The thud you heard was me falling off my chair. I was reading an article about an award winning initiative called the Physical Internet Initiative (http://physicalinternetinitiative.org/), which in part calls for the elimination of pallets in an effort to improve supply chain efficiency. And here we’ve long been told that the combination of pallets and unit load handling was one of the greatest logistical achievements of the 20th Century, allowing for huge efficiencies in material handling. Otherwise people wouldn’t be using them by the billions, right?
But maybe there is a better way, according to Dr. Benoit Montreuil of Laval University, as well as other academics and practitioners involved. When I asked Benoit, or Ben, what the Physical Internet (PI) is about, he started by saying that in order to talk about PI, he needs to start with why PI is needed. “You don’t shake the world if there is no compelling reason to do that,” he explained, before shifting gears to emphasize that there is an increasingly urgent need to do just that. “Environmentally, logistics is among the worst polluters, most greenhouse gases emitted, and among the most materials wasted. That doesn’t help.”
He believes that our current logistics systems are highly inefficient and unsustainable. Montreuil pointed out that logistics is a 10-20% burden on GDP of most countries, and worldwide logistics cost is growing faster than world trade. In France, logistics requirements are projected to increase 37% between 2005 and 2025. In developed countries, freight transportation is responsible for roughly 15% of greenhouse gas emissions. He lists some of the symptoms of these unsustainable logistics inefficiencies that he is seeing:
1. We are shipping air and packaging rather than product.
2. Empty travel is the norm rather than the exception.
3. Truckers have become the modern cowboys (Long lonely trips across the country).
4. Products sit mostly idle, store where unneeded, yet so often unavailable fast where needed.
5. Production and storage facilities are poorly used.
6. So many products are never sold, never used.
7. Products do not reach those who need them most.
8. Products unnecessarily move, crisscrossing the world.
9. Fast and reliable multimodal transport is a dream or a joke.
10. Getting products in and out of cities is a nightmare.
11. Networks are neither secure nor robust.
12. Smart automation and technology are hard to justify.
13. Innovation is strangled.
All these issues take us back to PI. What exactly is it? Montreuil said that it is a new paradigm based on the Internet, which he refers to as the digital Internet. The idea is to see what we can learn from how the Internet works and apply these insights to optimization of supply chains around the globe. At a very broad level, he noted that just the image of PI is already beginning to shape change. “Looking at it in more detail, PI is an open global logistics system that will strive towards universal connectivity that includes physical, digital and operational connectivity.”
Montreuil noted that in the communication technology world there were big problems several years ago, with all sorts of difficulty communicating between one type of technology and another, and between succeeding generations of technology. Eventually, billions of dollars later, the problem was resolved, and today we have the largely seamless Internet. While the Internet initially borrowed metaphors from transportation, including terms like superhighway, bridges and routers, “Now we have to be humble and learn from them,” said Montreuil. The idea of sparking a change in others and then borrowing back what worked is nothing new. Think of American quality guru Edward Deming’s work in dramatically influencing the manufacturing culture in Japan, and then its re-adoption back in the US.
To be certain, PI is a big initiative of which the pallet question, or as Montreuil put it, the aspect of encapsulation, is but one component. PI involves full visibility of systems such as transportation and distribution as well as product assembly or value added services. For example, Montreuil stated that there are 535,000 distribution centers open in the United States, many of them used by just a single company. “What we are targeting with the distribution web (a component of PI) is to make them available to everyone.”
In theory, at least, I like the idea. I think of it in terms of a warehouse management system (WMS) in a warehouse. When a unit load comes in, the WMS assigns it to the optimal location in the building based on the rules built into the WMS. Maybe on a larger scale, visibility and access to distribution centers across the country could allow a similar level of optimization on a national scale for shipping containers of merchandise. The level of systems integration and collaboration that would be required to pull this off, however, seems daunting.
Speaking of shipping containers, this gets us back to the point about pallets or encapsulation. In the digital Internet, Montreuil noted, packets of information are well structured, and the information inside those packets isn’t of importance in moving the information. In the case of physical logistics, we have a relatively efficient solution in the form of 20-foot and 40-foot containers. These, Montreuil observes, have revolutionized the shipping industry. “The container is at the core enabling us to have global trade,” he said. Like for the analogy of packets and the digital Internet, the products that are inside the containers are not that important. It is the fit between the containers and the supply chain infrastructure that makes it a success.
