There’s nothing that can sour a business relationship like a mammoth surprise bill. This is especially true for a rental pallet program. But smart management can keep your pallet program costs inline with initial projections.
As the largest pallet rental company in the world, CHEP is a significant force in the global supply chain. Thus, it is only natural that negative criticism arises when CHEP customers are informed of lost pallet charges. These costs for missing blue pallets are called Lost Equipment Notices (LENs).
Make no mistake, despite the subtle differences in pricing structure, iGPS and PECO will have similar issues as they obtain more market share from CHEP. The point that needs to be made very clear to the program administrator is that all rental pallet programs are self-managed with emphasis on the self.
Pallet rental companies promise no headaches and ease of use. But in reality, rental programs tend to come with different headaches from a typical one-way pallet model.
CHEP’s online pallet management system, Portfolio Plus, is a great piece of technology designed to provide customers the information they need to succeed. In its recent reorganization of CHEP USA, the company eliminated field Customer Service Representatives. All reports that were supplied by those reps are now available online 24/7. This includes Flow-thru Ratios, Transfer Ratios, Account Balances, Invoices, Transaction Listings, Inbound and Outbound movements, and much more.
Despite strong computer tools, many CHEP customers are still losing a significant number of pallets. This is because the real problems are caused by human decisions not a lack of technology in most cases. So the question is, “How can you avoid a LEN at your company?” The answer is to learn your company’s supply chain and how it relates to your rental pallet program.
Learn Your Supply Chain
In many cases, the administrator of the rental pallet program is a clerk in shipping or another administrative position. Clerks are often charged with many tedious tasks. And they may not have the authority to manage or expertise to understand how variables in a company’s supply chain work.
If you take the produce sector for example, many farmers barely have computers in their shipping operations. In almost all cases, farmers are not worried about reconciling the rental pallet program until after the season is over. This provides a perfect example to discuss what could go wrong and what to do about it. Figure 2 is a typical flow chart of how pallets move through a produce company.
Produce companies receive pallets from outside companies, such as 3PLs, raw material suppliers, packaging suppliers and inbound international shipments. When the produce company receives pallets from the rental pallet company, they are shipped to the field where produce is boxed and put on the pallet. The pallet is then transported back to the produce company where it is processed, stored and shipped. Many times the produce company will use co-packers to pack and store their fruit, other locations within the company’s network, as well as outside storage facilities. When the product is sold, it could go to several sources prior to arriving at the end user, such as produce brokers. Most rental companies rarely work in tandem with produce brokers, which are generally considered Non-Participating Distributors (NPD). These supply chain participants can be a major source for pallet losses.
As produce companies become more sophisticated, more international shipping is being done. Inbound shipments from produce bought from Mexico and South America have proven to wreak havoc on rental pallet inventory management for North American receivers. After the produce company has received all inbound pallets from various sources, these pallets are sent to a distributor or end user. From there, CHEP arranges or collects the pallets for sort, repair and reissue.
Anyone running or managing rental pallet inventory should be required to know and understand how the supply chain works. This includes all vendor inbound shipments, customer outbound shipments, quantities, as well as who should not be shipping rental pallets into your facility.
International Shipping Challenges
Figure 3 is an example of the same produce company and how it transmits both inbound and outbound information to CHEP. When the produce company receives pallets from CHEP, the load information is automatically transferred to its Global Identification (GLID) number. No system is perfect. Although mistakes are rarely made, you will need to verify received quantities versus the bill of lading number. Most inbound and outbound reports from the rental company will be accurate, indicated by the solid green line. International shipment inbound records have proven to be inaccurate on many transactions. This is a result of incorrect GLID numbers or quantities. Because international shipments from South America are often shipped by sea container, quantities will be high. A rule of thumb for an average load inbound from another CHEP customer will usually not be more than 100 loaded pallets. Sea containers could hold over 250 loaded pallets. Verify purchase order numbers versus your bills of ladings when it comes to all international shipments.
Managing Multiple Locations
Next, know all of your business locations. Produce companies especially will ship pallets and packaging material to several locations before the finished product is built and shipped. Produce companies may harvest/pick several fields in a season. There is no visibility between the pallets leaving the main facility to the field. Additionally, if the company has several facilities, there is rarely reporting between the multiple inter-affiliated locations. These movements are indicated in the solid red lines in Figure 3.
Inbound loads from 3PL’s, raw materials, and packaging material can be shipped on a rental pallet. These loads are not always reported in the pallet management system. Frequently, these are pallets that suppliers received, then packed and shipped without any visibility from the rental pallet company. This explains why it has a broken one way red arrow indicating inconsistent reporting. Medium to large produce companies can pick over one million 18 lb. cases of grapes in a two week period. As a result, many of the growers will use outside storage and co-packers to compensate.
Produce brokers are the one area that gets limited visibility. For the most part brokers are not cooperative in discussing who their customers are. They would rather not deal with any of the rental pallet companies. In addition, the storage facilities, co-packers, or brokers report their transactions. This is the responsibility of the grower, who needs to discuss reporting if the product is going to be shipped on a rental pallet. Ultimately, it is up to the shipper to report as they are responsible for the pallet until it is received and transmitted to the end user.
There are many other causes for inventory loss besides failure to map your supply chain. Looking at Figure 1 you can see the different areas of risk. Areas where loss can occur are on the shipping dock, the receiving dock, in transportation, in the field or off site locations, administration, and inter-affiliation and co-packing sites.
The biggest causes of lost pallets are a lack of training, information flow, and shrink. There are many aspects to the supply chain, which can complicate efforts to understand and run a rental pallet program. Knowing every area the rental pallet touches in your supply chain can help identify problem areas and avoid costs associated with lost pallets.
Andrew Mosqueda is a former Inventory Project Manager and Customer Service Rep for CHEP USA. He has extensive experience with pallet rental and recycling programs for major shippers. Andrew can be reached at mosqueda.andrew@gmail.com.
