Materials Handling Update: Pleasing to the Pallet

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Before businesses begin tinkering with state-of-the-art conveyor networks and automated storage and retrieval systems, they might want to reconsider the role of the warehouse's most underrated asset—the pallet.

Today's warehouses and distribution centers are hubs of activity where product is picked, packed, shipped, sorted, and stored via labyrinthine networks of conveyer systems and storage and retrieval mechanisms.

With all the bells and whistles of highly automated materials handling installations, the importance of pallets is often lost in transshipment.

The evolution of pallets and their application in warehouse and distribution facilities—more specifically, the way pallet manufacturers customize their products to meet niche client needs—is important for two reasons.

First, businesses are seriously considering investment in pallets as a major materials handling strategic initiative—and, in some cases, even a capital expenditure.

Second, for all their simplicity, pallets are forcing businesses to look differently at how they invest in their warehouse from the floor up.

One new consideration, for instance, is choosing between plastic and wood pallets. While the iconic wood pallet remains an enduring part of materials handling logistics, both for storage and for shipping, it does have its limitations.

The introduction of the invasive Asian-long horn beetle into the United States, and its devastating environmental impact on healthy tree populations, has been largely attributed to wooden shipping materials imported from Asia.

As a result, U.S. Customs and Border Protection (CBP) requires wooden pallets to be chemically or heat-treated to prevent further beetle infestation. Many international shippers have switched to plastic conveyances to offset these concerns.

"Wood pallets are a problem in global transportation, so more composite products or cheap plastic pallets are being used. These do not work well in racks because they do not usually have bottom stringers and their strength can be questionable," says Geoffrey Sisko, senior vice president, Gross & Associates, a consultancy based in Woodbridge, N.J.

Wooden pallets also tend to have nails pull apart or shards of wood splinter over time. With constant use, these problems threaten productivity in increasingly automated warehouses.

On the other hand, plastics molding technology has evolved to a point where pallet manufacturers can produce tailored products to meet unique user needs. As a result, innovative and durable plastic pallets, totes, and slip-sheets are increasingly visible in warehouse applications.

"Companies are not always aware of a product's strategic value—in this case, choosing a polyethylene plastic pallet over a wooden pallet," says Kim Kensill, vice president of sales for JECO Plastics, Plainfield, Ind., a pallet manufacturer that specializes in the rotational molding of polyethylene pallets and containers.

"They're used to buying wooden pallets for $5, $10, or $15. Plastic pallets can cost as much as $100 and companies balk because they don't understand the value proposition."

Pallets made of rotationally molded polyethylene are among the most durable, and can have a significant economic impact on businesses willing to make a capital investment for the long term.

"Plastic pallets last 10 to 20 years longer than wood pallets," explains Kensill. "A business that spends $200,000 a year on expendable packaging can instead spend $400,000 on plastic pallets and assume no additional capital cost for the next 20 years."

The real value of JECO's service, however, is that it can customize plastic pallets to meet unique demands. Customers present specific application and materials handling problems to JECO and it brings process and technique to bear to develop custom designs using rotation or thermal form technology.

Montreal-based printer Quebecor World, which maintains offices in North America, Europe, and Latin America, currently uses JECO's customized pallets in many of its global operations.

"We use a two-way, 50-inch x 36-inch customized pallet for work-in-process applications," says Bob Behrans, plant manager for Quebecor. "Because we have a short cut-off period, we have to use a different type of pallet customized to our specifications."

Aside from the up-front cost considerations, "after seven turns the plastic pallets have essentially paid for themselves," says Behrans.

"And plastic pallets are safer than wood, because they are lighter and don't splinter. They also offer greater product integrity, because stacking on smooth plastic pallets causes less product damage."

These types of efficiencies make Kensill's sales job easier.

"If a company always throws away the bottom quarter-inch of a stack of paper because it impresses on top of a funky pallet, it loses money," Kensill says. "Some companies might accept that as a cost of doing business, but JECO's pallets eliminate that cost.

"Plastic pallets make sense in terms of short- and long-term ROI," he adds.

JECO and other warehouse equipment suppliers realize that their businesses have evolved well beyond simply manufacturing a product, and that customers demand as much in the pre-bid and bidding process as in back-end support.

"We have moved way past offering just materials handling and into consulting, including financial analysis of how customers operate their business," Kensill notes.

Pooling Resources

Another cost-savings alternative is pooling pallets, which allows shippers access to higher quality and better- designed pallets—block and four-way entry designs, for example—as opposed to outdated stringer pallets.

Other benefits include expedited loading and unloading times, as well as increased productivity—and shippers don't have to make costly capital investments.

Orlando, Fla.-headquartered CHEP is a leading player in the pallet and container pooling services sector. It manages the daily movements of more than 280 million pallets and containers in 44 countries and touts Procter & Gamble, SYSCO, Kellogg's, Kraft, Nestle, The Home Depot, Unilever, Hewlett Packard, and General Motors among its customers.

Its pallet pooling service works like this: CHEP issues ready-for-use pallets and containers from its service centers to customers who then load their goods and ship their products through the supply chain.

When the shipment reaches the end of the line, the consignee off-loads the goods and returns the pallets or containers to the nearest CHEP service center.

