Thursday, November 3, 2011

Innovation The Consumer And Politicians Do Not See

From Bloomberg', "Ikea’s Paper Pallet Challenges Wood’s Reign" by Ola Kinnander:
Ikea, which uses 10 million pallets to supply its stores with bookcases, pillows and candles, will ditch wood by January in favor of a lighter, thinner, paper-based alternative the Swedish company says will shave 10 percent from transport costs.

“We don’t know if the paper pallet will be the ultimate solution, but it’s better than wood,” said Jeanette Skjelmose, sustainability manager at Ikea’s supply-chain unit. Though made from folded corrugated-card, the design can support a load of 750 kilograms (1,650 pounds), the same as timber, she said.

Assembled from locally sourced card by Ikea’s 1,200 global suppliers, the pallets will be good for a single delivery before being pulped by the retailer. One-third the height of wooden trays at 5 centimeters (2 inches) and 90 percent lighter at 2.5 kilos, they’ll save thousands of truck trips and cut transport bills by 140 million euros ($193 million) a year at a cost of 90 million euros for paper purchases and new forklifts, Ikea says.
A great deal of innovation occurs out of view of consumers and politicians. To the public, innovation is the fancy gadget, such as the IPhone, Kindle, etc. To producers, innovation is anything that speeds up or lowers the cost of the production process, which includes transportation and fuel savings.

Lowering the weight and size of cargo, increases the the number of goods a truck can carry, decreases the number of trips and trucks needed to deliver the cargo and lowers fuel use per unit of goods. It is equivalent to an increase in miles per gallon per unit of goods transported.

Businesses have a profit incentive to increase fuel efficiency, lower cost, per unit of goods, as the IKEA example shows. It is an example of one of the reasons government regulation often does not work. IKEA's pallet example is an example of increasing MPG per unit of goods by lowering weight and number of trips. Yet, it is not seen or understood by the government and environmental regulators as a increase in truck fuel efficiency.

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