It’s a sweet deal for Intelligent Global Pooling Systems (iGPS). The RFID-tagged, all-plastic pallet pool has attracted its first national customer. Imperial Sugar, one of the nation’s largest processors and marketers of sugar, is switching from wood pallets, primarily CHEP, for all its shipments across the country. The expansion of iGPS could generate some new business opportunities for pallet recyclers and other third-party logistics companies that are capable of operating depots.
“Imperial Sugar’s adoption of iGPS’s pallet pool is an important development in the steady growth of our company,” said Bob Moore, CEO of iGPS. Sugar is especially vulnerable to damage from broken boards and protruding nails on wood pallets. The proven strength and durability of our plastic pallet, along with its full-top-deck coverage, is an ideal match for Imperial Sugar.”
According to Bob, Imperial Sugar had been trying to work out the quality issues that they had been having with CHEP pallets. Bob said, “The CHEP pool now is 17 years old, and we are hearing from a lot of people in the market that the repair standard has been significantly reduced.”
Sugar is extremely absorbent, which raises a risk of cross contamination for whatever else has been on the pallet. Imperial Sugar liked the fact that radio frequency identification (RFID) technology allowed it to know exactly what had been on the pallet.
Initially, iGPS went after high margin products, such as electronics or pharmaceuticals. However, it switched to the fast moving consumer goods arena when major corporations expressed interest in developing alternatives to CHEP.
Bob said, “There is room for all of us in this industry because one solution doesn’t work for everybody. There will always be a need for a large amount of one-way pallets. The size of that business is so much bigger than the rental business.”
As far as growth, iGPS just doesn’t have enough pallets to service its potential business according to the company. It is ramping up capacity and hopes to quadruple production next year. iGPS current customers include Martori Farms, ConAgra, Cott and Pepsico’s QTG division. The company is now rolling out SC Johnson, and Bob said that iGPS has other national companies looking to come on board, such as Clorox and Nestle.
The iGPS pool has over a million pallets. The company has a goal of 25 million pallets by the time the sun sets on its 5th anniversary. Bob indicated the company is extremely well funded and has exceeded the amount that CHEP raised when it first launched in the United States by at least three times. He raised $310 million for iGPS and the company is debt-free, said Bob.
RFID Development Surprises & iDepot Concept
Bob indicated that RFID was not as developed as he thought it would be. Despite all the talk about the technology over the last 10 years, there still wasn’t anyone really using it. Most people were just doing trials. Now, iGPS has customers like HEB that utilize RFID tracking for tracing other types of transport packaging, such as plastic containers.
HEB, a grocery retailer with stores in Texas and Mexico, was the first iGPS receiver. Bob reported that most major retailers have agreed to receive on and return iGPS pallets. HEB and Costco have become strong advocates, according to Bob.
Costco, the third largest receiver of rental pallets, is doing iDepots where they wire up the facility for RFID and become a virtual depot for iGPS pallets.
Instead of a third party depot like CHEP or PECO uses, where the pallet is sent off for inspection and possibly repair, the pallet is processed at the retail distribution center. In an iDepot, you set aside a little bit of space in the DC and run the pallet back through an RFID portal if it is not broken. The pallet then electronically comes back into the iGPS system, and it is ready to be reissued. Bob claimed this approach removes millions of dollars out of the supply chain by eliminating two legs of the process. Being an iDepot is voluntary for retail DCs but they do get paid for doing the work if they are an iDepot.
Bob said, “Most retailers are electing to scan the pallets in themselves because we offer an incentive for returning the pallet early. If you return the pallet before 30 days, let’s say you return it ten days early. You get ten times the 4 cents daily rent or 40 cents back. And you get 30 cents for handling the inspection. The retailer then gets 70 cents per pallet. For a retailer with high volume, that’s a big incentive. If a retailer elects not to be an iDepot, it does not receive an early return rebate.”
iGPS pallets are not repaired. If broken, it gets ground up and made into a new pallet. Bob indicated that this makes inspection and handling easier to do at the retail DC level.
Is RFID Too Expensive for Pallet Tracking?
Some critics contend that RFID technology is still too expensive to deploy across most supply chains. Bob disagrees. He contends that the equipment is not very expensive and has come down a lot in price.
Bob said, “We can buy a reader today for 30% of what we bought it for 18 months ago. Our tags are 17 cents apiece.”
The RFID learning curve has changed too. Bob said, “RFID makes for more complex implementation. In the early days, we didn’t know what we didn’t know. Now we’re doing implementations in our pool about the same time it takes for a wood pallet pool. We have standardized the implementation process.”
iGPS generally ties the product to the pallet at the end of the production line. Bob said, “When you hear that you have to wire up all the dock doors, it simply isn’t true. At manufacturing, you just do the production lines and are integrated into the warehouse management system.”
