Control, the art of pallet pooling.

 

John Stuart, owner of the Melbourne based consultancy firm Pallet Loss Prevention Pty Ltd, fittingly summarizes the problem related to pallet pool management in the Australian market that can be easily applied everywhere:

Pallets are like a black art. People don’t understand how easy it is to lose pallets. When you lose pallets, someone keeps on paying and paying in the hope they will get them back, and they don’t”

Whoever assumes the financial risk for pallet loss, pooler or customer, as this will vary from market to market, choosing an US$ 18.00 wood asset over a US$ 45.00 plastic one, for example, in light of the above is not a difficult one for any Financial Director.

But as we have seen in the Japan Pallet Rental (JPR) article, The Holy Grail of Plastic Pallet Pooling, it is possible to get an almost zero loss rate across tens of millions of pallet movements, suggesting that creating the right control environment material choice is irrelevant. The decision for either, wood or plastic, would be motivated by the degree of operational complexity you want for your business.

Whilst the demand for plastic pallets in Japan was primarily customer driven. JPR in addressing that need may have inadvertently reduced a significant portion of the direct cost structure normally related to supporting a wooden pallet pool. Something that Svenska in Sweden and NLP in Norway may also be benefiting from, combining the operational wash processes of their plastic pallets and RPC’s under the same roof.

This would be a topic for a later article.

There are hundreds of variables and factors to consider when selecting the right material for your pallet pool, based on my experience, it invariably comes down to two key critical elements namely:

  1. Understanding your customers total end to end route to market
  2. Understanding the impact of asset turns and it how affects your total business

In this article I will focus on the first element and discuss the second in a follow up post.

  1. Understanding your customers total end to end route to market

The responsibility, pooler or customer, for pallet recovery from the end of any supply chain will vary from market to market depending on what business models are in play.

However, when the onus is on the pooler, the success of any recovery program comes down to how well you know your customers’ total supply chain and how well you are operationally positioned to support it. With the right data sets and scenario planning tools you have the ability to simulate multiple scenarios. This is incredibly powerful in determining how to position and price your solution against the alternatives available in the market.

Starting at the end of a customers supply chain and reverse mapping all flows to the point of origin I believe is too often a neglected part of the typical sales process. Emphasis directed at securing the points of production (Revenue) whilst the same attention is not given to the points of consumption (Control & Risk).

I opinion that this was one of the contributing reasons for iGPS’s failure. Their primary focus directed at converting manufacturing customers and not fully understanding the reverse logistics complexity, cost and risks that came with winning them.

“JPR, I believe fully appreciates the importance of control ratios. How they directly impact overall cycle time, that in turn determines number of asset turns which dictates pay back period.”

Having an intimate and detailed understanding of your targeted markets entire supply chain from the beginning is critical to the future success of any returnable packaging solution, pooled or non-pooled.

Knowing what are the total number of ship to locations and where are they relative to the initial points of issue, will provide context as what kind of transport and asset management network needs to be resourced and developed. This also provides insight into where to position your plants or consolidation centers.

Knowing what is the level of cooperation at the end of the supply chain related to pallet management & control will provide perspective where the risk of loss lies & what strategies you could devise to either enhance cooperation or mitigate risk.

Clearly understanding the unit and aggregate costs of the above will assist your decision for which material to invest in. This will influence the type of operation and infrastructure you would need to invest in to support that material choice.

Written by Gavin Keen – GLS Strategy Executive

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