This post originally ran on February 27, 2012.
Container and pallet deposits can be an extremely effective tool in promoting timely return of reusable packaging. Recently there has been a very good discussion about pallet and container deposit charges at the Pallet Security, Returnable Assets Management & Pallet Control group at Linked In.
Here is a quick summary of the reusable packaging deposit issue:
Terry Costigan of Equipment Management Solutions Ltd. cautions the need to have an agreement in place with the retail receiver against over return, so that an overly zealous trading partner does not use the return mechanism as a revenue stream.
Gary Hudson of Returnable Packaging Services Ltd. observes that “Whether a deposit is applied or ownership retained the key steps to successful recovery are (a) clear statement that you intend to recovery your assets (b) take a pro-active approach to recover those assets and (c) measure and share the recovery performance with individual customer collection points.”
Danilo Oliynik of Linpac Materials Handling notes that different companies have different motives and different approaches to asset management. For example, motives may include container loss avoidance, increased efficiencies or revenue generation.
Angus Wolfendale of Foxwood Business Services weighted in with overview of considerations for a deposit system for reusable packaging:
Deposits can be used by pool operators for a number of reasons:
• To create a rapid positive cash flow for the pool-operator to fund the purchase of RTP (A major UK retailer did this when they setup their crate pool in the UK)
• To ensure the costs of RTP were protected should a customer not return the equipment.
• Believed to be a disincentive to retention, because the customer does not get a refund until they return or onward transfer the RTP.
Deposits are not popular because the customer incurs a significant negative cash flow impact when first entering the pool. This is particularly so for smaller customers, resulting in a competitive disadvantage. Although customers receive subsequent credits, these are offset by the hiring of more replacement RTP.
Once the initial impact of the deposit has been felt, the on-going costs of RTP operations are not so critical and the deposit loses its deterrent effect on RTP retention.
Customers can also be concerned about getting their deposits back should they choose to exit the pool or if the pool-operator goes into liquidation. Similarly, the pool-operator must maintain the deposits as liquid funds should customers no longer require the RTP. A customer exiting the pool could result in a significant and rapid withdrawal on these funds. Deposit funds cannot be used for other purposes, even if there is a belief that they relate to lost items because there is always the risk that the RTP are subsequently found, returned to the pool operator and a refund demanded. R
Refunds are usually a lessor amount so the customer is charged the net difference to reflect the use of the RTP. A robust administration system is required in order to administer a Deposit & Refund charging system, especially as the Pool Operator is holding its customer’s money and the “client account” in which the funds are held must be fully auditable.
Our Cloud application – “Kontrol” (www.kontrol.com) – enables you to easily manage a deposit and refund system, with customers being able to see the charges they have incurred as and when equipment is transferred between supply-chain locations. It also handles other charging methods, intelligently controls stock levels and generates invoices. If you would like further information and assistance, please do contact us. +44 (0)1584 891629 or enquiries@kontrol.com
Also Read: Deposit Systems Promote Recycling and Returnable Pallet Return
Having managed a returnablable packaging company for ten years utilising deposits it has numerous advantages and disadvantages. The negative cashflow implications were mitigated by the use of a specifically written program to transfer the “ownership” from the pool owner to the grower or user then to the next party and so forth. The party returning the equipment also recieved the final transferable credit. We allowed for a % of never to come back items and hence after five years took that depsoit money to profit. If you need any information or need any further help I am willing to assist