In our collective push toward greener supply chains, every aspect deserves attention. A critical component often overlooked is the pallet program. At PalletOne, one approach we suggest is a closed-loop pallet system. This strategy, where applicable, transforms your pallet system into a more circular operation, significantly reducing waste and resource consumption while also cutting costs per trip.
Closed-Loop vs. Open-Loop
Remember a few years ago when the prices of new pallets went through the roof? Companies with successful closed-loop systems were significantly insulated. That is because they relied on reuse, purchasing far fewer new pallets than shippers leaning exclusively on new expendable pallets.
A closed-loop pallet system, in contrast to an open-loop system, involves pallets circulating within a specific network or company’s supply chain without entering the broader market. For example, imagine a dairy named Dot’s Dairy (a fictional entity) that uses custom pallets marked with “Dot’s” on the side. These pallets carry milk deliveries, and the empty ones are collected on the next delivery for return to the dairy. Scenarios with regular, predictable deliveries are perfect for implementing a closed-loop system.
This system aims to reuse pallets across multiple shipping cycles exclusively within a company or a closely managed group of partners, enhancing sustainability and efficiency and maintaining control over pallet quality and availability. Conversely, in an open-loop system, pallets are sent to various users with no predefined return path, examples being the 48×40 GMA pallet system or the EPAL system in Europe.
Success Factors for a Successful Closed-Loop Pallet System
Several factors are associated with successful closed-loop pallet systems. Consider the following:
Design collaboration and agreement: In the past, companies have unilaterally initiated pallet return programs without first reaching an agreement with the operations receiving the pallets to return them when empty. As you can imagine, such initiatives can quickly unravel if pallets do not make it back to the shipper.
Involve trading partners and carriers in the project’s design phase to ensure optimal pallet specification and to formalize participation agreements. Many trading partners are immediately motivated to participate fully because such a program offers better pallets. However, financial incentives for return or deposit systems can sometimes be necessary.
Ensure program oversight: A formal agreement is just a starting point. A common problem is a failure to provide ongoing program management. A pallet return program will only work as envisioned if carriers and trading partners work together over the long haul to ensure its success. When other priorities are on the front burner, diverting resources from pallet management can seem tempting. Assign someone with oversight responsibility to address potential issues as they emerge.
Buy better pallets: If pallet quality deteriorates, the value of the closed-loop program can be seriously compromised. Regular inspection and repair activity can ensure that pallets are kept in good condition. Crucially, also take into account the importance of the initial pallet investment. An incremental investment in better pallet quality can result in significantly longer-lived pallets with lower damage incidence. Spending a modest amount more on the pallet can provide a lot lower cost per trip.
Encourage professional pallet handling: Rough handling of pallets can dramatically shorten their useful life. Training and supervision can ensure that pallets are treated in a manner that prolongs their life, such as forklift drivers keeping their forks straight and slowing down to reduce the impact of the tines against the lead boards. When using a pallet jack, ensure complete pallet entry to avoid bottom boards being pried off when lifting. Likewise, pallets should not be slewed across the warehouse floor
Maintain pallet control: You need to know where your pallets are and how to get them back. By tracking shipments to trading partners and returns from them, you can ensure that pallets are returning and take remedial action if necessary. For example, shortfalls in empty pallet returns could signal theft or misuse. Nowadays, several great automated data capture options exist to streamline pallet tracking, making pallet control much easier than in the past.
Things to Consider
While a closed-loop pallet system can be a dramatic sustainability win for your company, several potential pitfalls exist. For example, budgeting is a must. A large initial investment is required compared to purchasing expendable pallets. Other financial strategies can include leasing or collaborative purchase. In some cases, the purchase is made collectively among trading partners, or the company operating the pool may charge a usage fee to the customer.
Logistical challenges are another issue. Factors such as extended shipping distances or low or sporadic volume levels can make reverse logistics uneconomical. Similarly, a distribution center that receives thousands of pallets daily might not be willing to segregate the closed-loop pallet for return.
In summary, proprietary or closed-loop pallet programs can offer significant economic and sustainability benefits for pallet users. However, they require collaborative supply chain planning, investment, and management to overcome the inherent challenges and maximize their potential. If a closed-loop approach sounds interesting to you, why not reach out to PalletOne?