"The main benefit for shippers is that pallet pooling complements the Hours of Service rules. If trailers load faster, and the driver is waiting on the clock, that's an obvious productivity gain," says Per Ohstrom, director of marketing for CHEP USA.

By pooling pallets, shippers can save between $1.50 and $2 per trip, which is substantial considering that buying a low-end stringer pallet costs $8 to $10.

"Shippers pay less out of pocket to rent pallets, as opposed to pooling them, but greatly reduce product damage and gain supply chain efficiencies," Ohstrom adds.

Another advantage to pooling pallets is that shippers don't have to worry about maintenance costs, which can accumulate if they need to allocate space and resources in their warehouses for repairs.

Pooling pallets also offers some environmental benefits.

"In a life-cycle comparison, pallet exchange generates 7.5 times more solid waste, consumes 28 percent more total energy, and produces 30 percent more airborne and waterborne emissions than pooling pallets," says Ohstrom.

"CHEP pallets are repaired and reused indefinitely, which is very sustainable packaging."

CHEP is also looking to integrate RFID technology into its product line to offer yet another strategic advantage. Some of its largest retail customers are running trials with RFID-equipped pallets, which yield better inventory control and allow supply chains to run leaner. RFID shipments can also be traced more easily in case of a product recall.

"The CHEP Plus ID product offers pallets equipped with an RFID tag placed to provide a 100-percent read. A small department at CHEP works with industry in the development and sales of RFID. It also consults with customers because the process is so new that users have to be educated," says Ohstrom.

Plastic pallet manufacturers such as JECO are already perfecting techniques to embed RFID tags in their pallets.

JECO's unique molding process provides an element of security because no other plastic process can handle RFID.

"RFID tags inside an injection mold cannot withstand 1,200 degrees of temperature," Kensill says. "Some security printers are very concerned about tracking their pallets. The embedded RFID tag gives them confidence that the tag will not be accidentally or intentionally removed or altered."

Companies such as CHEP and JECO play an equal role in helping facilitate RFID integration across the industry at large, enabling companies to test the technology in their supply chains rather than engage in costly and timely pilot projects on their own.

Wood Still Popular

While plastic conveyances are gaining traction in some materials handling applications, wooden pallets are still omnipresent. The per-unit cost of plastic pallets is difficult for some shippers to swallow, especially when there is no guarantee that pallets will return to their owners.

"Because most shippers use 'storage' pallets also as 'shipping' pallets, the plastic pallets never seem to come back—and they are pricey," says Michael Leranbaum, president of Beaver Materials Handling, a North York, Ontario, company that specializes in turnkey warehouse logistics solutions.

The primary advantage of using wood pallets versus plastic or steel is cost, adds Chuck Burke, general manager of SMIco, a Cresco, Iowa-based company that manufactures wood pallets and recycles and reconditions used ones.

The cost differential between wood and plastic is a primary concern especially for small and medium-sized businesses that do not have the luxury or leverage to invest significant upfront capital in floor-level handling equipment.

Many shippers inevitably use pallets for storage. Even if wooden pallets are used during shipping, the cost risk is less than moving product on a $100 plastic pallet that may get lost in transit, suggests Burke.

"Customers using plastic pallets have come to us looking for heavy-duty oak pallets because they last longer. And some shippers value using low-density cottonwood or pine pallets for shipping because they weigh less," he adds.

SMIco is experiencing increasing demand for recycled pallets, which account for about 10 percent of its sales. This presents another economic alternative for cost-conscious shippers.

The nature of the materials handling industry creates a place for different types of pallets—injected molded, rotational molded, and wood. While plastic pallets or pallet pooling might be appropriate for one company, wooden pallets might be more suitable for another.

"For companies moving products domestically without specialized equipment, that won't be damaged easily, wood pallets have a reasonable life—three to four turns. That's when it may make sense to go with wood," acknowledges Kensill.

Pallet Technology Evolves

Increasing automation in the warehouse, however, may very well dictate the future evolution of pallet technology as automated storage, retrieval, and conveyance systems demand durable and precise equipment to carry their loads.

As plastic pallet prices come down, pallet manufacturers will likely find more practical uses and demand for their products.

Another consideration in pallet selection is recognizing integration issues that might arise among supply chain partners.

For example, European pallets—which are different from U.S. standards—are increasingly pervasive in the global supply chain.

These different pallet specifications create handling problems because they don't fit conventional racks that are optimized for the Grocery Manufacturers Association's (GMA) 48-inch x 40-inch pallet, the de-facto standard in the United States.

"Euro pallets will fit in a rack inserted horizontally. However, in a conventional rack with 96-inch openings, only two Euro pallets fit. This wastes about 30 percent of the rack space," Sisko acknowledges.

For companies using a mix of GMA and Euro pallets, he recommends racks with 144-inch openings that accommodate four Euro pallets or three GMA pallets, providing more efficient space utilization.

Strategically, Kensill perceives the importance of pallet investment as a central element in today's materials handling environment—and one that companies can ill afford to ignore.

It is critical for businesses to plan out all the details—from the warehouse floor up—before they lay pencil to paper in designing and budgeting their warehouse systems.

Otherwise, suggests Kensill, "it's like buying a fancy race car and forgetting about the tires. The car is on your lot but you can't drive it."

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