The triple bottom line justification for reusable container and pallet usage in many applications is compelling, but potential buyers can struggle with the best way to move forward with reusables. At the end of the day, sometimes it comes down to love.
For one new www.packagingrevolution.net reader, the solution was straight forward. In his closed loop environment, one where reusable totes were captive in the supply chain and returned to the original container filler for reuse, purchase was the obvious best solution. In such a consumer goods application, flap nest totes typically will be owned by the distributor. Goods are delivered to retail outlets, with empties nested for cost-effective return to the distribution center.
The distributor or assembly plant in addition will often receive product or parts in reusable containers owned by the supplier, whether due to the supplier’s way of doing business, or through mandate to the supplier. In this respect a distributor or retailer may enjoy the functionality of reusable containers without taking ownership of them. We see this type of arrangement every day as empty plastic bakery trays and milk trays stack up at retail locations awaiting return.
Reusable pallet and container rental is another potential approach for supply chain decision makers. As such, the container will be rented from the provider for a specific delivery or trip, or may be rented on an ongoing basis. This raises the debate as to whether it is more cost effective to own reusable packaging, or to rent. We often hear comments about reusable packaging users leaving money on the table by choosing to rent rather than buy. But it comes down to time and effort in managing containers, when it is not your core business.
The case for ownership isn’t always clear. We can see two similar types of businesses go in either direction. Coles, a large grocery retailer in Australia (see discussion in RPA Annual Conference notes), chose to develop a proprietary reusable plastic container pool for produce, reporting savings of $70 million per year, while a key competitor, Woolworth’s elected to go with a rental crate solution from CHEP. Recently we featured two European applications that also took divergent paths. Netto, a Scandinavian grocery retailer, chose to purchase reusable plastic produce containers, while Pack & Sea a northern European fishing industry consortium, has gone the route of a rental program for its reusable crates.
The commonly touted benefits of rental include the elimination of capital investment and in some cases the repatriation of capital where the rental company purchases existing containers such as beer kegs from the user as part of the program. One-way rental programs can provide better transport vehicle utilization (full load returns of empties), and flexibility to increase or decrease inventory as needed rather than carrying the maximum, as would be the case for container owners. The detractors of rental argue that the rental companies extract a profit that proprietary programs would enjoy as a cost reduction, and that replacement charges for lost assets can be an unpleasant surprise.
One rule of thumb about performing a function in-house versus outsourcing it, i.e., rental, is that one must have minimum efficient scale to be competitive. For example, while wooden pallet repair was often undertaken by pallet users prior to the 1980s, it subsequently became less common. Pallet recycling companies, through investment in automation and high volumes, could perform the work much more inexpensively. Likewise, the cost of sophisticated container wash lines, tracking software, and other items where applicable may make rental seem more attractive. And as logistics networks become increasingly complex, the logistical and management hurdles of container ownership can be overpowering for many.
One of the common arguments for rental in such complex environments is that program management is a distracting non-core activity that can be more effectively addressed by the rental provider. The opportunity cost of managing reusables can be perceived as too great, even though there would be an attractive benefit in container loss reduction, or other supply chain efficiency improvements. This argument is not a show stopper for all, however. A number of companies operate extremely successful proprietary reusable container systems in some definitely complex networks.
One variation on the ownership approach is to hire a management company to manage your reusable packaging assets on the container owner’s behalf. This may range from total national program management, including procurement, tracking and logistics, or site specific or function specific services.
Leasing of reusables is another option that eliminates capital outlay, while allowing the user to enjoy the other benefits of a proprietary system.
To summarize, reusable packaging ownership typically works best in closed loops and less complex networks. Third party management and rental become increasingly attractive in more complex networks. Rental or lease options allow the reusable packaging decision maker to avoid capital outlay. And at the end of the day, however, we see comparable companies make opposing decisions about whether to own or rent, and often both achieve success and contentment. More often than not, it all comes down to passion.
February 2010, updated February 2013