Real Benefits from Pallet
Standardization – A Case Study
John Talbot – CEO, Logistics Consulting Asia
David Edwards, General Manager – Business
Development, Loscam Asia
Copyright © 2007 Logistics Consulting Asia
The business
• Background
– Multinational FMCG manufacturer
– National market leader in beverages
– Product produced at multiple factories –
mostly rural
– Sales primarily in urban areas
– Direct delivery to over 300,000 customers
– Modern trade increasingly important (and
demanding)
The business’ logistics challenges
• Relatively low value
product
• Rural sources, but
primary markets in
towns/cities
• Fuel costs rising (oil price
& removal of subsidies)
• Product damage in transit
Logistics cost as high %
of revenue
• Only 2-3 days pipeline
inventory
• Growth of modern trade
Maintenance of service
levels
Solution: logistics capability
development program
• Logistics consultants have been supporting the
business since 2005, managing a range of
supply chain development projects:
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Network analysis (optimal location for new plant lines)
Demand / production planning automation
Factory off-take time-slotting
Logistics skills development
Supported by
Improved product care
pallet
Transport cost reduction
standardization
Factory & depot productivity
& performance upgrades
Concept development thru piloting
• Pool pallets and drive-in racking piloted at 1
factory and 1 depot
• Key lessons:
– ECR format preferred to hi-stack
– Acceptance much higher where training more intense
– Acceptance much higher when scale of pilot is
substantial
(otherwise it has a nuisance factor)
– ECR format opens opportunities for packaging cost
reduction
Pallet standardization benefits sought
1. Reduce pallet acquisition costs
2. Utilize drive-in racking
3. Reduced transport costs & product damage
4. “Soft Benefits”
• Operational discipline
• Customer service
1. Reduce pallet acquisition costs
• Imperative to review “owned” pallets
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Current 2-way (1220 x 1050) pallets
Too expensive (due to high damage rate and loss)
Undermine product care due to poor quality
Do not support installation of pallet racking
Cost of Capital (bank interest) increasing
Pallets are normally cannibalized for repairs
destroying investment
– Headcount and consumables
required to repair pallets
– Need redundant pallets for
peak season
– Avge 3 years life
2. Utilise Drive In Racking
• Agreement that best alternative is 1200x1000
industry standard pallet “ECR Pallet”
• Utilize drive-in racking
– Increase storage capacity by 70%
• Increase inventory build capacity
3. Reduce Transport Costs &
Product Damage
• Reduced transport costs
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Compatibility with modern vehicles
Better vehicle utilization
Faster turn-around
Increase in direct deliveries to
modern trade
• Reduced product damage
– Due to block-stacking
– Due to timber/nail damage
– Due to movement in transport
4. “Soft” Benefits
• Operational discipline
– Better handling practices
– Safer work practices
• Customer service
– Better protection of product through to point-of-sale
– Compatibility with modern trade standards
LEVEL OF SUPPLY CHAIN SOPHISTICATION
Retail Market Maturity
HIGH
THAI
HKG
MAL SING
PHP
INDO
CHN
VNM
IND
HIGH
INFLUENCE OF MODERN RETAIL TRADE
Copyright © 2007 Logistics Consulting Asia
Direct to Store – sustainability?
SUPPLIER
WAREHOUSE
SUPPLIER
WAREHOUSE
Orders
Transport
Centralised Distribution Driving
Efficiencies
Deliver on larger vehicles
no manual handling
SUPPLIER
WAREHOUSE
SUPPLIER
WAREHOUSE
Pick by SKU not by
individual store order
More Trips Possible
Priority Unload
MODERN
TRADE DC’S
One consolidated order
not one order per store
RETAIL - Commercial benefits
• Decide on one standard pallet for all &
introduce standardization around that pallet
• Velocity of product across docks & and for
putaway and pick functions
• Truck turnaround times and yard capacities
• Supplier sponsored pallet hire
• Outsource pallet function to professional
mgt company
• Reduce losses
• Remove repair costs
• Remove sorting
MODERN
TRADE DC’S
SUPPLIERS – Sales & CS
• Reduction in Invoices/missed
invoices
• Reduction in collections
• Reduced credits
• Days outstanding/cash flow
• Access to forecasting & sales data
• Supplier incentives
SUPPLIERS – Supplier Operations
• Picking task reduced
• Wrapping, labeling, loading, paperwork
reduced
• Reduced number of loaders
• Reduction in pallet usage
• Pallets always available
• Opportunity to modernise – suppliers
suppliers, materials handling etc
SUPPLIER
WAREHOUSE
SUPPLIER
WAREHOUSE
SUPPLIERS – Transportation
• Reduction in transport - greater trucks turns
• Priority Unloading – night time slots
• Reduction in transport management task
• Reduced transit damage
SUPPLIER
WAREHOUSE
LOADING
3 – 4 Hours
20 Minutes
Bottom Line
• Savings in supply chain ~ 2 - 7%+
• No disadvantage philosophy for suppliers
• Total supply chain cost analysis critical
• Loscam works with suppliers and
transporters/3PL’s to ensure
smooth transition
• Modern trade influence getting
stronger amongst SME’s –
be prepared and achieve win win
Questions?
Please contact us at …
John Talbot - john.talbot@lcalink.com
David Edwards – david.edwards@loscam.com
www.lcalink.com
www.loscam.com
Copyright © 2007 Logistics Consulting Asia