By Joe Dagnese
One of the achievements of the last two years operating under a pandemic has been the dramatic increase in retailers and manufacturers pushing up inventories of all kinds. Reason: To hedge supply chain disruptions such as port congestion, which can cause out-of-stock and delay the availability of goods to consumers.
On top of that, a dramatic surge in online purchases. E-commerce has produced smaller, more frequent shipments than the millions sent directly to consumers’ homes. Meanwhile, more and smaller warehouses are located closer to the end user, speeding up the delivery of more goods in the last mile.
In response, companies have shifted from traditional “just-in-time” supply chain strategies that focus on minimal and safe inventory. My current goal is to increase inventory. Companies order more products and store more products in warehouses and distribution centers for extended periods of time to protect them from out-of-stock and line shutdowns.
These increasing inventories consume almost every square foot of warehouse space. According to one industry report, more than 90% of the commercial warehouse space available in the United States is leased.
Unintended consequences. .. ..And the result
The longer the product is retained, the longer the pallets will be kept in the warehouse for a longer period of time. This has unintended consequences. In other words, the “stagnation” of the pallet increases. This is the length of time a retailer or distributor owns a pallet.
The longer the pallet is stored, the less “turns” or reissues per year. As a result, the pool of available pallets shrinks, affecting the amount of pallet inventory in the network of all users. Without enough pallets to load and ship products, manufacturers will not be able to ship products in a timely manner to meet demand.
Two main factors are behind the increase in pallet rotation time. First, we need to support larger inventory positions. The higher the inventory level, the more pallets you will need. And those goods and their pallets are stored in the warehouse for a long time.
Delays can also occur if the palette is “downstream”. This happens when the pallets are sent to a secondary location, such as a local store, where the pallets can be placed for days or weeks. The pallets cannot be collected at the scheduled time because they are not in the warehouse at the original destination. This is an unplanned trip that causes delays that prevent other users from using the pallets, further limiting the inventory of pallets that can be reissued.
Seeking balance
If you have a long dwell time and very high demand, why not add more pallets and more pools? Simple answer: cost and capacity. Although timber prices have skyrocketed, pallet makers have been unable to reach pre-pandemic production levels due to a lack of skilled labor and raw materials. Simply put, material availability and capacity constrain new supplies.
These factors also drive dramatically higher costs when new palettes are available. Standard block pallets cost less than $ 25 to manufacture before the pandemic. That same pallet is approaching $ 50 today.
Rental pallet pool operators are constantly looking for a balance between what is sent out of the pool to users and how those pallets are collected, returned and reissued.
Flow and timing management is everything.
If someone stays on the pallet for a long time, the entire cycle is disrupted. Again, the impact on system balance and supply chain efficiency depends on whether participants carry out their commitments. All parties need to make a full investment to maintain adequate pallet supply and manage costs. Otherwise, ripples will occur throughout the supply chain and ultimately cost of goods sold will be high.
What should the endgame be?
After all, the key to a successful joint pallet rental program needs to focus on the total cost of the service. Rental pallet pricing is typically done on a turn-by-turn basis and includes other variable costs for items such as fuel and trucks (related costs for collecting pallets and returning them to staging and maintenance depots) and additional timber charges. increase.
All companies want to maximize inventory turnover and maintain optimal levels of safety stock to meet consumer demand. Palette assets (and how they are deployed) must be in perfect agreement with these objectives and support them.
Designed for sophisticated purposes, the pallet rental program balances cost, asset availability, and the flexibility and agility of a national pallet network, consistently sustainable for shippers. We can provide resources and services. Still, they will only succeed if all players in the pallet use cycle live to the end of the transaction and do not act in a way that does not optimize the network for others.
Joe Dagnese is the CEO of PECO Pallet, the second largest pallet rental pool operator in North America.
https://www.pecopallet.com/
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