It looks like the country survived the
Y2K crunch, and we can label it a non-event — unless you were a computer
consultant and now are looking for work. We’ll all get through the April
15th tax day and recall that as a non-event as we tackle the other
challenges that come up during the coming year. In the fall, we’ve got a
presidential election to look forward to. Of course, that will be an event
that affects us all.
But let’s look a little closer to
home. How is the new millennium shaping up for your business? Have your
business plans in place? Figure you’ve got most things figured out and
under some sort of control? Great! But have you considered the impact that
the push towards reusables and redistribution is going to have on the
pallet and container market?
Where’s the push coming from?
If we’ve learned anything from
watching the business, we know that a major paradigm shift is something
that needs to be identified early in the planning cycle. Capital outlays
are significant events in the life of our companies. Recruiting – and
retaining – new employees is getting tougher every day. Market shifts
are a welcome challenge if we have the time to prepare. The relentless
push for cost reduction, through recycling and equipment pooling,
continues to be a large focus of attention in the business periodicals of
the manufacturing and logistics industry. Are we ready for it?
The pallet and container business is an
integral part in the movement of goods in our economy. Today’s
manufacturers, wholesalers and retailers are demanding that the logistics
chain squeeze every non-vital penny out of their costs. Handling of
pallets, including handling, inspection and repair, is not viewed as a
value-added activity in these markets.
Employers continue to have difficulty
staffing their facilities and would prefer to focus human resource
expenditures toward the activities that add value to their product.
Managers are being told to "do only what you do best" and to
outsource the remaining activities to someone who does it better – and
cheaper. That frees up the customers’ financial resources, employees and
space for "more profitable" activities. Clearly, they understand
the value. Do we?
Blumberg & Associates did several
extensive studies into the requirements of the logistics industry,
relative to reverse logistics-type activities. They found that over 70% of
those operations surveyed performed some form of reverse logistics and
repair "in-house." At the same time, over 55% indicated they
would prefer to outsource that function to better focus on their business.
Many also were developing other methods to reduce costs associated with
the transport and distribution of products – both inside their operation
and to their customers. The managers in these operations were abundantly
clear in their endorsement of reducing pallet and container acquisition
and disposal expenses as a viable strategy for reducing costs.
Interestingly, there were some
indications that managers in these businesses have been toying with
considering those platforms as assets rather than as expendable items.
Some of this is a result of the pooling operations currently working to
expand their markets and preaching the "gospel" of leasing
versus buying. However, many more are being told that their customers will
not accept that "pass through" cost of a pallet that carries
product to them — just as many have had their finance departments
consider the benefits of not expensing the pallet and container costs.
Whatever the impetus, we are clearly going to need to be able to
"talk the talk" when our customers bring these concepts to the
table.
What is redistribution? The logistics
community, through the excellent education work done by the Council of
Logistics Managers (CLM), is pushing the concept of Reverse Logistics and
Repair Services (RLRS) and the need to make this an integral part of the
logistics cycle in everyday operations. The council, through its members,
has focused on the "direct logistics" cycle for decades and has
made great strides in lowering costs and improving service levels as
product is moved from the manufacturer to the end user. Warehouse
management systems, bar code scanners, radio frequency identification
systems, satellite locators on trucks, global positioning satellite
transponders for containers at sea, and incredibly sophisticated order
picking-tracking methods are just a few of the tools available to many
logistics managers. What has been missing, to a large degree, is the same
degree of focus on the other part of that logistics cycle. The attention
now being paid to RLRS is the response to that new challenge. RLRS isn’t
a new concept to many of us, although few have experience in providing all
of the components of this service.
(The accompanying diagram developed by
Blumberg & Associates in their presentation to the CLM best
illustrates the idea. RLRS activities comprise the lower portion of the
diagram. These activities could run the gamut from collecting,
refurbishing and returning computer monitors to handling of commercial
waste.)
In the case of Transport Pallets and
Containers, we could see activities as varied as:
• Storage and
Warehousing
• Collection and Sorting
• Substitution
• Transport and Distribution
• Disposal
• Depot Repair and Re-Manufacturing
These are operations that our customers
would prefer not to manage but which they find themselves having to either
perform or out-source. The clear message they are getting, both from their
customers and their shareholders, is to find the solution quickly. We are
being presented with a newly defined market. Are we ready for the
redistribution challenge?
Why the fuss over reusables? Why are we
hearing so much about "reusables?" First, the grocery business
in the U.S. has long heard the tales of success from their associates in
the United Kingdom. The U.K. has four top supermarket chains – Sainsbury,
Tesco, Safeway and Marks & Spencer – that effectively act as an
oligopoly. They tend not to compete on price, aggressively working with
their suppliers and maintaining gross margins of around 10%. That compares
to their U.S. brethren who routinely post a 2%-3% margin. The distribution
channels are highly developed to the point where some of the chains
actually own their own reusables and require their distributors to either
"lease" the container or clean and maintain the containers at no
cost to the chain. With that paradigm clearly established in
"benchmarking" the U.K.’s programs, should we be surprised
that the idea is gaining credibility in U.S. markets?
