In a 2007 article, we looked at reverse logistics operations that some customers might be interested in outsourcing to a trusted service provider – such as their pallet supplier. Reverse logistics encompasses after sales logistics services, such as moving empty pallets, containers, kegs, old corrugated cardboard, as well as obsolete retail fixtures.
In this article we continue to explore logistics services that pallet suppliers potentially can provide to customers, creating new streams of revenue. This time we focus on forward logistics opportunities, which include such activities as handling, shipping and storing at various links in the supply chain toward the ultimate point of sale.
When it comes to looking at new opportunities outside of the traditional scope of pallet sales and services, logistics experts stress a few key points, including the importance of customer relationships and confidence, and doing your homework before offering a logistics service.
Expanding Relationships
“It is hard to come cold into warehousing,” said Ken Ackerman, a respected author and editor-publisher of Warehousing Forum, a monthly newsletter. His newest book, Auditing Warehouse Performance, was released in 2003; his Warehousing Tips book was published in 2001.
There has long been a natural synergy between the pallet business and the logistics business, Ken observed. While warehousing historically has been an entrepreneurial business, it is getting harder to break into the industry because of the increasing emphasis on software and corporate reputation.
One large public warehousing company in the Western U.S. now has CHEP as its largest customer, providing a range of sorting, repair and other logistics services. While pallet companies may be looking to break into other areas of logistics, the reverse holds true for some warehousing companies that have become actively involved in pallet pooling operations.
Trucking companies are good candidates to try warehousing. Ken offered the following scenario: ‘Joe, you’ve always given us great trucking service, and we want you to store stock for us now also.’ “Joe doesn’t necessarily want to get into the warehousing business, but he may feel he has to,” Ken added. That is typically when a trucking company seeks Ken’s advice.
Ken suggested that a pallet company that does a good job in the pallet business probably has or could acquire the capability to do a good job in logistics. There is a catch, though. Logistics services are very competitive. It is also a high stakes arena; pallet companies may find their customers are reluctant to give them this type of business without a successful track record. Unless a company has a great deal of confidence that its pallet supplier can provide new logistics services, decision makers will be reluctant to change to an unproven partner.
Transportation Opportunities?
David Luton, a veteran Ontario-based material handling consultant and columnist, also stressed the importance for pallet companies to work with existing relationships and transportation flows if they wish to expand into logistics.
“Generally speaking, I would say there are more transport opportunities for pallet companies than in warehousing,” suggested David, who was consultant to the Canadian Pallet Council stretching back 20 years.
Pallet companies locate in older warehouses in a “less expensive part of town” in order to keep costs down, David noted. “It is the nature of the pallet business, which is so competitive.” Those kind of aging facilities may not be ideal for modern warehousing needs. For example, the ceilings may be too low for efficient storage, or the number of dock doors may be inadequate; also, the docks may not be designed for the fast unloading and loading of trailers.
Because of these kind of issues related to aging facilities, David sees better opportunities for pallet companies in the area of transportation services, not warehousing. “It has to do with the flows of traffic,” David said. “If a pallet company can pick up loads as a natural back-haul – such as from a customer after delivering a load of pallets or from a nearby location, then it could be a good opportunity.”
The opportunities may be even greater for pallet recyclers, added David. Recyclers tend to be better situated near major centers of business. For pallet manufacturers located in rural areas, there will be fewer opportunities in transportation.
David does not recommend upgrading building facilities to take advantage of potential warehousing opportunities in the absence of serious planning. “You have to decide what business you are in and approach it with the same rigor that you would if investing in new pallet production capacity,” he said.
The best business opportunities likely will spring up as additional services with existing customers where good relationships already exist, both consultants agreed.
Case Study
About 18 years ago, Scott Jones (name changed by request) was an independent truck owner-operator. He delivered specialty products for one customer directly to supermarkets (direct store delivery or DSD). Often he had to wait for other trucks that already were at a loading dock, or, alternately, other trucks had to wait for him to unload.