The infrastructure cost to be an iDepot can vary, depending on the velocity and volume a company would have. It could be anywhere from $4,000 for handheld readers up to $30,000 to put in portals. Small facilities with minimal pallet volumes can use a handheld reader with a laptop and a wireless card to handle transactions.
RFID eliminates one major headache associated with some rental systems. Since each pallet has a unique ID and is tracked throughout the supply chain, customers are only charged for actual usage or loss, not estimated activity. Bob said, “One of the problems that manufacturers and retailers have with CHEP is that the data is not credible. If you lose one of our pallets, we know you lost it, and you know that you lost it because it is being tracked throughout the supply chain. When that pallet goes through the scanner, it gets credited back as being found.”
Looking for 3rd Party Depot Partners
Managing, tracking, washing, storing and shipping pallets are all functions that iGPS wants to outsource. It is looking for pallet recyclers and logistics companies that can handle the recovery aspect of its business. It especially needs help on the West Coast although the launch of the Imperial Sugar program as well as other roll outs in the pipeline are creating business opportunities across the country. Scanning RFID tags is a vital part of any iGPS depot since RFID is the key to its tracking technology. iGPS uses four tags to improve redundancy and read rate.
Bob said, “We need inspection and handling services. Inspection for us is a simpler process than inspecting wood pallets. But we pay at parity with CHEP. You have to do a lot less work and you get the same amount of money. You have to clean off the pallet and wash it. That can be something as simple as a pressure washer or an automated pallet washing system.”
iGPS will compensate recyclers for retrieval, storage and return services involved in returning stray assets. Bob said, “We would prefer that pallets not be ground up if broken because we need that pallet to get a replacement from the manufacturer. We want to work closely with the recycler from the beginning so that everybody can profit from it.”
Viability of a Plastic Pallet Pool
Some have questioned whether or not iGPS can make a plastic pallet work due to its high cost and need to turn the asset more to stay competitive. Joe Bongiovanni, vice president of operations for PECO Pallet, said, “We don’t feel the iGPS business model is sustainable due to the higher pallet cost.”
Joe further said, “We are simply curious about the claims made by iGPS since we are not sure how they can secure their required 8 turns per year – 1 trip every 46 days – when evidence suggests that they are being lost and damaged and have to go through depots.”
iGPS justifies its higher cost asset (about $60) by factoring in a longer life span (about 20 years), no repair costs because the asset is warranted for full replacement for 12-15 years, longer time in active duty per year, less transportation costs due to the iDepot concept, and almost no lost pallets due to tracking technology.
Bob said, “When you start ripping those recurring costs out of the wooden pallet model, all of a sudden that $60 asset is not all that bad. We don’t charge any more than the wooden pallet pools do.”
iGPS paints a perfect picture that may not work as well as expected. Its pallet may be more attractive to would-be thieves than the company will admit. That is why it will need to develop relationships with recyclers to get back stray assets.
Fire Safety Concerns
Fire safety has been a major issue for plastic pallets. Bob said, “Our pallet was fire retardant from day one. However, since we were being attacked on that front, we made the investment necessary to acquire the UL2335 certification. The CHEP pallet doesn’t pass the NFPA 13 regulations today. My intelligence indicates that they are scrambling to make their design work. Most of the recyclers have a pallet that works fine. It’s the standard. It is a three runner hardwood pallet. It is the 9-block, southern yellow pine pallet that is pretty onerous from a fire perspective.”
Is the Supply Chain Ready for RFID Tracking of Pallets?
Some competitors contend that RFID adoption will follow the same kind of implementation curve as bar codes and that it is years before the market will embrace RFID for pallets.
Brian Beattie, senior vice president of marketing for CHEP, agreed that RFID is the future. He disagrees that it is the present. He said, “Certain customers are willing to invest in infrastructure to read pallets and most importantly to do something with the data once they get it. But that’s not the majority of our customers at this point.”
Brian said that RFID may work better for promotional items or high value products. CHEP offers RFID-enabled wooden pallets and has struggled to find traction with this service.
CHEP currently has nearly half a million plastic pallets in its pool and the interest so far from customers has been minimal according to Brian.
iGPS has built its business model on the idea that its critics are wrong. Bob who worked for Pepsi on the Kroger account when the bar code was first introduced remembers a swift implementation pace. He said, “Bar coding really caught on pretty fast. It didn’t take twenty years. It took only a couple of years.”
