This Pallet Enterprise Roundtable recently welcomed some leading operators to share their views on pallet management and related trends. Participants included:
CHEP: Drew Merrill, vice president of National Accounts
Ongweoweh: James O’Neil, executive director at Ongweoweh Pooling
PALNET: Derek Turney, director of business development
Pallet Enterprise: What do customers expect in terms of pallet management services, and how are expectations changing?
Merrill: Our customers’ number one expectation is for CHEP to deliver the right pallet in the right quantity to the right place at the right time. It’s the ticket to entry for any pallet pooling provider. While there are additional solutions we offer beyond the pallet, this is our most critical role in the supply chain. I always tell my team: this is a low ego business, because when we’re doing our job right, we’re the invisible backbone of the supply chain.
As far as changing expectations, I see two trends. First, given the tightening OTIF (on-time in full) compliance required by large retailers, pallet providers need to adjust and execute flawlessly because there is less slack in the supply chain. Second, customers are requiring more flexibility to address the growing complexity of today’s supply chain. As a pooler, you need to have sufficient density, scale, and infrastructure to be nimble enough to support the inevitable peaks, valleys and last-minute changes downstream.
Turney: I see expectations around flexibility. People are unhappy about the inflexibility and the ‘sticky with fees’ mentality that comes with pallet rental. There are also expectations that are unique to each company and site. Each location has its own ‘hot button’ issues. You have to determine what features are important to each customer and how to economically meet those demands.
Another expectation is around transparency. One of our strong selling points is that we don’t like convoluted deals; we want them to be very transparent. Hey, we’re going to do this, this and this, we’re going to charge you this, this and this. And we’re going to sell your white wood off for this, and we’re going to share that revenue this way.
There are too many shady guys in this business who want to make up for inefficiencies or bad deals by cheating the numbers. So we try to kill customers with information. I would rather provide more information so they know exactly what we’re doing versus the opposite.
O’Neil: We’re seeing more sophisticated buyers who are looking for guaranteed savings year after year, volume rebates, sustainability metrics, and consolidated services.
Pallet Enterprise: What services do you offer to help address these concerns and provide effective pallet management?
O’Neil: Ongweoweh has diversified over the years to be able to provide more consolidated services to our customers. Our pooling entity helps provide savings for our customers by identifying opportunities to pool assets, and our waste company helps round out our capabilities for recycling services. We also recognize the importance of data analytics and have invested heavily in our software and analytics team to provide more value and insight to our customers and their business.
Turney: In terms of service, we’re really big on data. We have a system called Accu-Track where we enter counts and data into a system, and the customer can monitor what we’re doing on a daily basis to support transparency. Regarding flexibility, our network also allows us to provide service wherever and whenever it’s needed. Last month we shipped to customers from over 140 different pallet yards around the country.
Merrill: We address flexibility and complexity at CHEP by ensuring we have the geographic density to be near our 14,000 manufacturing and 19,000 retail customers. We typically have our service centers within 50-100 miles from any customer site so if a hiccup occurs, we have the flexibility and alternate locations available to service the customer. Bottom line, without that resilience, you are putting your customer’s ability to deliver product in peril. Additionally, we invest millions of dollars every year in our collection engine to ensure we can provide the broadest net of recoverable shipment locations to our customers.
Lastly, we see a tremendous opportunity to add value beyond the pallet with our transport collaboration/orchestration program. Here is a staggering figure for you. Despite a nationwide driver shortage, we still drive 50 billion empty miles in the U.S. every year! Given CHEP moves more goods to more people in more places than any other organization on earth, we are in a unique position to reduce our customers’ transport costs while helping the planet. As an example, last year CHEP partnered with 246 customers to eliminate 39 million miles from roads while reducing their transport cost by $12 million and eliminating 54,000 tons of CO2 from the atmosphere.
Pallet Enterprise: What technologies are you using to facilitate pallet tracking and management, and how has this changed the way you do things versus in the past?
Turney: Like most guys, we have a cloud-based business operating system that we can allow access to our customers. With Accu-Track they can monitor what’s going on in real-time and get reports as needed.
Merrill: At CHEP, we leverage technology to simplify and automate the capturing of data to effectively manage the pool with as little impact to the customer as possible. In addition to our customer portal, MyCHEP, we work with our customers’ IT departments to leverage EDI and ERP data to automate the tracking of pallet flows through their network. All this data is available in a BI tool to ensure it is predictive and actionable for our customer service teams and the customer.
In addition to managing the day-to-day business through technology, we are also incorporating IoT enabled pallets to illuminate additional supply chain insights through our new technology platform, BRIX™.
O’Neil: Ongweoweh has always utilized its proprietary software, NativeTrax, to manage our pallet programs. We continue to invest in this tool to take advantage of new technologies such as ‘Smart’ packaging connected to the IoT and other technologies that move us closer to providing real-time data to decision-makers at our customers. The data provided by these tools is invaluable to our business analytics team and gives us insight into not only customer demands but industries as a whole.
All of the data is collected through NativeTrax, which bolts into our analytics tools. It is about how we organize that data and find ways to understand what that data is telling us. If you don’t analyze the data, what’s the point of collecting it?
Pallet Enterprise: What are the most important metrics when it comes to pallet management and networks from the perspective of the supplier? From the perspective of the customer?
Merrill: From a pallet pooler’s point of view, we leverage several metrics to maximize pallet velocity, minimize loss and damage, and ensure visibility of our pallets as they move through the supply chain.
From the perspective of the customer, OTIF, ease of doing business and value creation are key. As retailers are tightening OTIF requirements for our manufacturing customers, the supply chain must operate like a Swiss watch. The last thing needed is for the pallet provider to miss a shipment and cause a production line to go down.
