Prompted by the COVID-19 pandemic, the rapid growth of e-commerce spiked last year. Companies are also looking to reengineer their distribution system from a macro model approach (large distribution center (DC) to store) to the creation of a macro/micro approach – adding many micro fulfillment facilities to get closer to customers. Automation and micro facilities all have the same goal in mind – make supply chains faster and more efficient in order to retain and grow their online customer base.
From a pallet perspective, e-tail supply chains are growing and thus increasing pallet usage. The introduction of more automation has increased the need for consistent quality pallets. Additionally, the micro fulfillment model has created challenges regarding the efficient reverse logistics of pallets and other distribution residuals from these additional locations.
To find out more, we recently sat down “virtually” with several pallet industry insiders. They include Joe Hebblewhite, commercial director at EMS Pallet Management, a pallet management provider based in the United Kingdom; Harmony Merwitz, chief commercial officer, of Prime360; and Jody Saylor, national sales director of Pallet Consultants.
Pallet Enterprise: How has e-commerce changed supply chains?
Joe Hebblewhite: It is obvious that global focus on e-commerce has expedited the speed of supply chain transformation. Speed and product availability are both critical to shoppers. People want things yesterday, and because of online reviews, customers can easily influence the seller’s reputation.
Pressure to perform is driven largely because people shopping online, particularly the Millennial generation, aren’t loyal shoppers. If they can’t find something on one website, they’ll go to the next, and they’ll do that based on cost as well. These trends have made companies really focus on product availability.
When you go into an automated Amazon fulfillment center, it is like a different world. And it’s the same with online food retail too. It’s crazy. The need for same day and next day deliveries has complicated operations making them more challenging to manage. So, I really do think that e-commerce has accelerated supply chain improvements making them better in the process. E-commerce success is predicated on efficiency, so it is a race to the bottom to be the cheapest supply chain.
Harmony Merwitz: In the past, companies have largely viewed the e-commerce side of their business as secondary. The vast majority relied exclusively on shipping from large distribution centers straight to store locations. The outbreak of COVID-19 has now forced them to shift this view, as safety precautions have shifted how customers do their shopping. Today, consumers lead the channels through which they receive products. Demographics that previously avoided online shopping are now doing so in great numbers. Meanwhile, things like curbside grocery pickups are being heavily favored over conventional in-store shopping. E-commerce and consumer-led shopping experiences have become essential to reaching customers quite suddenly, and many companies have found they simply don’t have the technology or core competencies to reflect this. One of our own customers, a pharmacy retailer, particularly found themselves scrambling to compete with large e-businesses to simply retain their market share.
One of the ways companies are addressing this is investing heavily in automation and other technology to bring internal operations up-to-speed. On a larger scale, probably the most significant change we’re seeing is in both forward and reverse logistics. Rather than relying on macro-distribution centers, retailers are now moving towards a macro-micro model. A number of our customers are expanding their current distribution center footprint and rapidly establishing micro-distribution centers. Where some of our customers had perhaps twenty-two or twenty-three DCs that fed their U.S. footprint, they now have built between thirty and sixty micro-centers to reach concentrated last-mile buying groups.
Ultimately, the move is towards having the facilities to meet consumers where they are and be nimble and responsive enough to meet demand. Omnichannel models, which merge physical commerce in stores with e-commerce, are quickly becoming the norm, especially with large retailers. Having these micro-DCs make achieving this much easier, as it keeps product supply easily available to stores, while still serving their purpose of fulfilling customer orders in good time. Luckily, one of Prime360’s strengths is that we are channel-agnostic, fully capable of supporting both parts of such operations.
Pallet Enterprise: How has e-commerce impacted pallet usage?
