THE CHALLENGE

A National Retailer requires millions of pallets annually for the efficient distribution of product between 70+ Distribution Centers and over 2,000 stores. After experimenting with leased pooled pallets, the retailer determined that standard reusable 48”x40” wood pallets provided a more cost effective shippingplatform. They were now tasked with managing their own “pool” of pallets. Initially the retailer enlisted the exclusive support of a large national pallet recycler. The recycler would pick-up pallets from each individual store and provide compensation to the retailer. This compensation would be utilized for the purchase of pallets at the individual distribution centers. However the yield on pallets recovered was lower than expected and the compensation for recovered pallets fell far below what was required to purchase pallets, leaving a large hole in the budget.

The retailer next utilized their own transportation network to collect pallets from select retail stores and return the assets to the Distribution Centers. The pallets were to be unloaded, sorted, and repaired for reuse by the Distribution Center. They again utilized the large national pallet recycling company to manage all on-site operations throughout the network, but found they were still purchasing thousands of pallets annually to support the internal “pool”. The retailer has proven that managing their own “pool” of 48 x 40 reconditioned pallets is economically favorable compared to leasing pallets from a pooling company. They do however continue to fine tune the system, and seek new opportunities to reduce cost and more efficiently manage the internal pallet

THE PALNET SOLUTION

When the retailer initially began procuring pallets to reach the optimum level of pallets in their network, they enlisted the assistance of PALNET. Purchasing millions of pallets on the open market from a fragmented supplier base is a challenge and PALNET had the resources to respond. PALNET, working through an extensive partner network, procured and supplied over 1.9 million 48 x 40 pallets to the retailer, allowing them to eliminate the use of leased pallets in the network. As the retailers “pool” management evolved, they sought the assistance of PALNET on two additional fronts:

PALNET was challenged with efficiently managing a collection of underperforming on-site TPM (Total Pallet Management) programs;
PALNET was given the opportunity to increase the yield from store collections in a key region, reducing the retailers overall pallet management expense.
PALNET immediately began implementing a new TPM model. Traditional TPM operations were managed with a dual purpose of meeting the retailer’s minimum needs while maximizing the volume of pallet cores available for removal from the distribution network. Under this “Pallet for Pay” model, the service provider’s primary compensation for services provided is the ability to sell the retailers assets in the marketplace. PALNET’s behavior driven model placed an emphasis on processing as many pallets for internal reuse as possible. By compensating PALNET for each pallet processed and returned to the “pool”, the retailer realized a significantly higher yield of reusable pallets. In turn, PALNET compensated the retailer for all pallets removed from the network and purchased surplus reusable “pool” pallets from the retailer at a premium price.

After successfully turning around a collection of underperforming TPM sites, PALNET shifted focus to improving recovery of pallets from the retail stores. PALNET created a comprehensive sort, repair, and banking system (managed via the proprietary Accu-Track on-line system) that ensures the retailer is receiving maximum utilization from pallets collected from retail stores.

The store collection model is very simple, but the execution is rather complex. PALNET has trailers dropped at all stores in the designated region. (This region relies on third party store collection vs. return to distribution due to the regions large geographic area.) Upon completion of a full trailer, the store contacts the PALNET hot-line and PALNET replaces the loaded trailer with an empty. The trailer is returned to a PALNET partner Service Center for processing. The Service Center unloads each trailer, sorting and counting all pallets unloaded, and entering the data in PALNET’s on-line system. Pallets that can be returned without additional processing are credited to the retailer at no charge. Pallets that must be repaired, are credited to the pallet bank and the retailer can have these (or similar) pallets returned to an area Distribution Center for a nominal repair & processing fee. The PALNET store collection model allows the retailer to maintain control of the pallet asset and ensures pallets are returned at a predetermined rate, eliminating the risk of purchasing pallets on the open market.

THE ADDED VALUE

PALNET’s creative, customer driven solutions have generated significant, measurable savings for our retail partner. By eliminating the traditional “Pallet for Pay” model and treating pallets as a valuable asset of the retailer, PALNET is not conflicted by competing objectives. The “Pallet for Pay” model lacks transparency and incentivizes the service provider to minimize the level of service, while maximizing the number of pallets removed from the customer’s distribution network. The PALNET model provides incentive for the service provider to provide a high level of service to the Distribution Center or retailer, while protecting the value of their assets. As surplus pallet assets are inevitably generated in this behavior driven model, the proceeds from the sale of those pallet assets are heavily weighted to the retailer. PALNET recognizes that we have been trusted to sale the retailers assets.

Prior to partnering with PALNET, the retailer described above was purchasing a significant number of pallets annually to replenish the internal “pool” of 48”x40” pallets. Utilizing the PALNET store collection and on-site TPM model the retailer has significantly reduced the number of pallets purchased in the store collection region and now generates surplus pallets for resale in the TPM regions. Instead of supplementing the “pool” of reusable pallets with purchased pallets, the retailer is now able to rely on vendor shipments to replenish any leakage in the pool. PALNET’s unique commitment to placing sole focus on meeting the retailer’s needs has resulted in a significant net savings in pallet related expenses for the customer.