World views of Dr. L. Allan Austin

Markets in Transition: Logistics Soup – Trends that Smart Pallet Companies Should Notice
November 9, 2010

Pallet logistics guru Rick LeBlanc covers some of the top trends in logistics and ways that smart pallet companies can take advantage of these industry shifts.

Whether labeled as logistics or not, successful pallet companies pay close attention to the “L” word at every level of their approach to operations and strategy. This month’s column is a logistics soup, some random thoughts on logistics (albeit loosely defined), the pallet business and about how the two are joined at the hip when it comes to propelling pallet companies to the front of the pack.

Logistics as the Competition

Heads up on competition that doesn’t always come from where you anticipate it, or in a form you might not recognize. Any company vying for transport packaging and logistics dollars is a potential competitor. Pallet competition doesn’t just come from other pallet companies. For example, 3rd party logistics companies are moving into the market to provide dock sweeps, repair and retrieval activities. One example of this is found in Ontario, where the massive Exel Logistics now operates a major CHEP facility. The core competency of these companies is not necessarily pallets, but it is in delivering world class transportation and warehousing services, and not to mention making finely honed executive presentations.

Improving your logistics capabilities and IQ is one way that you can fight back to extend into one aspect of the supply chain that keeps on growing. Whether it’s specialized services, such as re-packaging and palletizing items, reverse logistics, third party warehousing, managing returnable asset programs, creating store-ready displays, etc., these functions can be fertile ground for business expansion.

The Logistics of the Ricochet Effect

Ripple or ricochet? The ripple effect is a more predictable chain of events that results from an initial displacement, but the ricochet is less anticipated and can be more shocking in its impact, a shot that surprisingly ricochets and takes out an innocent bystander. What does the success of iGPS in grocery rental have to do with a small pallet company that focuses on custom orders, or say a repair provider for a beverage pallet or a dairy pallet? Perhaps everything!

As iGPS pushes further into the grocery sector, CHEP has indicated recently that it will chase business in other untapped (at least by rental) segments of the pallet and reusable container market. This means more competition in white wood markets. If CHEP succeeds, others may find themselves displaced and again in search of other sales. Where it shakes out, and who ends up with a razor thin order file, is difficult to predict. The best thing one can do is to offer a great value to customers at a price structure that ensures the continued viability of the relationship. It does appear that CHEP will have a difficult task penetrating many white wood customers due to price, pallet size, logistics/inventory, service and other considerations.

Another example of the ricochet effect is the glut of plastic iGPS pallets that have leaked outside of the grocery/retail supply chain. These pallets are starting to be used by a wide variety of shippers, which has caused a reduction in the amount of new plastic pallets being bought by some companies. Instead, it is much cheaper to ship on used iGPS pallets that are sold on the “black market.” While iGPS contends this action is illegal use of its property, it goes on all the time as does the use of CHEP, PECO and other proprietary pallets.

The Impact of Global (and Local) Trade

Supply chain patterns continue to change. Having a good location, such as in Georgia and the Southeast, can help. One just has to pay attention to the Materials Handling Industry of America (MHIA) to realize that the logistics hotspots of the U.S. have shifted. MHIA has eliminated its biannual North American Materials Handling Show, which for many years has been held in Detroit, prior to moving recently to Cleveland. Instead, it is creating a new show, MODEXSM, in Atlanta.

“Over 40% of North American manufacturing and distribution locations are now within a 500 mile radius of Atlanta,” said John Nofsinger, CEO of MHIA, in announcing the show’s launch. “Georgia and the Southeast are also home to extensive intermodal and logistics hubs that drive supply chains now and will continue to in the future. Currently 90% of the global top 25 third party logistics providers (3PLs) have operations in Georgia and more than 48 of the largest retailers have distribution centers in Georgia.”

Jones Lang LaSalle, a major financial and professional services firm, has predicted that as much as 25% of the current West Coast cargo-base will shift to East Coast and Gulf ports over the next decade largely due to the Panama Canal expansion, scheduled for completion in 2014. “We see this to be a major supply chain game-changer and have positioned MODEXSM 2012 as the event that can help exhibitors and attendees capitalize on the new dynamics,” added Nofsinger.

Even locally and regionally, opening of new industrial parks and port improvements can change local lanes, and give pause to review facility location and business relationships. Smart pallet companies will keep an eye on local, regional and national business shifts that can impact the location of your facility compared to potential customers.

Pick the Logistics Winners

Setting aside location geography, some industries are clearly in a boom mode. Logistics is more of a growth industry for some markets over others. The industry leading in the growth of warehousing square footage and distribution employment is the wholesale electronics industry, followed by grocery.

Good customers may come from any number of booming or mature industries, but some industries are experiencing more of an uptick than others, and as such should present greater opportunity.

The Logistics of the Shop Floor

Logistics also plays out in the yard and on the plant floor. Both of these areas need to be optimized. Are your forklifts optimizing their routing to minimize distance traveled with materials and finished goods? Are your plant workers executing their tasks with the minimal amount of steps and touches?

Across the logistics landscape, time and motion studies have returned in the form of lean logistics practices. For a grocery distribution center order selector, every extra step, or every extra touch of a case is deemed as waste within the discipline of lean logistics. Exactly how many steps to take, where to place the box, and which side of the pallet jack to step upon are increasingly carefully orchestrated to eliminate wasted effort. Can you afford to be any less analytical when it comes to optimizing the motions of your personnel to get the work done as effectively as possible?

The Pallet Enterprise is carrying a series of articles on lean manufacturing best practices. Make sure to read these articles and consider working with lean thinking experts from universities, such as Virginia Tech. Read the article on page 34 to find out more.

Cloud Computing

When it comes to optimizing business processes, the use of specific software can pay off in terms of stream lining operations, procurement, billing, inventory control, yard management and so on. One of the challenges for mid-to-small size companies in the past has been cost-justification of software to make it worth the investment.

Now enter cloud computing, which allows smaller and mid-sized businesses to take advantage of more modestly priced Internet-based solutions based largely on a pay per use model. Companies can tap into the Internet “cloud” to access the solution and increase to scale as needed.

Smaller businesses will be able to enjoy the same type of support as larger companies, without taking a hit because of lower volume. In the logistics sector, for example, smaller operations are now taking advantage of cloud based supply chain software.

In the final analysis, logistics matters, and figuring out how to shorten your learning curve towards fully understanding it can improve your busines

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