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CHEP Uses Technology to Meet Supply Chain Challenges: Pooler Institutes Quality Control Program, Six Sigma Principles
CHEP Quality Initiative: CHEP says its customers are seeing the benefits from a $100 million quality improvement program it launched last year; the company has improved pallet repair standards and more.
By Carolee Anita Boyles
Date Posted: 2/1/2009
As technology advances, the needs of the supply chain change. For many companies that recycle pallets, this can present serious challenges. For CHEP, the operator of the largest private pool in the United States, these challenges have resulted in innovation and enhanced quality control initiatives.
Although managers at CHEP were aware that changes were taking place in the use of pallets in the supply chain, what brought those changes into clear focus was comments by some of their customers.
“We do an annual customer satisfaction survey,” said Skip Miller, vice president of the quality for CHEP USA. “We cover everything to do with the pallet pooling business as it relates to CHEP. When those results come back, we adjust the initiatives within our business to address our customers’ concerns.”
As part of addressing those customer concerns, Skip said, five years ago CHEP initiated a Six Sigma program to improve customers’ overall experience with the company. He described Six Sigma as a standard, very rigorous, data-driven program that drives undesirable variation out of all aspects of a company’s process.
Skip said the difference between Six Sigma and other total quality management programs is its focus on process controls to monitor performance and developed action steps to rectify problems. Despite the best of intentions, employees tend to take their eyes off the key issues when the initial focus starts to wane. Skip explained that other approaches do a good job of analyzing initial problems but they lack the statistical analysis to ensure long-term success.
Many of CHEP’s customers are large manufacturers of package goods, giving the company significant penetration into the food, health and beauty markets; as a result, they’re at the forefront of adopting automated product handling systems. Over the past couple of years, these customers began indicating that the variability of CHEP’s pooled pallets was causing issues with the level of automation they’re currently using. As a result, CHEP instituted a Six Sigma program to reduce the variability and improve the quality of pallets in its system.
CHEP announced a $100 million quality improvement program last year in the United States. These funds were used to improve repair standards, study best practices, develop and educate staff on new quality control standards, and install more inspectors and equipment.
Derek Hannum, CHEP’s director of marketing, said that the dimensional precision of pallets is very important to many of its customers. This covers everything from top deck coverage, missing or out-of-position blocks to protruding nails, etc.
Derek said, “What we were hearing through our customer service surveys was ‘The pallets don’t meet my needs as well as they once did, because my needs have changed.’”
While it is true that automated material handling equipment is increasing the need for consistency of pallet design, some CHEP critics contend the real problem was more that CHEP had reduced the number of pallets it was repairing to boost profits. Others wonder the impact of the entrance of iGPS as a major competitor in the U.S. rental market. Derek pointed to the fact that CHEP’s quality control initiative started years ago and denied any real cause other than changing customer demand. Regardless the reason behind the moves, CHEP is working to remedy any consistency and quality problems of the past.
Derek said the move by CHEP to address these pallet quality issues is part of a company wide effort to respond to customer concerns. A few years ago CHEP worked on just-in-time deliver and billing concerns. Now, the company is focusing on overall quality control and customer care. Similar efforts are taking place in the international divisions of CHEP. Currently, CHEP has 450 service centers in 45 different countries with a very diverse customer base.
A visible sign of CHEP’s renewed commitment to quality is the increase in the number of quality control personnel. CHEP used to have roving inspectors that visited various plants. Now, the company has dedicated personnel for each facility. Derek said, “We now have over 100 people in CHEP USA dedicated entirely to quality, which is a lot for a 700 person company.”
One trap the company didn’t want to fall into, Derek said, was focusing on the needs of one customer while neglecting others. “We wanted to improve the overall process,” he said. “So we’re working with overall quality control plans so it’s not a one off thing for a certain customer; it’s a process that’s sustainable for all customers.”
Over the past year and a half, CHEP has developed a dedicated quality control organization, studied global operations to find the best practices and put a major emphasis on educating personnel about new quality initiatives. For example, the Orlando service center utilizes technology from around the world (see Figure 1). The inspection equipment came from Europe, the pallet repair line from the USA, and the pallet turnover unit from Australia.
“As a result we’ve developed for all of our service centers—where all the pallets return to, and where we inspect and repair them—a process control plan based on quality processes that are standard within the industry for this type of work,” Derek said. “We’ve implemented that process control plan at all the service centers in the US, and it’s the same in every service center, of which there currently are 85.”
A similar process is in effect at the company’s TPM—total pallet management—facilities. Here, CHEP looks at a portion of a customers’ warehouse and inspects the pallets on site. Pallets needing repair are sent to a CHEP service center.
As this process is proceeding, Skip said, CHEP is developing new technologies involving the inspection of pallets. “Currently, all the inspection is done by people,” he said. “But we’re in the process of developing what we call ‘automated digital inspection,’ or ADI.”
ADI uses a series of cameras and lasers to take an image of the pallet and compare it to the specifications in the computer. Then the computer makes a decision as to whether the pallet is within specifications or needs to be repaired. The system’s primary purpose is to reduce the variability in the inspection process, so we ultimately have reduced variability for the finished product, so that the pallets that need repair are sorted out for repair, and that the ones that are good to go are sent on. It’s not designed to increase throughput or reduce cost.”
Skip said the company currently is testing the ADI system to evaluate the same number of pallets as a human operator, about 600 an hour.
