Shipping Pallets: Costco says a better pallet really is, well, better

Laszlo Horvath, the new director of the Center For Unit Load Design at Virginia Tech, has an interesting observation about pallet users.

Most end users pay attention to the design of their pallet after they have problems. Earlier this year, Costco Wholesale turned that model on its head, revamping its pallet spec to improve operations and avoid problems. Since January 11, Costco has only received merchandise from suppliers on block pallets – and most of those are rental pallets from CHEP, PECO or iGPS.

How’s it working out? To find out, I talked to John Thelan, Costco’s senior vice president for depots and traffic.

The catalyst for the new spec was in part driven by the quality of some pallets Costco was receiving from suppliers. For the most part, Costco does not store products in pallet racks in warehouses: instead, it cross-docks merchandise directly from depots to its stores, where pallets are stored in pallet racks. It’s bad enough if a pallet fails and comes crashing down in a warehouse. It’s another thing entirely if a pallet fails in the middle of a crowded aisle in a warehouse store. Costco wanted to avoid that issue.

“When you’re walking through a Costco store, and all our product is up on steel racks, you want a safe pallet,” Thelan said. “We felt that the stringer pallet world had deteriorated and we were concerned with a less than perfect board finding its way through our system. In our opinion, block pallets are more durable than a stringer board.”

There was another reason for going to a block pallet design similar to the pallets used by the big three pool providers: “We have a long-standing history with CHEP, PECO and iGPS and they work,” Thelan said. “But we did include the ability for someone to give us a non-rental pool pallet if they provide a block pallet.” He added that some manufacturers prefer to ship their own pallets rather than participate in a pool, although they are a minority of Costco suppliers.

But isn’t a block pallet more expensive? “It’s less expensive,” Thelan argued. “The supplier is only paying the rental fee. They’re not buying the pallet.” In fact, Costco expects to negotiate lower costs with suppliers who are no longer paying for GMA-style pallets.

Beyond the increased safety that comes from standardizing on a heavier duty pallet, there are operational benefits to a block pallet. “We off-load a million trucks a year at our depots,” Thelan said. “We do a lot of that with electric pallet jacks. If the pallet is loaded so that the stringer side is facing the opening of the truck, you can’t get under the pallet with an electric pallet jack.”

Instead,  associates had to “pinwheel” the pallet – maneuvering it around until the forks could get into the 40” opening. That not only takes time, it can potentially lead to product damage.

“We believe we’ll see benefits by being able to off load all of our pallets with electric pallet jacks,” Thelan said. “And, there are benefits to moving the product across the floor to get to shipping lanes.”

Approaching the one-year anniversary of the change, Thelan says issues related to conversion to the new spec have been few. “At our annual supplier day in Seattle, I thanked everyone for making this switch,” Thelan said. “It was very seamless.”