At the other end of the scale, industry has a fairly efficient solution for small parcels through operators such as FedEx and UPS. The problem, Montreuil suggested, is in the middle range between 40-foot container and small parcels, a range where we typically find boxes and pallets.
“This middle ground is where the problem is,” Montreuil stated, noting the numerous formats and lack of standardization that causes inefficiencies when it comes to transport packaging and pallets.
“Our idea is to create physical packets, instead of digital packets,” Montreuil explained. The functional ð -containers (ð = PI or Physical Internet containers) would come in a range of standard sizes, and have specific performance requirements. One interesting notion is the idea of the ð containers snapping together, to form a unit load without the need for a pallet or other base. And that unit load could snap to a forklift or other material handling equipment that would not have forks in order to be lifted. Or the snapped together unit load could be designed with wheels.
While Montreuil concedes that this idea sounds like science fiction, he feels that the real problem is how business leaders think about the issue. He sees the Physical Internet as a whole new way of helping us find our way out of the present dilemma. (This is probably true. I keep on thinking of a load of boxes piled directly onto the floor, and asking myself how this is supposed to function efficiently. It made me think back to a time several years ago when my wife decided for a period to become a vegetarian. When we went to her parents for dinner, instead of a plate with a baked potato, steamed vegetables and a steak on it, they gave her a plate with the potato, the steamed veggies, and then some empty real estate on top of her plate where the steak would have been. Of course, if you are a vegetarian, it doesn’t work that way. You have to figure out the complimentary nutrients and what foods work best together to provide a nutritious dinner. Same as a world without pallets. You can’t just take away the pallets without other serious changes to the rest of the infrastructure, or you will have a broken system. You have to revisit the whole logistics meal plan, and in fairness to Montreuil, this is what he is talking about).
But as for the elimination of pallets, Montreuil stresses that this will not be the case any time soon. “Don’t think we are talking about a Big Bang Theory,” he said. “We are looking to find niches where we can dig into it, niches that are self contained. Then we can prove a bunch of stuff. Pallets will not disappear tomorrow.” Major companies such as Proctor & Gamble and CHEP are involved in the project, as is the Material Handling Industry of America (MHIA).
MHIA contributed $56,000 in seed money and in-kind support in 2010 for Dr. Montreuil and associated researchers at the University of Arkansas. “What is being proposed is pretty much a fundamental rethinking of how you are able to flow goods throughout the country,” said Mike Ogle, vice-president of educational and technical services for MHIA. He recently told a Canadian publication, “Whether it turns into a game-changer or not, it is the type of thinking our association should encourage.”
While Montreuil does not think that pallets will disappear, he does believe that pallets as we know them are in danger of obsolescence. He encourages pallet providers to not look too narrowly at their role, and to really listen to what customers are looking for. And really, whether it is the Physical Internet or any other substantial innovation or change that is coming down the road, this continues to stand up as good advice.
A World Without Pallets – Really?
So what do other logistics and materials handling leaders believe about whether pallets are really endangered? Here’s feedback from some of the leading thinkers in the logistics arena, as well as other practitioners.
I don’t think you’ll have to change the name of your magazine (Pallet Enterprise) anytime soon,” joked Ken Ackerman of K. B. Ackerman Company (www.warehousing-forum.com), veteran material handling consultant and author. He stressed that some kind of unit load base will continue to be required.
Ackerman added, “I don’t think pallets are facing extinction. We were using carton clamp trucks fifty years ago for major appliances, but the skill level required is high for attachments such as slip sheet equipment.” Pallets provide a way of elevating loads for transport that many people know how to move using forklifts and hand jacks.
“I do, however, see the possibility that other materials will increasingly replace wood in the manufacture of pallets,” he said.
Rising fuel costs puts space at a premium, are pallets a necessary evil or will somebody find a way to facilitate load movement without them? Jim Tompkins, president and CEO of Tompkins International (www.tompkinsinternational.com), said, “As the cost of fuel goes up, there will continue to be some shippers who come up with approaches to eliminate the space taken up by the pallet, but this is not a major trend.”
