It is far too easy for pallets to "leak" out of a supply chain. A pallet misplaced in the distribution center here. One never returned from a customer there. Another used for an in-store display. Yet another stuck "temporarily" in an offsite warehouse and then forgotten. A few more picked up by thieves in back of a retail store.
Taken individually, these losses might seem minor, but the problem of a few missing pallets can quickly add up to considerable cost. In fact, according to Mark Baum, chief collaboration officer and senior vice president of industry relations for the Food Marketing Institute, lost reusable packaging assets (which include not just pallets but also such things as dairy crates, beverage containers, rolling carts, and bread trays) end up costing American business $750 million to $1 billion each year.
And it's not just the pallet owners that feel the financial pain—inevitably those costs will be spread throughout the entire supply chain, according to Dan Gormley, vice president of asset control and retail services at CHEP, the largest rental pallet pooler in North America.
THE PALLET BLACK MARKET
A not insignificant source of that pallet loss is theft. While numbers are not definitive, Jerry Welcome, president of the Reusable Packaging Association, estimates that tens of millions of dollars' worth of reusable packaging and containers are stolen every year.
CHEP estimates that each year, about 1 million pallets travel through the black market. This includes pallets that are being stolen along with the product loaded on them, pallets being stolen alone, and pallets that are being "misused" (such as being made into furniture or fencing), says Gormley.
Most of the pallet theft is perpetrated by an individual thief picking up unattended pallets behind a store, according to Welcome. But there have been cases of organized crime rings stealing pallets and containers. These groups tend to target plastic pallets, milk crates, and bread trays, which they grind down into plastic pellets that are then sold to plastic manufacturers, typically overseas. Although the extent of the practice is unknown, the following statistics might shed some light on the situation: From 2011 until it ran out of funding in 2013, a Plastic Industrial Theft Taskforce run by the Los Angeles County Sheriff's Department recovered $7.4 million in stolen plastic pallets and containers, made 74 arrests, and shut down 30 illegal grinding operations.
While the rising cost of resin makes plastic pallets particularly vulnerable to theft, pallets made from wood and other materials are not immune. For example, in 2013, Upper Arlington, Ohio, near Columbus, experienced a rash of wooden pallet thefts from behind grocery stores. Indeed, the problem of wooden pallet theft is serious enough in CHEP's eyes that the company has an asset recovery team in the field that focuses on recovering lost and stolen pallets, and a separate asset protection team that educates pallet users and recyclers on CHEP's ownership rights for its products.
LOST IN THE SUPPLY CHAIN
Although theft clearly factors into the equation, Welcome and others believe that the majority of pallet losses stem from less nefarious causes. They happen simply because companies lack visibility of their assets' whereabouts in the supply chain, according to Norm Kukuk, vice president of marketing for Orbis Corp., a manufacturer of plastic pallets and other reusable packaging. "We really find that for most of our customers, 80 percent of what they thought was lost is actually somewhere in their own warehouse or their partners' warehouses," he says.
The main reason for loss is the sheer complexity of most supply chains. It might seem fairly simple—product is shipped on a reusable pallet (or container or other shipping platform) from company A to company B, and then empty pallets are shipped back from company B to company A. But the reality can be a lot more complicated. The product on the pallet could get damaged and the whole pallet could be diverted elsewhere with the damaged goods. The pallets could be sent to an offsite warehouse because of lack of storage space or end up being stored in a third-party logistics service provider's (3PL) warehouse.
Furthermore, in most cases, the pallets get returned at a slower pace than they are shipped out. Suppliers, customers, or 3PLs might be collecting the items until they have enough for a full truckload. While this reduces transportation costs, it also slows the return process. Or if a driver is supposed to pick up pallets or containers from a previous trip, he or she might not be given enough time on the route to track down and return the items. A "lost" asset may just be sitting idle, waiting to be returned.
Indeed, a certain amount of asset loss is inevitable, and it's unrealistic to expect 100 percent of your assets to be returned to you, says Welcome. But if your rate of loss creeps up above 10 percent, he adds, it might be time to take a closer look at your system.
KEEP YOUR EYE ON THE PALLET
Regardless of whether your pallets are disappearing due to loss or theft, improving the visibility of units within your supply chain is a good first step, says Kukuk. "You need to step back and look at all the different ship-to points and touch points," he says. "Just have a simple discussion around all the different alternatives for where a product could have gone next, whether it's a 3PL warehouse, your own warehouse, or back to your primary shipping point. From there, you can narrow down those spots where your product could be leaking out of your system."
The best way to track shipping assets is to maintain a simple pallet-out, pallet-back accounting system. Kukuk says that some of Orbis' customers have been successful using a credit and debt process. "They debit pallets out when they ship them to a supplier and don't credit them back in until they receive them back," he says.
While it is possible to manage this credit-debit process with paper and pencil, technology can certainly boost accuracy and efficiency. Some larger companies, such as plastic pallet pooler iGPS, have taken the step of tagging their pallets with RFID chips, while others have found success using bar codes. "We have many customers that do a good job controlling visibility just with simple bar coding, scanning ins and outs," says Kukuk.
Hand in hand with a tracking program comes the necessity of getting suppliers and other stakeholders, such as carriers and 3PLs, involved in reporting where the asset went and who they shipped it to, says Kukuk. Companies need to talk to their partners about how and when pallets and shipping containers will be returned to them. "For example, do you want them back in a full truckload like you sent them out, or do you want them back in smaller quantities? And if so, are you able to monitor and control that?" he says.
To get that buy-in, Kukuk says, it's important to remind outside partners "what's in it for them." For example, if there are cost savings associated with using reusable pallets or containers, Kukuk recommends finding a way to share those savings with your partners.
If the carrot doesn't work, there's always the stick, according to Kukuk. He reports that some shippers go so far as to charge their suppliers a deposit for the pallet or container, which is refunded to the supplier upon the asset's return.
While you may have less pull with customers that are receiving your pallets and containers, Welcome says suppliers need to work with their retailer customers to remind them that reusable pallets and containers belong to them and that if these assets are lost, it raises costs throughout the entire supply chain.
A NEED FOR MORE SOLUTIONS
Although the problem of pallet and reusable container loss has been around for a while, there seems to be increasing recognition that the industry needs better solutions for stopping the leakage.
Last year, CHEP formed a team to look for opportunities across the supply chain to maintain better control of its pallets. The team is starting to look at such things as how often pallets are being shipped to or from points other than the distribution center or retail store, and what role those points play in their customers' supply chains, says Gormley.
While company-specific programs are good, Welcome emphasizes the necessity of developing industrywide best practices. "There's a growing need for industry to coalesce around a solution, to identify good practices, and to share them with people," he says.
There are signs that's beginning to happen. The Food Marketing Institute, for one, is starting a joint industry effort with food manufacturers, reusable asset manufacturers, and service providers to establish best practices for tracking and retaining assets, evaluate possible technology solutions, and stem theft through both regulatory and legislative efforts as well as educating law enforcement agencies about the problem.