“We have the prototype installed in our Dallas, Texas service center,” he said. “As we develop it we test it, so we still have a human there to back up the computer so we know it’s making the right decisions.”
CHEP doesn’t have a target date for when the ADI system will be in full use, Skip said.
“We’re continuing to work on it, and as soon as it’s ready we’ll look at the capital investment required, and see how long it will take to roll it out,” he said.
Although the hardware and software involved in this system currently are proprietary, Skip said he believes this is the first time the specific products have been used in this kind of an application.
“I don’t know of anyone in the pallet industry that’s using this equipment in this way other than CHEP,” he said. The primary benefit of the ADI system is reduced variability of pallets due to more consistent inspections. People tend to be less precise than machines when it comes to inspections according to Skip.
Beyond high tech solutions, CHEP is making little changes too that will reduce costs and make their facilities leaner. Skip said lean manufacturing is all about taking waste out of a process primarily by reducing steps, simplifying processes and eliminating unnecessary handling. This requires getting rid of actions that don’t add value to the product. For example, CHEP has set up inspection areas as close as possible to the dock doors. The placement of materials, tools and conveyors is being maximized to improve the use of space and make everything more efficient. Bottle necks are a sure sign of a process that needs some reengineering. The company is evaluating every step in its repair facilities and asking what value the process adds to the pallet. Graph 1 shows the layout of the Orlando facility, which has become a model for other facilities in CHEP’s U.S. network. CHEP actually shrunk the size of the old Orlando service center when it launched the new one in 2005 even though it processes just as many pallets.
Individual service centers may vary depending on the volume. Some facilities have fewer conveyors and less automation. Generally, pallets are sorted immediately to determine which ones need to be repaired. Inspectors at the end of the line, pull random audits to ensure quality.
“We’re always looking for ways to optimize our supply chain,” Derek said. “This includes the depots and the service centers. Over the past two years we’ve increased the number of service centers we have. As we grow with our customers, the volume increases, and as we add new customers, we always want to be strategically placed so we’re close to those customers.”
Education has been a major key for revamping service centers with CHEP’s process control plan. Establishing clear procedures and making sure that all employees know them has helped to improve consistency and capacity. At the core of the transformation is a process control plan that details quality standards, practices and policies. This information has filtered throughout its network to ensure more consistency because CHEP relies on primarily third party contractors for many functions in its U.S. pool.
All of this doesn’t mean the physical requirements for CHEP’s pallets have changed.
“The basic specifications of the pallet are still the same,” Derek said. “We’re just optimizing the process around identifying and repairing the pallets so they meet those specifications.”
One thing that’s not an issue, he said, is the age of the pallets in the pool.
“We don’t have any way to track that yet,” he said. “We don’t mark pallets by when they’re manufactured, so some of the pallets in the pool may have been there since Day 1. However, pallets are repaired multiple times, so it’s really difficult to say what the average age is. What we can say is that the age of the pool hasn’t created the issues we’re having; it’s a combination of process control and more automation of our customers, requiring more stringent specs.”
CHEP continues to evolve its pallet design. For example, CHEP announced the development of the Blue Step Pallet program.
“Blue Step pallets are designed to be more durable and require fewer repairs on average than today’s pallets,” Skip said. “However, we haven’t launched this program yet, so it’s not in the marketplace. It’s about a three-year R&D project, but we’ve taken some of the technologies from that project and incorporated them into the existing specs.”
Changes address major customers’ concerns including the use of composite wood blocks, which are more durable and have better nail retention. CHEP has also switched to using clinch nails, which are more secure. Additional design improvements include nail placement because pallet failure tends to occur at the joints.
Once the Blue Step pallets are fully implemented, Skip said, they will migrate into the CHEP pallet pool nationwide and will work seamlessly with existing pallets, as their size and dimensions are identical with the current pallet pool.
“We plan to launch Blue Step sometime during 2009,” he said.
Customers are noticing the changes that CHEP is making, and are commenting on the improved quality.
“They say they see more consistency in the pallets that we deliver,” Skip said. “Because it’s a process control plan and it’s sustainable, it’s implemented across all service centers, so all our customers are seeing a lot more consistency.”
The dynamic nature of supply chains and customer pallet demand means that customers are likely to receive pallets from various service centers.
“In the past, customers would see variety in the pallets from a particular service center but also greater variability between service centers,” Derek said. “That’s what customers say they’re seeing go away, and that’s how they know we’re taking a systemic approach, which is what they wanted.”
Some of the biggest changes in CHEP’s system, however, are not the pallets themselves; they’re in the way in which the company relates to its customers. Skip commented that CHEP is working to be customer-centric and to look at the entire customer experience.
“One thing we’ve realized is that we need faster response time,” Derek said. “So over the past 18 months or so we’ve initiated ‘pulse’ type surveys, Internet-based surveys where we can poll plant operations folks and find out how the changes we’ve implemented have affected them in the past 90 days.”
Derek explained that there’s a sense of urgency because customers are making big investments in new equipment and new facilities. Using pulse-type surveys helps CHEP make sure its changes are on the right track.
Another thing that CHEP has learned is the importance of engaging customers in the improvement process.
“We can’t improve our processes in a vacuum,” Derek said. “Engaging the customer is going to be important for us going forward, particularly in the areas of product innovation, service innovation, and process innovation. We’re involving our customers in the process more than we ever have before.”