Are Reusables Really So…HARD TO HOLD? (Part 2)

To review the first installment od our report on reusable container and pallet theft, click here. The feature continues below.

The Importance of Pallet and Container Management in Reducing Loss

While theft was found to be at the heart of pallet and container loss for the collaborating Baltimore companies, others believe that poor management practice is really the root cause of pallet and container loss. “Theft is what everyone likes to blame it on, but actually it is abandonment,” offered one plastic container company executive, speaking off the record. “Containers end up being discarded. They end up being thrown away.”

This point of view is supported by research done by Rehrig Pacific and some of its customers. In conjunction with certain clients, it hired private investigators to check out losses in a number of major cities. It determined that generally speaking, only about 5% of loss can be attributed to theft, in spite of a major discovery of related criminal activity in the Los Angeles area.

For customers forced to store reusable pallets and containers in the alley or exposed outside their building, they might say that they have no other storage options, and as such they are vulnerable to theft. One pallet recycler asked me rhetorically however, why anyone would leave a $100 bill laying on the sidewalk. Mismanagement, he said, case closed.

“Just think about the general economics of someone driving around in a van, picking up containers at locations, and then driving that over to a recycler,” reflected Brian Linndell of Rehrig Pacific, a leading manufacturer of reusable containers and plastic pallets. “You can’t get that many of those things in a van. And these theft rings are not backing up tractor trailers at convenience stores.”

Pallet and Container Management Important, But Often Not a Top Action Item

Brian and other reusable packaging sales people have found in talking to customers that pallet and container loss is a concern, but typically not a top priority. “It is low on the grand scheme of things,” Brian remarked. “If they have 50 priorities, it would be in the bottom half of these.”

Because there are typically more urgent matters at hand that sap available management resources, asset loss remains a nagging issue. This observation is at least indirectly supported by research done by the Packaging Machinery Manufacturer’s Institute (PMMI). In its recent report, “Dairy Industry Market Research Study 2009,” the top obstacles in the year ahead for the $50 billion dairy industry were identified. While the top obstacles received as many as 15 mentions, the obstacle of getting cases and pallets back from trading partners received a mention from just a single dairy.

Organizing Pallet Management Responsibility Within and Among Organizations

In addition to organizations facing more urgent problems than pallet and container management, an ineffective accountability process can also work against effective control.” What we find is that the operations group is responsible for buying and owning the asset while it is the sales group that is responsible for moving it into customers and retrieving,” Brian explained. “Sales only has indirect accountability. Operations needs them and they know when they need them, but sales should have some kind of ownership so they feel the pain if they don’t get them back.”

This point of view is echoed by Eric Swanson of Orbis, who emphasizes the different roles within organizations in minimizing reusable packaging replacement costs, and that different priorities can mean that the stewardship of packaging may not necessarily get the attention it deserves. “The budgets for primary logistics functions, such as transportation, are typically significantly greater than packaging budgets; therefore the focus of managers in these groups is on elements that have the largest financial impact on their respective budgets,” Eric stated. “In short, packaging generally takes a back seat to larger front-end supply chain issues.”

“Organizations that integrate departments or align goals between logistics and packaging, while encouraging cross-functional collaboration when planning and designing the packaging program will ultimately have more successful container management programs,” Eric added. Orbis offers container management services for companies wishing to outsource the pallet and container management function.

Brian emphasized that that leading reusable pallet and container manufacturers such as Rehrig Pacific encourage their customers to develop effective asset management practices. “Contrary to popular belief, Rehrig does not want our customers to be buying crates and baskets because they are losing them,” he said. “That’s bad for our business. Long term it is not good if a customer loses confidence. It may make him decide to get out of reusables altogether. Our message is that you can control your losses and put more products in returnables.” Rehrig Pacific’s goal is for customers to optimize their use of reusable packaging and expand usage.”

“About five years ago Rehrig Pacific decided that container loss was potentially going to hurt our business,” Brian said. With this in mind, the company started an internal container management group to help customers with respect to container management, emphasizing such necessities as awareness, communication, education, tracking, and accountability. Brian stated that Rehrig offers the service to customers as cost. “We just ask them to pay our expenses, so we know they are serious.”

Rehrig Pacific has had good success in working with one dairy to manage its crate losses. “A couple of years ago the dairy admitted having problems and was looking at going to a cheaper crate. We said, ‘Look, we have a program we can offer you, so you can buy a good crate, and you can control your losses and save money.’ They implemented last year, and at the end of the the first full year, their crate purchases were down 30%, while their volume was up. They are ecstatic about the results.”

One of the members of the Rehrig asset management team was a delivery driver for Coca Cola for 10 years, before going into management with soft drink giant. “He definitely understands how it works, and it has been very helpful for us in establishing credibility with customers,” Brian stated.

Packaging managers can influence logistics by educating their respective organizations on the true cost of reusable containers,” Eric pointed out. “Up to 80% of the cost of a reusable container is spent in managing and returning the asset over its usable life.”

Therefore, Eric added, packaging design and how it is managed long-term can have a large impact on the efficiency of the greater supply chain. With a focus on sustainability, it is critical to maximize the number of trips that a container and pallet makes over its service life.

“What we’ve found is the most critical aspect of an asset management program is that you have to have the senior management buy-in,” Brian summarized. “We have to get buy in from the top down when we go in to do a program. If they say yes, then you know you are going to get the support you need to succeed. It’s not rocket science. What it is, is creating awareness both internally and externally to the problem at hand – a problem that with proper tracking and management can be resolved quite easily.”

In a future instalment, we will look at basic steps companies can take to help improve control.

Click here to read Hard to Hold Part 1.

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