Now you may think of Ikea as just some oak and some pine and a handful of Norsemen selling furniture for college kids and divorced men, but Businessweek reports that they are also logistics innovators (Ikea’s Challenge to the Wooden Shipping Pallet, Nov 23). Specifically, they are looking to replace wood pallets with cardboard ones.
Ikea, which uses 10 million pallets to ship goods from suppliers to its 287 stores in 26 countries, will ditch wood worldwide by January, cutting transport costs by 10 percent. The new corrugated cardboard design can support loads of 750 kilograms (1,650 pounds), the same as timber, Skjelmose says. At two inches high, the paper pallets are one-third the height of wooden ones, and they’re 90 percent lighter, at 5.5 pounds. The svelte profile means Ikea can cram more goods into each shipment. The pallets, assembled onsite by most of Ikea’s 1,200 global suppliers, will be used only once before being recycled.
To make obvious joke, the article is silent on whether assembling the pallets requires an allen wrench or wooden pegs.
What do the Norsemen hope to get out of this? Significant savings in shipping.
The company expects to cut its transport bills by €140 million ($193 million) a year, although it will likely spend €90 million annually on paper and new forklifts to handle the slimmer pallets. “We hope this will be a start in making transportation systems smarter and freight as compact as possible,” Skjelmose says.
Now there are some skeptics out there, at least among those who could be described as entrenched-pallet interests (i.e., people who rent standard pallets for a living). They point out that cardboard won’t stand up to bad weather as well as wood and wonder whether they can hold as heavy a load.
Some of these concerns seem misplaced. Ikea, for example, does not sell cinder blocks or other things one would leave outside. Furniture and housewares are going to be kept sheltered and exposed to little or no bad weather.
I also think this works well for Ikea since they have basically a one-way flow of goods. The article reports that pallets are typically rented. That means there has to be some circulation of pallets. This is not per se a problem if a facility both receives items on pallets and ships them out that way. That isn’t going to be true at an Ikea store. Sure, Nyvoll dressers arrive flat-packed on pallets but they are going to leave one at a time in customer’s cars. Traditional pallets would then accumulate at stores and would either have to be destroyed or repositioned. Cardboard pallets address this problem since there is an existing means to recycle them.
Finally, this brings up an interesting sustainability trade off. On the one hand, these things are only used once as opposed to many times for a traditional pallet. On the other hand, they use less material, facilitate more efficient shipping, and avoid wasteful repositioning. That may well throw the balance toward cardboard pallets both in terms of cost and carbon footprint.
[...] Ikea as supply-chain innovators « The Operations Room [...]
‘de massing’ the supply chain, as IKEA has done in this wood-to-paper pallet conversion, is certainly more strategic than many other sustainability initiatives manufacturers and retailers have talked about or implemented (e.g. skylights in warehouses.) Although plastic pallets are rather incongruent with the IKEA brand image, it would be interesting to do the math on wood vs. paper vs. recycled plastic pallets. Capital cost of production and supply for each type, capital cost of a pallet exchange or perhaps an collaborative multi-enterprise pool for the wood or plastic type, plus carbon and water consumption figures for each–multiplied by the ‘fleet’ size. My counter-intuitive guess is that recycled plastic would come out on top.
In the long run, however, producing only what consumers want to buy where they want to buy it is the most powerful sustainability strategy. Ambitious, yes, but optimization to this degree is feasible. Some of the big ‘make to stock’ companies in the fast-moving consumer products sector are doing this now (Unilever, P&G, Kimberly-Clark, etc.). It takes the right data (daily data at the item/base code level from source to sale), the right tools (predictive algorithms in an automated environment with capacity to analyze daily data overnight), and an ‘agile’ organization/network. In the age of ‘Big Data’, the tools exist to marry the precision of make-to-order with the economy of scale of make-to-stock. The question is whether organizations (and their S&OP infrastructure) is able to flex enough to take advantage of them.
Imagine the cascade of savings if IKEA were able to first ‘sense’ demand quickly enough to adjust supply chain planning and execution and then ‘shape’ demand with its marketing prowess. IKEA’s scale and control over production and retail merchandising affords a unique opportunity. They would create a supply chain ecosystem that would permanently eliminate a carbon/water/capital capture upstream, downstream and sidestream (logistics service providers, etc.)–dwarfing the touted transportation logistics efficiency of being able to spend less on pallets and pack more revenue per pound on every truck/container shipped. Less is more.
If you’re interested, here are links to relevant discussions:
http://www.dmass.net
http://www.terratechnology.com/sustainability
Clearly you haven’t worked in a warehouse. Pallets accumluate and are shipped back _by the same trucks that bring in the goods_ – they then get reused.
They certainly don’t: “…accumulate at stores and would either have to be destroyed or repositioned.”
There are also plastic pallets in use today that get a lot of repeated use as well. And, wooden pallets dont’ have that big of an environmetal impact – if we stop using them the scrap lumber that they come from will just sit around and go to waste. Finally, I see nothing here about any carbon footprint analysis. Maybe they did one (rare in today’s world believe it or not), but more likely IKEA is using this a PR play.
[...] Innovating toward sustainability: addressing sustainability further upstream – at the level of product and components design – can lead to an improved sustainability as well as costs savings. A good example for that is the case of Ikea: they are looking to replace wood pallets with cardboard ones. The company expects to reduce its carbon footprint and cut its transport bills by 140 million Euro a year (look at this recent post). [...]
[...] Innovating toward sustainability: addressing sustainability further upstream – at the level of product and components design – can lead to an improved sustainability as well as costs savings. A good example for that is the case of Ikea: they are looking to replace wood pallets with cardboard ones. The company expects to reduce its carbon footprint and cut its transport bills by 140 million Euro a year (look at this recent post). [...]