Special thanks to Source One Management Services for this guest post
When you think of cost savings opportunities in critical supply chain categories, the first spend area that comes to mind is generally not pallets. Typically the focus for “big hit” cost savings opportunities in manufacturing operations stems from categories such as Power Transmission Supplies, Electronic Components, Industrial Supplies and so on. Pallets fall within the sub-category of secondary packaging (which includes dunnage, shrink wrap, packing tape and other tertiary packaging components). Oftentimes, this spend area goes unchecked by sourcing managers and – because of this – it is a good area to get a quick win, if examined holistically. There is more to pallets than meets the eye.
The basics to sourcing pallets starts with data collection. Suppliers need to know your specifications in order to give you a quote. Comprehensive wooden pallet specifications come in a PDS (Pallet Design System) file format – a tool developed as an engineering reference to store specs for wooden pallets. Specifications include wood material composition, nails size specifications, load capacity, moisture content, board configuration, general dimensions (both top deck and bottom deck), transport and storage requirements, and more. As far as putting a bid package together for your current specs, the PDS files are your most important component to facilitate quick and easy supplier reference guides for quote. Combine your PDS files with annual volume requirements for each pallet type, a detailed qualitative questionnaire, and an instructional RFP doc and you have your complete bid package. Sourcing your current pallet specifications with incumbent and alternate suppliers is an extremely effective savings lever to test the market.
Plastic pallets are similar in terms of what you need for sourcing except instead of PDS files you would use CAD drawings for any custom pallet design. Plastic pallets are typically offered as off-the-shelf products and have specific advantages and disadvantages as compared to wooden pallets. Plastic pallets are most commonly injection molded; however, thermoforming, compression molding, rotational molding and structural foam molding are also common manufacturing methods. Due to the manufacturing process and higher cost of PP or HDPE material, plastic pallets are generally two to three times the cost of traditional wooden pallets. Additionally, they can only support shipments weighing less than ~1,500 pounds, whereas wooden pallets can support twice that weight. However, they have a much longer useful life as compared to wooden pallets. In general, plastic pallets are also cleaner, more durable, weather resistant and generally easier to handle.
When selecting which pallet options you can feasibly use in your manufacturing operation, first consider the application of each pallet, as well as the total cost of purchasing and replacing pallets. If the rate of pallet return to your facility is high – or you are using them in a closed loop capacity at the same facility – plastic pallets represent a financial benefit and you should opt for a plastic pallets purchasing program. Though if you are shipping internationally and therefore rate of pallet return is low, wood pallets will be much cheaper in the long run since they are the inexpensive option.
Using a few different examples on how to choose the right pallet mix:
- If the pallets are exposed to inclement weather, plastic pallets are the better choice as they are more weather resistant.
- For heavier shipments, as previously mentioned, wood pallets may be required to support the max load.
- If you are shipping fragile items, smooth plastic pallets may be the best option since wooden pallets can be abrasive to cargo, especially with loose or broken nails. Per the previous example, you must evaluate the cost of damaged goods to see if that is higher than the total increase in pallet cost by switching to plastics. Slip sheets can be added to wood pallets to mitigate this risk, but also adds cost to transporting your shipment.
Overall, many factors must be weighed to determine the best pallets to use to support your operation considering the total cost over the lifetime of each pallet.
Often, manufacturing operations either use pallets that are “overkill,” where they can cut back on the specification and total materials used to save cost, or they are under spec’d and are spending more time fixing pallets than sending them out the door. Choosing the optimal pallet type for their application is the most overlooked savings lever.
Other savings levers include evaluating the location of your suppliers in proximity to the pallet destination locations. Freight can represent upwards of 20% of the unit cost of each pallet depending on load size, fuel pricing and overall distance travelled. The optimal choice is to utilize a national player with many distribution locations available to support your facilities. The biggest mistake in this respect would be to use suppliers that travel long distances to support your pallet needs; this almost certainly adds a 10-20% premium on the cost of service.
Final considerations when optimizing your pallet portfolio include making sure you are abiding by regulatory requirements. The FDA for example can impose penalties for non-compliance related to sanitary conditions of pallets transporting food products. For example, it is a best practice (depending on the industry you are serving – Pharma to Food Industry) to utilize heat treated pallets to remove any possibility of organism infestation, especially in international transport.
Overall, there are many factors to consider when looking at pallet spend in manufacturing operations. This category is way too often left behind when it comes to cost savings initiatives but as you can see, there many areas for budget optimization. With a clear understanding of your packaging requirements and specifications, pallet strategic sourcing can deliver a quick cost reduction win.