Supply chains are changing according to Bob Trebilcock, the executive editor of Modern Materials Handling, and these transformations will likely mean greater emphasis in the future on packaging and pallet design in order to impact the true cost of the supply chain.
Pallet Enterprise has discussed this and many other materials handling issues with Trebilcock, who is one of the most respected journalists covering U.S. supply chains. Trebilcock also offers his comments on the annual pallet user survey conducted by his research team, which has become a primary tool to determine the mindset of pallet users across a broad range of U.S. manufacturing and retailing companies. If you want to look at the future of where your customers are going, this interview is something you won’t want to miss.
Pallet Enterprise: What are some of the top takeaways from your most recent pallet survey of end users?
Trebilcock: There aren’t a lot of changes between this year and last year. In 2012, we asked some new questions about pallet pooling and the impact of retailing. The results were not significantly changed. This underscored that the baseline numbers from last year were accurate.
Secondly, we saw that the Freedonia Group came out with a survey a little earlier in the year that indicated plastic and, especially, metal pallets were seeing some increase in interest. While these still remain a small percentage of the overall market, any change can seem like a big percentage jump. Based on comments we received from respondents, we believe that people in general are looking at packaging more closely than they did in the past and this includes pallets. They are thinking about how pallets fit into their overall operations and looking for ways to become more efficient and cut system costs.
Pallet Enterprise: Last year your survey didn’t show any real change in the types of packaging material being purchased comparing wooden pallets to alternatives. But it seems this year that you do see some shift toward alternatives even though wood remains still the dominant player. Is this just a statistical aberration or a real sign of market change? Are sanitation concerns driving any movement?
Trebilcock: Even though the pool of the recipients is fairly similar, you don’t know if the people who responded last year are the same as those who returned surveys last year. What I think is driving the plastic market right now from my discussions with people in the industry is the uptick in manufacturing by the automotive suppliers. In many respects, they are in a plastic market either for pallets or containers. As General Motors, Ford and Japanese automakers increase production, there are increasing needs to replenish the pool to keep up with growing demand.
Secondly, I hear a lot about food and drug safety regulations, particularly the ability to do a recall. What the food industry is trying to do is catch the problem before it even goes into finished, packaged products and is ever shipped out. This would prevent ever having to do a recall in the first place.
The plastic pallet market has come up with additives that show up in a fluoroscope or some other inspection method if a piece of the plastic pallet has contaminated the batch of material being manufactured. If you are a cereal manufacturer and a piece of a plastic pallet has chipped off and somehow gotten into a batch of product, when the inspection is done the additive will show up in the test so that the manufacturer can catch the contamination before the product is ever packaged and sent out to the market. This prevents a recall. That is a trend that is driving the plastic pallet market right now.
The last trend driving plastic pallets right now is the smaller and more frequent delivery schedules, particularly to grocery and convenience stores, when shippers are looking to use quarter and half size pallets. They don’t want a 48×40 in the store. Instead, specific items are loaded on half pallets for a specific customer and shipped directly to the retail location in order to reduce handling costs.
Pallet Enterprise: Core shortage. What are pallet users saying about the quality and availability of used wooden pallets?
Trebilcock: I interviewed the woman who did the Freedonia survey. She was surprised to find that in her view there had been a really significant core shortage. In our survey, we go across a lot of verticals and many of those people don’t buy used pallets. But of those who did, there was a significant number who ran into core problems, most notably quality problems and significant price increases. There wasn’t a lot of people who said they had run into core problems. But of those who did, they experienced quality problems and significant price increases.
Pallet Enterprise: One interesting trend seems to be that your respondents would prefer to buy new pallets instead of switch to a pallet rental system. When there are core shortages, why aren’t more of your respondents just switching to a rental option instead of buying new wooden pallets?
Trebilcock: The average facility size for our readers is about $800 million per year in terms of revenue. We have a lot of big and small companies to reach that average. Some respondents are too small to participate in a meaningful way in a pooled pallet program. Secondly, you get industries responding where a pooled solution is not possible due to the complexity and distance of the supply chain.
Pallet Enterprise: What are the greatest innovations that you see out there in terms of pallets and packaging?