The second consideration is the ease of doing business. It is not just about steady-state, but more about how they react when things go wrong. Does the pallet provider merely put out the fire, or do they have a robust root cause process to learn from the issue and avoid it from happening again?
Lastly, it isn’t just about providing pallets. In this hyper-competitive environment, you need to bring additional value beyond the pallet to drive waste and cost out of the customer’s supply chain. Transportation collaboration, packaging optimization, and unsaleables reduction are just a few of the solutions we offer.
O’Neil: From the moment you introduce that pallet to your customer, you need to know how long is it going to be before you get that asset back. That’s where pooling starts, understanding that dwell time, supply chain velocity, and that’s probably the most important factor in our model when we do pricing — how fast is that asset moving through a supply chain. How is it touched? Is it an automated system? Is there a lot of human interaction? We all know that the more human interaction there is the more chance of getting broken or mishandled, and then your repair cost goes up. So it’s really understanding from the entry point to exit point everything that happens to that pallet and how long it takes for that pallet to get back into your hands.
Turney: Every facility might have particular KPIs they are interested in more than others, but the most important one is an accurate count of the pallets leaving the building. It is head and shoulders above any other metric for customers. (Customers ask,) ‘How many of my pallets are leaving my building so I can be accurately compensated for them.’
Pallet Enterprise: Why don’t you think more companies try to develop and manage their own pallet pools? What does an ideal situation look like for a proprietary pool?
Turney: There are just not that many really closed-loop environments out there. The trouble with most attempts is that pallets disappear. Nobody wants to spend $30, $40, $60 or $70 on a pallet that isn’t going to last. Chances are that after a trip or two it is going to leak and leave you with nothing. If outside factors compromise your program and pallets leave your control, then your pool is busted.
I think there are many niche opportunities to pool shipping platforms, but with white wood pallets the options are limited.
O’Neil: Most companies don’t want to carry the cost of the asset on their books, and few are interested in providing the necessary resources it takes to properly manage an asset pool and the risks that come with it. For customers to invest in their own proprietary pool, they must have good controls throughout their supply chain to prevent loss of the assets.
It takes someone at that company to champion that program and work in partnership with their suppliers or their customers. Strong supplier and customer relationships are key to getting buy-in from all participants within the supply chain pool and having a unique product or process that couldn’t easily be served by a traditional pallet rental company are all indicators of a potential proprietary pool.
Merrill: The challenge with managing your own pool…as soon as you get to any type of scale and supply chain complexity, the risk-reward equation rarely pans out. Even if you have the best-intentioned people with robust processes and infrastructure investments, you still need to factor in additional costs like storage to address seasonal fluctuations and buffer stock. You need technology to monitor your assets and minimize significant capital risks associated with loss and damage. And you have to ensure your collection engine is sophisticated enough to maximize return freight and minimize pool imbalances.
To answer your second question, if you have a custom fit-for-use pallet or a closed-loop supply chain with minimal complexity and close geographic proximity, a proprietary pool might make sense.
Pallet Enterprise: Let’s diagnose some previous failures. Why have pools or proprietary pallets failed in the past? What lessons can we take from these experiences?
Turney: It is just so expensive to get started. I just don’t see another 48×40 pooling company making it work this late in the game. Some of the past failures were because their platform was just too expensive to compete with what is already out there. If your platform is too expensive, then you are not going to be able to compete. Nobody is going to pay extra because your pool pallet is a marginally better platform. They are just using it for a one way shipment. So why would they pay more? Even though you might have a differentiated product, you are still just looking at one turn out of that pallet (from a customer perspective).
Merrill: If I look at pallet pooling failures from the past, there are really three takeaways. First, you can’t just enter the market at a discount that is completely below your cost structure and assume scale will solve your profitability problem. You need to be realistic out the gate. Second, the pallet pooling market is very capital intensive. You need to ensure you have the long-term funding to support the infrastructure requirements for a sustainable national pool. Lastly, you must be willing to invest in the necessary people, process and technology to ensure you maintain visibility and control of your pool.
O’Neil: In the case of pallet start-ups, we’ve seen issues such as a lack of operational expertise, lack of knowledge of the intricacies of the pallet industry, lack of continued funding, misappropriation of investment dollars and a concentrated effort from the industry to prevent new companies from entering the space.
A lack or loss of data can also contribute to pools failing as well as a lack or loss of support from your customer. Pool programs require acceptance and adoption within an organization from the corporate boardroom all the way to the docks.
Pallet Enterprise: Throughout the global supply chain, more and more CPGs (consumer packaged goods companies) and retailers are focusing on the circular economy, reducing waste and being more sustainable overall. How are pallets playing into this?
O’Neil: Pallets provide one of the greatest opportunities for companies to participate in the circular economy. They are an essential element to almost every supply chain. Their reuse helps prevent waste, and their ability to be recycled supports landfill diversion and sustainability initiatives.
Turney: Pallets have been green before anyone knew that we were green. Recycled pallets are the most sustainable piece of the supply chain. We just need to explain and share our story more often. Customers rarely realize that most of our mills are zero landfill operations. Pallet reuse helps reduce the need for new materials, and it helps prevent solid waste.
And we continue to improve the sustainability of pallet management. What we’ve done lately, at several of our customer sites, is to install contained grinders where we can save the freight of sending out five loads of scrap pallets and only send out one load of mulch.
Merrill: This is a great question since our share and reuse business model is inherently circular, and this question really speaks to our Zero Waste World initiative. We already talked about our transportation collaboration program to eliminate empty miles, but landfill waste is just as significant…especially if you consider that 90% of raw materials end up in landfills. While we can’t solve all of it, we’re committed to doing our part. As an example, in 2018 our share and reuse model not only helped customers save 1.7 million trees, it also reduced landfill waste by 1.43 million tons.