Harmony Merwitz: One trend we’ve noticed is that people are becoming increasingly aware of the value of merchant compliance and sourcing to a standard. Pallets are the conveyor of the products that sustain our country, and while quality has always been important, the volume being employed right now has made it more crucial than ever to make certain that pallets entering the supply chain are in top condition. Not only are poor quality pallets hazardous to human and product safety, but they can also become a huge expense over time. Automation is another factor driving this, as low-quality pallets can actually damage automated systems quite easily. Prime360 has a very large national management team that oversees national vendor compliance for our customers. We work in cooperation with their business partners both upstream and downstream to inject better quality into their supply chains.
Quality also plays into another shift we’re seeing, a trend towards a circular or 360° supply chain model. From manufacturers to distribution centers to stores, the goal is to keep the same pallets moving through the chain as much as possible to reduce unnecessary spending on new pallets. Happily, this also benefits our environment, as fewer pallets need to be produced.
Returning briefly to automation, one thing we may see as more companies adopt this technology is some change in the types of pallets being used. The structure and design of a pallet is actually deeply important to running a successful automated system, with some being better suited to it than others. We may also see this change in response to various transportation requirements, as companies interact with other entities to fulfill orders who may have specifications of their own. On the white-wood pallet side, we’re finding that a lot of people in retail are looking for point-of-sale pallets they can utilize in a store format. These allow them to unload pallets without touching the products, then reverse those pallets back out. Retailers are looking to move their products faster to match shifts in buying behavior, while also adhering to safety standards.
Accurate demand forecasting is another important facet of pallet usage at this time. The combination of e-commerce and COVID in 2020 put many pallet customers on their heels. In quarantine, consumers tend to do more online shopping and become more interested in home improvement projects, like working on their lawns or gardens. Being able to predict changes in demand such as these is critical to managing pallet supply, knowing how many pallets to order and when to scale. E-business is constantly evolving— without accurate forecasting, companies can quickly become overwhelmed.
Jody Saylor: With the increase in e-commerce, large online retailers are using a lot of pallets. Their volumes have increased tremendously, which is consuming a lot of pallet volumes in certain states or regions. They’re also sorting these pallets internally and using them as often as they can. In turn, the quality of cores coming from these facilities are lower than what we previously received. Most of these pallets are unusable and must be scrapped.
These larger companies also typically demand higher prices for these low-quality cores, which puts pressure on us to find better used pallets elsewhere. When we do pay a premium for these cores to continue our recycling business, it changes our cost structure and pricing. However, as automation continues to improve with these operations still focusing on speed, I can foresee them changing their inventories to higher-quality pallets due to the sensitivity of their automated systems.
Additionally, some of our facilities have seen changes in the sizes of pallets our e-commerce clients are requesting. Time will tell if this trend continues or is simply a short-term change due to current circumstances.
Pallet Enterprise: How are e-commerce facilities different than traditional retail?
Harmony Merwitz: One thing we have seen is that pallets generally cycle more quickly through e-commerce locations than in conventional facilities. Aside from bulky products, once the majority of products hit the warehouse, they are placed into totes or crates and whisked away. There are very few pallet storage areas, so pallets are emptied faster. This is one driving factor for the increasing interest in reverse logistics and circular economies. To dispose of such pallets would be costly, not to mention needlessly wasteful.
Despite this, e-commerce facilities are not actively flushing pallets back into the market quickly. Some recyclers are having trouble collecting their pallets from e-commerce locations. Outbound flows of pallets aren’t being recorded in some instances. Sometimes, palletized products are transferred to different locations, or empty pallets are swept by a service provider who collects all pallets, regardless of color or brand. The flow-through rate isn’t 100% or more. In fact, it is far less than that. That trend is going to become an increasing problem; when the pools can’t collect from their customers, the cost is passed on to customers and end consumers. Because of this, it’s likely that the future will see companies investing heavily in services such as real-time visibility platforms (RTVPs), like our own PrimeVision. These give minute-by-minute updates on pallet location, delivery status, supply data, and more, all of which is valuable to customers looking to remedy issues with flow-through.