And not just in the grocery business. We’re
seeing these sorts of activities spreading in the computer-printer-copier
market, the chemical industry and the food industry. They view the pallets
or container as a transportation platform to carry the product through the
entire distribution cycle – in both "direct" and
"reverse" directions. Design and acquisition costs of these
specialized platforms have pushed companies to consider them as fully
owned assets rather than the "necessary evil" of a one-way
disposable. We are even watching the addition of bar code labels and RFID
antennae and chips to assist in tracking these assets — not to mention
the current "stenciled name" ownership controversy in the wooden
pallet business. The platforms have become a capital asset in some
industries and they must be properly controlled to satisfy financial
reporting requirements.
Equipment "pooling" operations
such as Chep, IFCO-PalEx and the recently formed Reusable Pallet and
Container Coalition (RPCC) employ a reusable platform in their operations.
PECO, NPLS and First Alliance have all gained invaluable experience in the
market. We’ve all heard their reports and should understand the value
that such services provide the customer.
Finally, we’re seeing a wave of
legislation being proposed or enacted to support the "reusable"
platform. Whether from the efforts of the equipment pooling lobby,
municipalities seeking to reduce landfill costs, or the
environmental-"green" lobby in Shared Product Responsibility (SPR)
and Extended Product Responsibility (EPR), support for the reusable
platform is growing. We should be ready to support this market change
while still defending the wooden pallet and container business. It can be
done.
How do we talk to our customers? The
first thing to do is put yourself in their shoes. Yes, we probably have a
mill, or an assembly operation, or a depot-repair operation to protect and
grow. The customer might even have been a partner in helping you grow your
business as theirs grew. You’ve got a foot in the door. Now, it’s time
to talk their language.
Are you familiar with their terminology?
Do you completely understand their needs and their plans? What are they
"missing" in their logistics cycle that could fit with your
business? Do they need recycling work? How about pooling coordination for
their transportation platforms? Do they have partners that can fill part
of the requirements bill but need help in other areas? What "value
added" service do you bring to the table? Remember that the growth in
the economy has consistently been in new "services."
The CLM’s annual conference addressed
a multitude of issues facing members, but the one that stands out for our
industry is the need for RLRS. The CLM membership is being advised to make
RLRS an integrated part of their operations. They want these services to
be a "seamless" business practice, but they understand that very
few organizations offer that support. The council maintains that Reverse
Logistics and Repair and Disposal, alone, does not meet the market needs.
Distribution – or redistribution – must be a part of that mix in order
to be "seamless." Existing vendors are being required to either
partner with or acquire other firms to develop this seamless service.
Finally, the logisticians are being strongly encouraged to recognize that
the major players in the market are capable of — or soon will be —
RLRS out-sourcing – and include that service requirement in their bids
and requests for proposals.
How can we help ourselves? First, learn
to think like the logistics manager in your customer’s organization.
Understand the direction they are receiving from their shareholders. It’s
not so much different from the logistics folks in your company if you
think about it.
Second, embrace the concept of reusables
and being in a service industry. Wooden pallet and container manufacturing
is going to be around for a long time. But the increased application of
reusables and new material transport platforms will continue to grow at an
accelerating pace for the next several years. We can be part of the
solution or left behind.
Third, develop alliances or partnerships
with other firms that offer complimentary services. Very few companies can
do everything in RLRS and redistribution. It may be a niche market that
you find to occupy, but if it provides that missing piece for a total
logistics package, then you’ve gained entry where you might have been
excluded in the past. Again, the business opportunity is going to be
there; it’s up to us to exploit the opportunity.
Finally, learn to speak the language of
the logistician. It’s the same as talking about cants, kerfs and
cut-offs in the lumber business. Think of your best supplier and how easy
it is to work with them. You both speak the same language and employ
industry shorthand every time you talk. You need to do the same with the
logistics managers that will be looking for your help. Joining the CLM is
an inexpensive way to expand your horizons. Take a subscription to some of
their industry magazines and newspapers. You’ll be amazed at the
information available, and you’ll have a better understanding what your
existing – or new – customers are thinking about in the field of
logistics.
Where do we go from here? With all the
talk of moving into the new millennium and living with the challenges that
the change of the calendar year brings, we should investigate and accept
the challenge that the logistics industry is offering us. They have
clearly identified where they need the help of our industry and specified
areas that we should pursue. They are pointing out the path and want us to
partner with them, to continue to build on the success of the past. Are we
ready to succeed with them?
(Editor’s Note: Dave Rogers is principle of
Clearwater Associates, an operations consulting firm; he may be reached at
(540) 980-6617. Gary Garkowski, a former Chep employee, is a consultant in
logistics and material handling. To contact the Council of Logistics
Managers, call (630) 574-0985. This article is based on a seminar Dave
gave at the annual meeting of the National Wooden Pallet and Container
Association.)
