What Are the Risks of Pooled Distribution?

Business owners are faced with making difficult decisions daily. From choosing new vendors to creating new products for their consumers, business owners and managers have their hands full.

In the end, these decisions are made by weighing the risks with the benefits. Such is the case in the logistics world.

Shippers today simply can’t afford to be wrong as customers are becoming less accepting of shipping errors. And one shipping mode that takes a lot of flack for being the riskiest is that of pooled distribution.

However, for those who know how to make good use of this transportation mode, it holds quite a lot of benefits. But just as with any other major change in operations, to make an informed decision you need to weigh the benefits against the risks.

While there are a lot of blogs and information on the internet about the benefits of pooled distribution, info on the risks is sparse.

So, in an effort to provide some transparency, we’ve compiled this list of potential risks associated with pooled distribution. This way you have a better idea of what to expect and determine if pooled distribution is the best strategy for your own supply chain.

What is Pooled Distribution?

Have you ever heard of the co-op concept in farming?

Well, the pooled distribution shipping concept is quite similar. However, instead of investing cash or commodities into shared resources with partners, you’re simply sharing space in a shipping container.

The pooled distribution platform is basically the process of combining several, independent LTL shipments into a single truckload shipment. This truckload is then distributed, one shipment at a time, until it reaches the final destination. The concept also works with receiving products, where multiple companies or individuals in the same city or geographic areas will pool their resources to receive products and materials.

Let’s provide a practical example for reference...

Across the United States, there are nearly 37,000 car dealerships in service. These dealerships are separated into privately owned and franchised. Those dealerships that are franchised often receive parts shipped via a pooled distribution platform. Each dealership sends in an order for warehoused parts for the primary brand will have a distribution warehouse that sets up deliveries to all the dealerships in a geographic area in one truck.

The concept is quite efficient, huh?

Well, imagine if those independent car dealerships could do the same instead of setting up individual shipments? By pooling their resources, they are able to save money on shipping (as a group), reduce delivery times (by combining the packages into one shipment) and reduce various shipping errors.

What are the Risks Associated with Pooled Distribution?

Like any other logistics platform, the pooled distribution concept has a few risks that come along with it. As always, it is a wise idea to have some basic knowledge about the potential pitfalls of any shipping mode you plan to utilize.

Below, we have compiled a list of the top 3 pooled distribution risks to keep in mind.

Reduced Shipping Flexibility

Anytime you partner with others, flexibility goes out the window. Pooled distribution us the epitome of this problem.

The pooled concept depends on the cooperation of multiple stakeholders. Furthermore, they all have to accept that their shipping flexibility, especially with regards to pick-up times, is going to be more difficult to navigate.

For example, if your pallets of products are headed to Denver with other locally-based companies shipping to the same destination, make sure to prepare the shipment well in advance. This is to ensure that any potential delays are not further compounded.

If orders are canceled, be as proactive as possible about contacting the carrier so different freight can be picked-up instead.

Finding Compatible Partners

Another potential risk associated with pooled distribution is locating suitable locally-based partners. Even with the above independent car dealership example, it can be tricky to locate like-minded partners who are willing to work together to pool their LTL shipments. Some local business owners consider working with competitors a bad business decision.

Meanwhile, others simply don’t want to deal with the partnership at all.

Locating Suitable Carriers

The final risk to activating an effective pooled distribution platform is locating the right carriers to agree to this concept. Some LTL carriers don’t want to get involved with the frustration or multiple-stop concept of pooled distribution. Others simply see it as a poor financial decision. In the end, if the local group doesn’t have the right carriers to move their pooled shipments, it becomes a rather moot point.

Final Thoughts

One way to avoid all the risks of pooled distribution is to work with a 3PL.

An established 3PL like Redwood Logistics deals with all of these risks and creates plans to minimize the challenges. They maintain solid relationships with carriers who see pooled distribution as an opportunity for growth and continued business. They can also locate local businesses that see the benefits associated with pooled distribution.

If you’d like to learn more about how your business can benefit by implementing a pooled distribution network, reach out to Redwood Logistics today.