Could something as simple as pallets be holding your supply chain back from the next level of efficiency?
The need for excellence in logistics performance has never been greater. In today's competitive economic environment, no less than corporate survival is at stake. Speed, reliability and cost are equally critical performance criteria that drive logistics executives every day in their quest to be successful.
Much energy has been focused in recent years on the application of information technology to improve logistics performance. In the late 1990s it was the Y2K enterprise resource planning (ERP) craze, then came the dot-com B2B hype, then came trading exchanges, and now all the collaboration software tools. This focus of attention and resources on information technology solutions has contributed to a lack of progress in improving the physical distribution aspects of logistics processes. One such area is materials handling, and specifically pallets.
Pallets have been the tool of choice for materials handling of goods in a wide array of industry supply chains for many years. The book Pallets: A North American Perspective, by Rick LeBlanc and Stewart Richardson, published in August, 2003, gives a comprehensive overview of the history of pallets, and some interesting perspective on current issues and future trends. A significant point made in the book is that the development of the palletized unit load years ago resulted in dramatic productivity gains in materials handling. However, as is always the case in a competitive business environment, the question is what have you done for me lately?
The Pallet Dilemma
The productivity value impact of pallets applies to two basic areas of operations: internal materials handling and the movement of goods between trading partners. Standardization of pallet design contributes to effective materials handling between trading partners, as well as efficient application of automation throughout various supply chains. These dynamics have led to the development and widespread use of standardized pallet designs.
One such standard is the Grocery Manufacturers of America (GMA) 48x 40, four-way pallet used throughout the food and consumer products supply chains in the domestic United States. A pallet built to the GMA guideline specifications has significant load-bearing capabilities, is rackable, reusable and repairable, resulting in a relatively long life cycle. It also comes with a substantial price tag, and as a result is a valuable asset requiring effective management and control processes.
Unfortunately, trading partners in the grocery and other supply chains that have adopted the GMA pallet standard have struggled mightily with the charge of managing this asset across company boundaries. This is the pallet dilemma.
Managing the Pallet Asset
The management process adopted by most food and consumer products supply chains in the domestic United States with the advent of the GMA pallet was pallet exchange. Simply put, as product is delivered on pallets, empty pallets are exchanged for the pallets under load. Receiving docks are expected to have empty pallets of like design in good condition readily available for the truck driver to take, which the driver can then exchange when he picks up his next palletized shipment. This process allows for the sharing of the life cycle value of the pallet among trading partners that use the pallet in their operations.
As everyone knows who has experience with pallet exchange, the process is difficult to administer and creates an adversarial environment that strains relationships between trading partners, and carriers have been stuck squarely in the middle. This process has become a significant cost issue for trucking companies, and as a result freight costs have increased. Pallet exchange costs have become so significant for many carriers that they have had to take extreme measures to deal with the situation. Many carriers have resorted to charging pallet exchange fees, and some are declining business that requires pallet exchange.