He added, “Most of the time unit load movement will continue on pallets.” He stated that the pallet has been and will continue to be the standard for unit load movement.
Moving forward, Tompkins emphasized that it will be important for pallet suppliers to present the “Green” aspects of unit load movement via the pallet. “If I were a pallet supplier,” he continued, “I would want to illustrate the “Green” aspects – both Green as in environment and Green as in dollars – of shipping by pallet.”
Tompkins is very familiar with the Physical Internet concept. In fact, he is working on a similar initiative called “Horizontal Collaboration.” He said, “The goal is to reduce the number of trucks on the road by increasing the quantity of material on the truck that is traveling to the same destinations. So both concepts are looking at wasted space in the truck, but the solution has more to do with Transportation Management Systems and companies sharing trucks for delivery to customers than addressing the unit loads in the trucks. Sure, the Physical Internet wants to combine modular tote pans into loads, but this is more focused on the ‘last mile delivery’ as opposed to the full pallet movements within the supply chain.”
One of the core suggestions behind the Physical Internet concept is the need for increased standardization. David Luton, president of David Luton and Associates, said, “First the basic underlying idea of standardization is a good one and has obvious merit. The problem I have is in the physical world of logistics is the idea that one size fits all. It faces some real world problems.” Luton is a veteran materials handling consultant and occasional Pallet Enterprise contributor.
Luton added, “In the 40 years I have been in logistics, standardization has made and continues to make advancements. Unlike the internet that had the advantage of starting anew with a clean slate, logistics has been around for thousands of years and there is extensive existing infrastructure. Its replacement will not be easy or cheap and if you take it to an extreme it may not be practical.”
Consider an everyday example of encapsulation we all use; called shoes. Imagine if you were allowed to have only one style and size of shoes for your entire life. In the real world people change and thus there is a practical need for several sizes and types of footwear. As a member of the male sex I would not want to be the person that told women they could not use high heels.
Luton expressed some confusion about the concept of PI because of the desire he sees expressed for reusable packaging but not for the unit load. He noted that the use of a unit load base like a pallet reduces packaging usage, something that users of pallet-less material handling like carton clamps have found out as they have switched to palletized shipping. “There are extensive worldwide networks of returnable pallets which Montreuil does not seem to be aware of and they are increasing in size and scope,” Luton added.
There are some practical issues that complicate logistics without pallets. Luton questioned the benefit claimed in the reduction or elimination of racking by the use of block or bulk pile storage. “The problem is there are practical limits to the heights that you can block stack items,” Luton explained. “In major centers around North America, high rise warehousing can go to almost one hundred feet whereas block stacking is generally limited to heights of less then twenty five feet. High rise warehousing is generally seen as green friendly; not the other way around.”
Attempts to innovate must remember that existing practices may not need to be eliminated as much as improved. Sasha Yovanovich, director of warehouse operations for Integrated Fulfillment Management Services Inc. in Canada, said, “Pallets play an invaluable multifaceted role in assisting with load unitization and facilitating the ease of load handling, storing and retrieval.”
He added, “Having to perform these tasks without pallets, more frequently than not, will result in higher labor costs, poorer space and equipment utilization, longer lead times, more damages, etc. If the primary reason for replacing pallets with containers is based on the standardization and ease of integration, couldn’t the same be accomplished with the standardization of pallets, without encroaching into the parallel reality? If the other concern is social and environmental impact, then wouldn’t the change of the entire distribution infrastructure to integrate containers result in even higher depletion of our resources and bigger environmental footprints? How about the impact on the developing nations that are not resourceful enough to participate in the changeover – should they be written off to make room for progress?”
Yovanovich then went on to question the requirements of specific types of commodities, such as fresh produce, and how these would be addressed by the standardized containers. “The fact that it is cheaper to send Norwegian salmon to China for processing before reaching its final destination in Finland, rather than doing it domestically in Norway, has nothing to do with supply chain inefficiencies,” he said. “It is a direct result of the free trade market forces and globalization, and the inequitable world that we live in.”
The idea of rethinking the unit load is sound even if eliminating the pallet may not be the wisest move now. Yovanovich commented, “I think that it would be a time for us to return to the proven basics of supply chain management, wrapped around the principles of integration, collaboration and continuous improvement, before we replace the pallets with containers.”
