 2011 has been viewed by most in the industry as proof that the iGPS model does not work or at the very least is broken.
Beyond ConAgra, iGPS recently lost PepsiCo to CHEP due to similar concerns. This leaves General Mills, Kraft and a bunch of smaller food companies as its core clientele. Is this latest crisis terminal for iGPS? That largely depends on its customers and investors. The company likely has enough cash on-hand from current operations to continue for at least a couple of years. But its ability to grow has been hampered, which could in the long term kill its chances to really compete against CHEP.
According to an internal iGPS memo obtained in May 2011 by Pallet Enterprise, pallet availability problems have plagued iGPS and led to service problems with customers. The confidential letter to iGPS employees was written by then interim CEO Steve Marton. Marton replaced the company’s founder Bob Moore, who is currently suing the investors behind iGPS.
Marton explained, “There was a convergence of factors that recently occurred at one time that has put significant pressure on our network and has limited our ability to serve some of our customers at the levels of service that they are accustomed to, and should expect from us. Some of these factors include an earlier than expected impact from product seasonality, significantly increased organic growth of some of our customers well beyond expectations, and longer than expected dwell time at some of our retail customers.”
Pallet Enterprise discussed the memo with Marton, but he refused to comment on the record.
A separate source within iGPS confirmed that the company was short on pallets and doing whatever it could to service customers including refurbishing pallets as quickly as possible and in some cases supplying sub-standard pallets. One problem is that iGPS is not making any more pallets except for re-grinds that merely replace unusable pallets in its system. There are multiple reasons why iGPS is not pumping out new pallets. For starters, these pallets are expensive, and iGPS has hit a funding snag. Also, the company is caught between an old design that is falling out of favor due to the DecaBDE concern and its new design, which is still on the drawing board. Finally, the company is in a holding pattern as leadership seeks to fix problems left in the wake of the replacement of Bob Moore as operational CEO.
There are multiple reasons for iGPS’ pallet availability problems. This includes growing too fast, not doing enough to shore up supply, the inability to produce new pallets, the logistical difficulties of servicing national accounts, retail customers holding pallets way too long thereby killing dwell times, and seasonal shifts that can be hard to plan for or meet when pallets are scattered all over the country.
Marton assured iGPS associates in his letter dated April 22, “We are working diligently on this problem and expect to be able to fully restore our service levels within a matter of weeks.” He added, “While upset, most of our customers feel so strongly about the iGPS platform that they are working with us in a very collaborative manner to get through this problem in the best possible way.”
In the internal letter, Marton admitted that iGPS has about 10 million plus pallets in its pool. While this is a sizable pallet pool, it pales in comparison to CHEP and is not enough volume to really be able to achieve significant logistics savings. A pallet pool must be much larger to efficiently allow pallets to be sent by customers all over the country and have enough volume to ensure supply at competitive asset return costs.
The iGPS business model was designed around reduced logistics costs, but these savings are hard to achieve without a large number of iDepots and a very large pallet pool to achieve economies of scale.
Even if iGPS received a major influx of venture capital, the company is caught between pallet designs. The current design already has reported a higher than anticipated damage rate and carries with it the negative stigma associated with the DecaBDE issue. But, there is no indication from industry sources familiar with iGPS that it has a miracle cure or revolutionary pallet design up its sleeve. iGPS’ situation has been compounded by the fact that Maine has passed a law prohibiting the use of DecaBDE and substitutes that are chlorinated or brominated fire retardants.
Recent failures by iGPS have left many wondering if this is the death of plastic pallets in the overall consumer goods supply chain in the United States? It all comes down to economics. If you can achieve logistics savings combined with reduced pallet repair costs and higher prices per rental, then maybe plastic can work. But if your pallet design costs 3-4 times the price of wood and you don’t have these other factors working for you, the economics of pooling don’t work in favor of plastic or other high-priced alternatives.
Trying to stabilize its leadership and focus on the core challenge of pallet logistics, iGPS named in September, Richard “Dick” DiStasio as the company’s new CEO. iGPS hopes that its new leadership can lead a turnaround focusing on improving logistics flows and decreasing dwell times and reducing leakage. If the plastic pooler doesn’t fix these problems, it seems hard to imagine the company regaining its former momentum in the marketplace.
