Are your pallet partners cheating on you?

Follow these guidelines to make sure you get back the pallets you gave.

By Susan Lacefield, Associate Editor -- Logistics Management, 2/1/2005

Do you sometimes get the uneasy feeling that something about your pallets doesn't quite add up? You could be right. Maybe your customer isn't sending back the same number and quality of pallets that you left on its dock. Or instead of returning your pallets, your carrier's driver is selling them at a truck stop. Or perhaps your suppliers are overcharging you for the poor-quality pallets they use to deliver your product.

In short, your pallet "partner" may be cheating on you. It might be intentional (like the examples above) or it might be that your pallet tallies and your partner's don't match because of poor record keeping or simple lack of attention.

Whatever the reason, a cheating pallet partner can break not only your heart but also the bank. Pallets have a price, after all, and failing to control them can mean dollars are leaking out your dock door.

The tricky thing about pallet control is that it's not just a warehousing or logistics issue, says Stewart Richardson, pallet guru and co-author of Pallets: A North American Perspective.When customers don't return your pallets, it also becomes a customer service and sales issue, he believes.

"Often you get the distribution group all agreeing that pallets need to be controlled," Richardson says. "But then the VP of marketing comes in and says, 'There's no way you're going to argue with my customer.' Then everyone else says, 'Ah, to hell with it,' and the program ends up having no teeth."

In other words, without the backing of a senior sponsor, it's hard to get sales and marketing departments to let you manage your pallet problem—or get your customers and suppliers to pay attention to it. But how do you get high-powered executives to care about pallets? Remember that the way to an executive's heart is through his or her wallet; you need to equate pallets with dollars. One way to do this is to multiply the cost per pallet by the number of pallets per trailer by the number of trailers that leave your facility each day. You could potentially be looking at a million pallets per year, which translates into many millions of dollars—and that's likely to make your CFO very interested. "Once you put it into dollars, you're no longer just talking about pallets, you're talking about asset management," says Belinda Junkin, CEO of the Canadian Pallet Council, which provides a pallet interchange system for consumer product companies in Canada.

Recent market conditions have strengthened the case for better pallet control. In the past 18 months, the costs of raw materials in general—and lumber in particular—have risen, and so has the price of pallets, says Randy Brown, vice president of business development for Ongweoweh, a pallet management company. Couple that with an increase in transportation costs, and it's clear why warehouse managers should be eager to gain greater control of their pallets these days.

But internal commitment is not enough; you also need buy-in from external partners. Richardson suggests starting with your suppliers. "I always say, start with looking at what you are bringing in the rear door, because that's often where you get really ripped off."

A supplier might, for example, send you a $10 pallet but charge you $20. To prevent this from happening, Richardson recommends establishing required standards and specifications for pallets so you can either exchange them with your suppliers or reuse them for your own outbound shipments. If that doesn't work, then ask your suppliers to take the pallet cost out of each unit-load price and show it as a separate line item on their invoices.

To encourage your customers to get on board with the program, focus on mutual benefits. If you're introducing the policy along with a new pallet, emphasize the new pallet's benefits—perhaps it's cleaner, stronger, or larger. Point out that returnable programs are better for the environment and can reduce your customers' waste and disposal costs. And, of course, you can pitch the program as a way to reduce costs, both for you and for your customers. "Explain to them that your cost of shipping product to them has increased by 30 percent over the last 18 to 24 months, and one of the ways that you can control cost is by using returnable packaging," Brown says.

Customers still might balk, for two main reasons. They might be selling the pallets that they receive from you, or they might not want to invest in the administrative costs of managing and monitoring pallets. In such cases, Richardson says, you might have to offer them some kind of incentive for participating in your program. Continued...

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