Mundane Innovation: from stringers to block pallets

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Below is a link to a 17 minute podcast from NPR Planet money on the CHEP blue pallets.

The podcast describes how CHEP developed a more expensive but easier-to-use pallet, and then developed an alternative business model to persuade companies to adopt their pallets. Traditionally pallets were produced by small firms selling low-cost pallets to users. The podcast argues that CHEP realised that selling more expensive but higher quality pallets would be difficult, so entered the market by renting their pallets to users. The innovation in pallet design was small, but this was a major business model innovation, leading to a radical restructuring of the industry, with the growth of large national pallet rental firms, notably CHEP, and the decline of tradional local pallet manufacturers.

A comment from Michael Finke on the NPR website shows how business model innovation can have unintended consequences: “The ugly truth about the CHEP business model: While they’ve improved a lot of the logistics problems here in Australia, and increasingly in other countries, there is a downside. If you think about the logical conclusion to these three facts: The pallets are indistinguishable; you are paying rent on them for as long as they are officially “under your control”; pallets go missing “into the wild” so regularly that Brambles has large numbers of employees hunting them down, there is a conclusion you will be drawn to. Many people with CHEP contracts will be paying a daily rent on pallets they no longer possess. True story: A friend of mine took over a warehousing job at a Melbourne company. An initial inventory check showed he was short over two thousand CHEP pallets. He approached his boss and was told the two options were to keep paying the eight cents a day per pallet, or to write a check for a hundred thousand dollars to get them off the books. They kept paying the rent. Just keep this in mind when asked if you want to sign up. How good is your stock control?

Whenever CHEP are successful in recapturing a wild pallet, it can be rented out to somebody else. I can think of no other business where it is possible to rent the same object to multiple people simultaneously.”

There is further background on the restructuring of the pallet industry in an article highlighted by Planet Money, Whitewood Under Seige by Jacob Hodes in Cabinet Magazine, Issue 52, Winter 2013/14, and in an article from 2010 from Pallet Enterprise on the history of CHEP in the US: CHEP USA Turns 20: Pallet Pooler Makes Indelible Mark on Industry, Demonstrates Path for Future Transformation

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