After a few months he had a bright idea that he put into motion. Other truckers soon were bringing all their DSD products to him at a small warehouse he acquired. Scott collectively delivered all these goods to the stores. This saved a lot of transport mileage for the other companies and eliminated the back-up of trucks at each store’s loading dock.
As luck would have it, the business took an even larger leap forward in profitability several months later. A grocery chain executive didn’t like the fact that their own trucks had to wait for Scott, who offered a simple yet extremely attractive proposal. Scott would accept and palletize goods from all the specialty suppliers for each specific supermarket, he would deliver those store-specific pallets to the supermarket chain’s distribution center, which could cross-dock onto its own loads for each store, saving Scott the cost of delivering to each store.
The result was a significant cost savings to the vendors and a growing business for Scott, who hired a handful of workers to receive, sort and ship the products. It was also a good solution for the supermarket’s transport department, which no longer had to wait for other trucks at the supermarket loading docks.
Although Scott didn’t have a name for his service at the time, others told him later that he had invented a cross-docking and load consolidation business. A few years later he sold the business, but it remains a prosperous company today.
Transportation
As mentioned by David Luton above, where a pallet company trailer van arrives empty to pick up pallets or where it leaves empty after delivering pallets, there may be an opportunity to provide competitive transportation services on the empty back-haul or fore haul.
Another service that is sometimes of interest to customers is renting trailers to temporarily store product during building overfill situations. In the world of ‘lean logistics,’ they often do not wish to own and carry surplus trailers as assets.
One trucking company keeps a small fleet of trailers at a distribution center and rents them at $40 per day as needed by the distributor with an additional charge of $2.50 per hour for refrigerated loads.
Custom Packaging, Load Building
A manufacturer often may not have the manpower or space available to allow for custom palletization of specialty retail display pallets or ‘rainbow’ pallets (layers of different products on the same unit load) and may welcome a reliable partner to provide this service.
Likewise, inbound pallets to a consumer products distribution center may have to be downsized from a tall pallet that fills up the truck to a shorter pallet that fits a distribution center’s racking system.
One public warehouse charges in the range of $1-$1.20 per hundredweight for ‘reworking of pallets. A 2,000-pound pallet, therefore, would generate about $20-$24.
Cross-Docking
Where product is not depalletized and is unloaded from one trailer to another, some companies charge a flat fee, such as $10 per pallet, while others may charge an hourly rate ($30 per hour in one case). Cross-docking requires dock doors, dock space, material handling equipment and a small group of workers.
Sequencing, Kitting
Due to a number of constraints, a manufacturing plant or warehouse may need help managing the inflow of materials or products into its plant. This creates business opportunities in areas such as kitting and sequencing.
In kitting, the partner would take parts or materials from bulk supply inventories and put together the necessary combination to be delivered to the production plant for the technician to assemble into a specific product. This is attractive to businesses because it reduces labor and storage requirements on the production line while often improving ergonomics and increasing production speed.
In sequencing, incoming product may be reloaded in a different order to minimize handling and storage requirements during production or assembly. This is a type of cross-docking. Likewise at a distribution center, pallets pre-picked for each store at a distant location can be reloaded and delivered in the sequence required to meet that particular day’s shipping schedule — if that schedule changes from day to day.
Container Destuffing
With more and more product coming from around the world, destuffing ocean containers has become a growing business. However, containers can tie up a dock door for an entire day, David warned. “Often pallet companies have a shortage of doors,” he said. Nonetheless, some smaller public warehouses perform container destuffing and palletization services, again at similar charges to ‘reworking’ pallets.
These are just some value-added services that companies considering the logistics domain might consider — in addition to the basic warehousing activity of receiving, holding and shipping of inventory.
As the consultants suggested above, it is best to look for new opportunities where good relationships already exist; do your homework in terms of business analysis before undertaking a different type of business opportunity.
Last but not least, look at how customers can benefit from your help in a way that may not fit into a particular category as outlined above. Like Scott Jones, you could invent a new type of service that will be invaluable to your customer — as well as your bottom line.
