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Virginia Tech Series: Optimizing Pallet Sizes within the Global Supply Chain -- Connecting Northeast Asia And North America
As recognition of the important relationship between pallet size selection and supply chain optimization continues to grow, interest in standardizing pallet sizes is also increasing.
By Drs. Dong-Sun Shin, Marshall S. White, Jongkoo Han
Date Posted: 8/1/2006
As recognition of the important relationship between pallet size selection and supply chain optimization continues to grow, interest in standardizing pallet sizes is also increasing. Optimizing pallet size selection is an important variable that can lead to a reduction of supply chain costs and an increase in productivity—especially across international boundaries. Decisions regarding pallet size selection within an international supply chain must consider the size of products (packed in boxes), the compatibility of different unit load handling and shipping equipment, and the reusability of pallets in the destination country.
Utilization of storage and shipping volume is a function of the fit of packaging to pallets and the fit of loads to trailers and freight containers. There are two key perspectives when loading pallets: 1) the problem of determining an optimal arrangement of boxes on a pallet, and 2) the problem of determining an efficient loading scheme for a consignment of items of various sizes. The first perspective is often called the manufacturers’ pallet loading (MPL) and the second, the distributor’s pallet loading (DPL).
In a recent cooperative study by Virginia Tech’s Center for Unit Load Design and the Korean Transportation Institute, a model was developed to predict and compare the costs of using different pallet sizes in the supply chain between North East Asia and North America. The focus of this work centers on a supply chain model whereby only the physical distribution component of the supply chain is considered.
For the study, the efficiency of three different but common pallet sizes was studied. These included the 1200 x 1000mm pallet used commonly throughout the world, the 1100 x 1100mm pallet used in Japan and Korea, and the 1219 x 1016mm (48” x 40”) pallet used in USA and Canada.
Northeast Asia includes China, Japan and Korea. North America includes both the U.S. and Canada. Because trade between North America and Northeast Asia is expanding rapidly, the economics of both regions have been significantly affected. A consequence of this increase in trade has been an increase in supply chain costs caused by inefficiencies in material handling between the two regions. The palletization of packaged goods is a crucial component of these costs, and optimum pallet size selection will help streamline costs and enhance productivity for both regions.
Factors Influencing Global Supply
The decision regarding the choice of pallet size and resulting supply chain efficiency is based on the effect of pallet size on pallet cost, transportation cost, and warehousing cost. These costs will depend on pallet disposal costs, pallet load carrying capacities, pallet deck surface utilization, reusability of pallets and the revenue they may generate, floor utilization of freight containers, and the compatibility of warehouse racks.
This research investigated the relationship between global supply chain costs and pallet sizes. Table 1 illustrates the supply chain cost configuration used to examine each pallet size. Some factors such as pallet purchase price, pallet disposal cost, pallet durability, the cost of shipping a freight container, and
Supply Chain Channels Between
There are many supply chain channels by transport mode between Northeast Asia and North America. Six typical supply chain channels were analyzed. As an example of one supply channel—Northeast Asia to North America—a manufacturer loads products onto pallets and into a freight container at the factory in a Northeast Asian country. The freight container is transported to port and loaded onto a ship. At the destination port in North America, the freight container is unloaded and transported to the warehouse by rail. If pallet sizes are compatible with the pallet racks in the warehouse, products on the pallets are racked. If not, pallets are repalletized and then racked. If the pallet size used is the same as that used by the receiver, the pallet will be reused. If not, it is chipped or sent to landfill. For two other supply channels, the difference is that the products are transloaded from a freight container to a domestic container or trailer for inland transport.
The transload process is the movement of the product from freight containers to trailers. The primary advantage to using trailers is that they afford greater volume, which benefits lightweight cargoes. Most of the major long distance trucking lines have almost entirely shifted their fleet to 102” wide x 53 foot trailers (JB Hunt, Swift, Schneider, etc.). The railroads also own a significant number of trailers. A domestic 53 foot trailer, if not weight-limited, can handle up to 69% more product than an international freight container. This can provide a significant cost advantage for shippers to transload shipments from international customers to domestic trailers. For this research, the transportation distances assumed are 250 miles by truck, 1,000 miles by rail.
Comparative Costs Assuming the Packaging Fits the Pallet
The model is applied to five supply chain channels between Northeast Asian Countries and North America. For this analysis it is assumed that the packaging fits 100% of the pallet deck area. The first three supply chain channels are from Northeast Asian Countries to North America (East Bound), and the others refer to supply chain channels from North America to Northeast Asian Countries (West Bound).