Trebilcock: On the pallet side, I don’t know that I have seen a product out there that I can say, “Wow, I have finally found the better mouse trap.” And I still contend that there really isn’t a product out there that is as versatile, reliable and economically feasible as a new or used wooden pallet or a wooden pallet management program. There is a reason why wood makes up such a high percentage of the market.
Most of the innovations have been around the plastic pallet market for niche applications. The plastic pallet market has never come out with a pallet where you look at it and say, “Well, in five years the wooden pallet is dead.” The industry has developed pallets that meet specific needs, such as the additives for food safety.
The real innovation is on the materials handling side where we are seeing new levels of automation that have not been done in the past. Companies are looking at automation to see how it fits into their operations.
I recently sat in on a meeting with a systems integrator and a packaging company that had designed a facility for a company, which had been developed around one basic pallet design. But the problem is that the facility doesn’t just use one type of pallet. And all of a sudden this company was having problems with automation involving pallets. Companies are starting to take a look at the pallet when analyzing their systems because greater degrees of automation require it.
Secondly, if you walked the floor of Promat this year, you would have seen more packaging people than ever. This touches on the unit load management concept where companies are discovering that greater automation and more complex packaging requirements are leading to the need to analyze how we package things at the end of the line. Amazon, for example, used to have primarily three box sizes and just filled the rest of the box with air bags. The old days of shipping like that just don’t work anymore. Now companies are looking at the entire packaging from the beginning and not just treating it as an afterthought.
Pallet Enterprise: There has been a lot of discussion about the future of the U.S. supply chain thanks to the recent Logistics Road Map project. What will be the greatest change to take place in the supply chain over the next ten years? What is the biggest trend that we are likely to miss but shouldn’t have?
Trebilcock: The supply chain tends to operate in silos. The transportation guy does the trucking piece. The warehouse and distribution people do the order fulfillment part. The manufacturing facilities handle producing products. And nobody really talks to one another. They are all seen as very distinct processes. The most significant development going forward is that companies are trying to look at this as one continual process from the point of where raw materials are sourced to delivering the finished product to the final customer. Companies are looking to optimize the entire supply chain not just parts of it. Forward thinking companies, such as Kroger, have started implementing policies around this mindset. There is a move to look at the entire supply chain as one complete process and to evaluate how we can optimize the whole thing. Where does it make sense to increase costs, if the offsetting savings are greater in some other aspect of the supply chain?
The process of managing the entire supply chain has to be driven by senior management. You must have somebody at a senior level who can drive and reward overall cost savings. Otherwise the transportation department may lower its costs but increase packaging and handling costs at the retail, which would end up costing not just each individual segment, which may add cost to other segments of the supply chain and cost the company more in the long run. The idea that there is this continual process is the most significant change coming about in supply chain and operations management.
Overlooked is how important packaging is to the overall manufacturing and distribution process. Moving beyond just the use of pallets, packaging has been an afterthought for most companies.
I recently did a story on MSC Industrial Supply Co., and its go-to-market business strategy is a guarantee that if you place an order by a certain time period, that order will be on a truck for delivery the same day or you will receive a certain amount of money, say $50. Depending on the level of shipping you asked for, the product may not be delivered the next day. But it will be on a truck that same day.
MSC Industrial does a lot of orders. And if it can’t deliver on its guarantee, that promise could become pretty expensive. As a result of changes in behavior, the company now receives most of its orders at the end of the shift instead of the beginning of the day. Their day used to be pretty standard in terms of the workload, now they are standing around from 8 a.m. in the morning to about 2-3 p.m. in the afternoon and then go like gangbusters from 2-3 on. Managers at MSC Industrial indicate that they can get orders picked really quickly and get the product to packing stations pretty fast, then everything came to a screeching halt. They could solve that by adding more packers. But that would add significant staff and cost. So they ended up automating the packaging part of the process to get orders through efficiently. Not everyone is going to automate packaging. But companies are now starting to realize that the packaging piece is important for certain business strategies involving the speed of delivery and the way a product is delivered.
