A Smart Way Of Reducing The Cost Of Pallet Pools

Retailers and their suppliers could be wasting millions of pounds by failing to think in an innovative way about how to handle their pallet requirements. So says Jon Graves, General Manager of Demes UK, who is alarmed at the way buyers in major companies put pallets into the low priority category, when there are some major savings to be made.

“UK manufacturers and retailers” explains Jon “are using a long established business model which involves paying high prices to rent pallets when there is a perfectly feasible alternative, namely taking ownership of the pallets in a way which not only minimises costs but avoids all the hassles associated with pallet rental.”

Jon speaks with authority. Demes is one of Europe’s leading specialist suppliers of pool management services. Demes is part of the £1.6 bn DS Smith group which has a worldwide focus on packaging and packaging logistics.

The model which Jon proposes is simple. Taking a manufacturer of a branded product as an example, this is how the new pallet management system would work:

1. The manufacturer buys a pool of industry standard pallets and uses these for their deliveries to the retailers.

2. Once the retailer has finished with these pallets they are made available for collection by the manufacturer. While the retailer cannot give back the same pallets to each manufacturer they can give back pallets to the same specification and condition. This exchange of pallets allows the operational synergies of traditional rental schemes to be maintained without the high cost of asset rental.

Key to this process is the facilitating pooling specialist, like Demes, who can manages the whole process end to end, and is even willing to buy the pallets from the manufacturer when they are delivered to the retailer. Jon Graves claims that the savings achievable are as high as £500,000 for every 1.5m pallet movements. Jon points to Germany where the exchange principle of a standard industry pallet is long established and where the standard Euro-pallet (E-Pal) has been in existence for over 50 years. There is a thriving second hand market for pallets in Germany and even a voucher system which allows quantities of pallets to be traded like a currency, making it easier to move pallets around without excessive transport costs. There are also industry-wide rules which control the quality of pallets that are allowed to be sold and exchanged.

The historical development of the pallet market in the UK has, of course, been very different. But, according to Jon, producers have allowed themselves to be dictated to by a very small number of pallet rental suppliers and this is simply not healthy or sustainable, particularly as the cost of using such systems has increased dramatically in recent years. Jon believes we can learn from best practice on the Continent but in trying to break the mould he finds himself coming up against some very ingrained attitudes. “A lot of buyers find the subject of pallets something which does not greatly interest them. People have preconceived ideas and they don’t want to see the cost of pallets on their balance sheet. But they are paying a high price for this point of view, as pallet rental costs continue to move inexorably upwards. Who is prepared to stick their necks out? As they used to say “no one ever got fired for using IBM” and so in this market, buyers have been staying with the safe but more expensive option.”

Food retailers don’t see the cost of pallets as an issue as it is effectively disguised in the price of goods. Manufacturers are reluctant to ‘rock the boat’ as it involves bringing the reluctant retailers on side with a new idea. So how do you break out of this vicious circle?

Demes is already conducting confidential discussions and trials with interested companies. One of the issues that needs to be dealt with within the UK market is pallet recognition, as it is traditional for retailers to dispose of white pallets to second hand pallet dealers. To remove this potential problem Demes intends to establish a UK pool of exchange pallets that will be clearly identifiable by their markings. Another big issue is pallet size and quality and here, too, there are changes under way in the UK as Stan Bowes, President of the European Pallet Association explains: “The E-Pal marque is already recognised as a guarantee of quality but, in the past, has only been applied to a Continental standard size of 1200 x 800 mm. Now we are introducing into the UK a 1200 x 1000 mm specification which will be made, under licence, by accredited manufacturers. This means there is now another way for customers to be certain of the quality of the pallets they are buying.”

Quite apart from the savings achievable through the use of an exchange model for pooled pallets, there is the benefit of engaging professional pool management expertise which takes away huge burdens from the retailers’ or manufacturers’ logistics operations. When companies rent pallets they have to manage them carefully themselves. For example, Jon hears endless complaints about the problems of misplaced and lost rented pallets. In effect companies who rent pallets are both covering the costs of the assets as well as paying the costs of pool management.

For the UK as a whole, the scale of possible savings is mind boggling. With over 125 million pallet movements a year in the UK, Jon estimates that over £50 million could be put back into industry’s bottom line. As he says “There is a big prize for the early movers in this area. The companies who can be innovative with their pallet management strategy stand to make great financial gains and enjoy a system which is more open, visible, transparent and altogether cheaper.”