Table 2 (page 23) presents the results obtained by the simulation of one pallet moving through the entire supply chain with the data of five supply chain channels and three country pairs. Table 3 presents the results obtained by the simulation with two pallet sizes in two supply chain channels that use international freight containers and domestic trailers. In a two pallet system it is assumed that 1100 x 1100mm pallets or 1200 x 1000mm pallets are used in international containers while 1219 x 1016mm pallets are used in domestic containers in North America. Repalletization is required in two pallet systems.
The 1219 x 1016mm pallets are the lowest cost pallet size in all of supply chain channels from Northeast Asia to North America (East Bound). With respect to transport cost only, the 1100 x 1100mm pallets are the lowest cost pallet size in East Bound supply chains. However, 1219 x 1016mm pallets had the best performance in total supply chain cost including reusability of pallet and warehousing cost. The 1100 x 1100mm pallets are an economic pallet size in all supply chain channels from North America to Northeast Asia (West Bound) because reusability of these pallet is high in Northeast Asia, while transportation costs are low. The difference in cost per ton of product is between five and six percent. This is a considerable difference between the supply chains given the millions of tons of product being transported through them annually.
Incorporating two pallet sizes in a system, such as the 1100 x 1100mm pallets used in sea transport and the 1219 x 1016mm pallets used in inland transport of North America, is not recommended. Using two pallet sizes can reduce transportation costs due to high floor utilization of container used, but the increase in labor cost from changing pallet size offsets the decrease in transportation cost.
It is understood that the actual decision regarding which pallet size should be used will depend on who within the supply chain pays what portion of the distribution and storage costs. This analysis considers relative total cost to all parties involved in the transaction.
Comparative Supply Chain Costs Assuming Packaged Product Fits Less Than 100% of the Pallet Deck.
The effect of packaging and pallet deck coverage on supply chain cost will be analogous to the relative effect of pallet size and its fit to equipment when the packaged product fits 100% of the pallet deck. Based on this premise a “break-even” percent of pallet deck coverage by packaged product can be found. Table 4 and Table 5 (page 30) provide this breakeven analysis for east and west bound freight, respectively.
For example, if the packaged product for east bound freight in a supply chain between Japan and North America occupies less than 95.1% of the 1219 x 1016mm pallet deck, the lowest cost pallet size would be the 1100 x 1100mm with 100% coverage. If the packaging for west bound will fit 95% of a 1219 x 1016mm pallet deck and less than 79.6% of freight of an 1100 x 1100mm pallet deck, then the 1219 x 1016mm size should be used. While this is theoretically true, this situation is unlikely to occur because of the relative size of the pallets. The selection of a pallet size will, however, be very sensitive to how well the package product fits the pallet deck.
The results indicate that the most cost effective pallet to use is the pallet size of the receiving country—the 1219 x 1016mm pallet for eastbound shipments, and the 1100 x 1100mm pallet for westbound.
The analysis presented above demonstrates the importance of the reusability of pallets on operational conflicts between different pallets sizes and warehouse equipment at the destination. It also demonstrates the importance of the relative fit of packaged product to the pallet decks on international supply chain costs and decision making regarding pallet size. Although one pallet size may have the best performance when loading pallets into the container, or when loading products onto pallets, it may be not the lowest cost pallet. The various supply chain channels presented here demonstrate the strength of using a simulation approach when selecting pallet size.
The use of the cost model to evaluate global supply chains also provides insight into the factors that most affect pallet size decisions. While the examples presented here are reflective of supply chains between Northeast Asia and North America, international trade in other regions may produce different results using this cost model. This simulation approach can be used to simulate other supply chains.
The absolute cost of using a particular pallet size has not been the focus in this research. The emphasis has been on proposing a cost model and assessing the relative cost of supply chains using different pallet sizes.
The effect of pallet sizes on supply chain costs between two countries is significant. This cost model now provides a unifying framework for assessing the global supply chain costs, and enables an understanding of factors that influence the pallet size decision. Most importantly, this research shows that with proper pallet size selection reductions in physical distribution costs of between 5–6% can be achieved for products shipped between Northeast Asia and North America. For more information, please contact Dr. Marshall White at the Virginia Tech Center for Unit Load Design (www.unitload.vt.edu/).
Dr. Shin–Research Fellow, Center for Logistic Transportation Economics and Northeast Studies, The Korea Transportation Institute, Goyang-si, Korea.
Dr. White and Dr. Han are respectively Professor and Assistant Professor, Center for Unit Load Design, Department of Wood Science and Forest Products, Virginia Tech, Blacksburg, Virginia, USA.