Getting the most from your own pallet pool

As manufacturers and shippers look for ways to get the most from their pallet budgets, they are increasingly looking at recycling and reusing a pool of pallets.

One way to do this is to simply rent pallets from one of the established pallet poolers, like CHEP, Peco or iGPS. They will be responsible for retrieving, repairing and redistributing their pallets. You just need to make sure they don’t wander off through shrinkage and are in a place where they can be picked up. However, according to our pallet survey, only 34% of Modern readers who are participating in a pallet pool are working with one of those third parties. The rest are managing their own pool of recycled pallets.

While some pallet users use their own facilities, labor and resources, many work with a third party pallet management company. The reasons are the same as working with any other 3PL (third party logistics provider), like a public warehouse, third-party order fulfillment provider or a 3PL transportation provider: core competency. “We handle about 200 million pallets a year,” says Mike Hachtman, senior vice president of sales and business development for IFCO Systems. “We’re just more efficient at it than a manufacturer or distributor that doesn’t have employees dedicated to pallet management.”

In addition to core competency, turning pallet management duties over to a third party also frees up valuable space for manufacturing and distribution rather than pallet storage. “When a retailer or manufacturer decides to repair pallets on their own, they end up creating pallet world on their back dock,” says Steve Curci, manager of reverse logistics services for Rehrig Penn Logistics, a subsidiary or Rehrig Pacific. “They need space to store and repair their pallets and they have to segregate proprietary pallets, like those from iGPS, CHEP and Peco.” That’s space that can be put to better use.

Regardless of whether your company decides to repair your own pallets or work with a 3PL, there are four key components to a successful pallet management program, according to Hachtman and Curci.

Pallet recovery: The first step is to create a process to collect empty pallets. That may happen at a manufacturing plant that receives raw materials, components and parts on pallets; or it may happen at a retail distribution center or retail store. Some users will segregate pallets on the back dock for pick up by a proprietary pallet pooler and load the remaining pallets into a trailer in a dock location. Others may have someone on site, say at a manufacturing location, who can identify pallets that are the right size and in a suitable condition to be used as is by the manufacturer to ship their end products. The remaining pallets will go into a trailer.

Pallet sortation: Once pallets have been recovered, they’re shipped to a pallet repair and logistics area. That could be space put aside for that purpose in a plant or DC; or, in the case of a pallet management company, at a separate facility set up just for that purpose. There, pallets are going to be sorted, segregated and counted. First, pooled pallets will be sorted out for return to iGPS, CHEP or Peco. The remaining pallets will be sorted and counted according to size and according to whether they’re in good or bad condition. Good pallets are those that can be reintroduced right back into the supply chain without any repairs. A bad pallet will have to be repaired, or, if it’s beyond repair, will be broken down into its component parts. Those salvaged deck boards and stringers can be used to repair other pallets.

Pallet accounting: Getting an accurate count during the sortation process is important for three reasons. First, pallet poolers may charge for pallets that have been lost or stolen. Knowing what you have and when you received it will minimize pallet pooling costs. Second, many companies charge for pallets shipped to their customers and then credit them when the pallets are returned. Getting an accurate count results in more accurate and timely billing and can reduce billing disputes. Finally, companies with their own pallet pools still buy new pallets to replenish their pools as they are depleted. Having an accurate count of what pallets are available in the pool, and where they are located, is going to reduce the amount a shipper spends on new pallets.

Pallet repair and salvage: Once pallets have been sorted, the next step is to repair the pallets to a No. 1 or No. 2 standard. Repairing a pallet to a No. 1 standard involves the replacement of any broken stringers. A No. 2 pallet can be repaired by adding a companion stringer, or part of a stringer, to strengthen the broken stringer. Any pallets that can’t be repaired will be broken down into their component parts. Useable deck boards and stringers will be used to repair pallets. Any component that can’t be used will go into a scrap trailer and be delivered to a grinding operation or a certified recycling center where it will be turned into mulch, animal bedding or biofuel. Some retailers require their recycler to keep track of the amount of wood waste sent out of their facility as part of their corporate sustainability initiatives.

Pallet redistribution: Repaired pallets will either go into inventory to be put back into circulation later or sold to other companies looking for pallets, or they will go into designated trailers to be delivered back to a retailer or manufacturer or to another customer.

Final accounting: Maintaining an accurate count of the repaired pallets is another key component of a successful pallet management company. In addition to reducing the number of new pallets required to replenish a pool, pallet usage can be tracked to identify areas of improvement in the supply chain. “If you have two facilities of the same size, shipping the same volume of product, you should have the same pallet usage,” says IFCO’s Hachtman. “A gap in pallet usage between two facilities may indicate an opportunity to improve operations and further reduce costs.”

Want to learn more about pallets? Join pallet experts as they put context behind the findings of Modern’s 2010 Pallet Usage and Trending Study Webcast on October 28, 2010 at 2 pm ET.