What the industry does in terms of pallets and packaging is not just important in terms of getting things through a factory or a distribution center; increasingly, companies are coming up with new go-to-market strategies to differentiate themselves from the competition. For example, if a company has a business strategy that allows customers to buy something other than a full pallet load of product, then pallets and packaging, whether it is a half pallet, display pallet, or mixed load packaging approach, play a key part in achieving that business strategy.
Pallet Enterprise: What key measurements are distribution center operators most concerned with right now and how might that change?
Trebilcock: Key measurements tend to change based on what industries are making upgrades at that time. A couple of years ago, it was all about how to do mixed palletizing. Right now the real press is on omni-channel retailing. This is where a retailer wants to be able to sell at the store, sell online, deliver to your home, order online and pickup in the store, and so forth. That is driving a lot of what we are seeing.
The most important matrix right now is the perfect order, and that can vary from one shipper to the next shipper. A perfect order could be around everything from the accuracy of the order to the labeling to the placement on the pallet to the packaging protection and presentation of the order to consumers. The perfect order can go way beyond just the right product, right size, right color, it may include elements, such as a thank you card, coupons or other little touches to improve the customer’s experience. This is particularly true for luxury retailers that want to make their order and presentation unique.
Pallet Enterprise: If you were a white-wood pallet company, what are some things you might do to differentiate yourself in the market and to take advantage of the trends we have discussed?
Trebilcock: If I am a small player, one-location pallet company, then I would try to make the best quality pallet possible for the cost and then try to make myself indispensable for that customer, whether its vendor managed inventory, having emergency pallets ready to go at a moment’s notice, total packaging recycling services beyond just pallets, etc.
If you are just making a pallet, then you are basically just a commodity. So you want to see what you can do economically to make yourself more valuable to your customers so they won’t leave you over a nickel.
If you are a large pallet company, whether or not you are a major pallet rental operator, I would be looking at the same things, just focusing on a bigger stage. I would be looking to see how I can optimize the unit load on a national basis.
Pallet Enterprise: What changes do you see taking place with robotics in materials handling?
Trebilcock: There appears to be a lot of interest in robotics, but not a lot of action. There are some early adopters that are looking to use robots in materials handling beyond traditional case palletizing applications.
There is a company that has developed a robot called Baxter that can handle individual items and not just case loads. Unlike conventional robots that usually must be caged off and separated from people, Baxter can be integrated with a conventional workforce, and it is relatively inexpensive, in the $50,000 range.
I know of one third party logistics provider in Texas that has rolled this out in a small way with three robots, and it is working. One location does not a trend make. But every company is taking a look at automation to see where it can make economic sense. I think we are a ways off before the technology is where it can go live in a big way. But it wouldn’t surprise me if in five years, some grocery distribution centers have robots instead of people going down the aisle and picking cases to be placed on pallets.
Pallet Enterprise: The media has talked a lot about the impact of e-commerce and especially Amazon. How do you see the trend toward more online retailing impacting the use of packaging and pallets?
Trebilcock: E-commerce has turned the retail world upside down and is now doing the same thing with the industrial distribution world. Amazon is really smart and is not punished by Wall Street when the company does not make money. Wall Street actually rewards Amazon for making investments in infrastructure and systems that may take years to produce any economic return for the company. Amazon receives incentives to keep doing things that keep causing fits for other retailers that must compete with Amazon. From free shipping to overnight delivery and same day delivery in some markets, those things are very expensive. Wal-Mart gets punished for doing those things whereas Amazon gets rewarded.
In terms of pallets, the process of moving goods from the point of manufacture to the distribution center has not changed that much with the explosion of e-commerce. But the final leg of the supply chain is where everything has changed. Instead of pallet or container loads going to stores, now individual orders are shipped in boxes to customers. Because the shipping companies charge for the weight or volume of the box in some cases, the need to right-size packaging to the products being shipped is more important than ever before.
Staples, the office supply retailer, is the second largest online retailer behind Amazon. It has been an adopter of on demand packaging, which means it has a machine that makes a box on demand just the right size for the product being shipped. Rather than having a hundred different box sizes, a machine is creating boxes at the point of packing.
