As third-party logistics providers come to play an increasingly important role in supply chain management, it can be useful for pallet professionals to understand how these businesses approach pallets for their clients.
Cardinal Logistics, a major third-party logistics provider, offers a range of approaches to pallets and pallet management, depending upon the needs of its customers. Services include pallet retrieval operations in the construction sector, conventional distribution center pallet management, and delivering new and refurbished pallets for CHEP, depending upon the requirements of the application.
Headquartered in Concord, N.C., Cardinal is one of the country’s leading dedicated and delivery transportation solution providers. With 20% annual growth over the past three years, yearly revenues now exceed more than $430 million. Cardinal’s customer base continues to grow and includes such diverse top-tier Fortune 50 companies as Home Depot, Office Depot, 7-Eleven, Georgia-Pacific and many others in the retail, food, manufacturing and pulp and paper industries.
President and COO (Chief Operating Officer) Jerry Bowman talked to Pallet Enterprise about Cardinal’s approach to pallets with various clients. He also discussed some innovative ideas about pallet retrieval in the construction sector and his philosophy behind the development of a successful relationship with CHEP over the last five years.
Incentives Improve Retrieval, Recovery
Managing and recovering pallets is a function performed to varying degrees for Cardinal’s many customers, depending on the specific needs of their business.
One industry where pallet management can be critical is in deliveries of building products to construction job sites. The construction industry is characterized by low volumes of pallets delivered to numerous job sites; pallets frequently have to be picked up after a shipment of products has been delivered because pallets usually are not emptied immediately.
“In the construction industry, when we go to job sites we have found the ability to get return pallets at the time of delivery is not as good as you would want it to be,” Jerry said.
Cardinal trucks frequently return to job sites days after making deliveries in order to pick up empty pallets. In response to this problem, Cardinal developed some innovative incentives for its truck drivers, customers, and in some cases its customers’ customers.
“They get a price break or a pricing differential if they will remove the product at the time of delivery so our driver can go ahead and return those pallets in one trip,” Jerry explained.
“Obviously, it is expensive to send a truck or a truck and trailer back just to pick up pallets and not product, so we have some driver incentive programs where we pay a reward for every pallet that is brought back on the return trip of a product delivery. Our customers often give their customers a discount if we can bring back the same amount of empty pallets from their drop site as the number of pallets we went there with.”
The construction industry is challenging for pallet recovery and retrieval because the job sites often are not set up for or prepared for receiving, Jerry added. They don’t always have the labor or space, so they just want the palletized building products unloaded and the delivery truck to be on its way. “We have to work diligently every day just to make it work,” said Jerry.
In the construction application, success probably just means you have minimized the aggravation because pallet retrieval from job sites is extremely difficult to do flawlessly, Jerry added. “There are too many variables. Our goal is to make it as least costly as possible to everyone involved.”
Sophisticated Information Technology Resources
Cardinal Logistics, which does not provide pallet repair services, can bring considerable information technology sophistication to the table for the real time tracking of pallets through its proprietary operating system. The system has the ability to manage returns, whether drayage or products, just as for outbound product.
“Some customers also implement our handheld technology, enabling the creation of both outbound and inbound electronic bills of lading,” Jerry said. “Our drivers can record (pallet information) on site at the point of delivery or the point of pickup back into our system so a perpetual inventory of our reusable pallets can be kept. We can tell the customer that at location #1, we dropped off 23 pallets, but there were only 18 reusable ones that we could pick up and return, so they owe you five pallets. We provide this service because it isn’t really a core competency for some customers to manage pallet operations.”
Pallets can be a significant challenge for companies that have products palletized because there is “an awful lot of money in this whole process,” said Jerry.
Cardinal’s innovative driver incentive program is a key component to its success in the construction industry. “Our drivers can make an extra $100 or $150 per week if they really manage the pallets,” Jerry said, “and work with the customer at the delivery site to find a way to get the product unloaded or to find the empty pallets to bring back to balance out their load. From our standpoint, the driver is the one on the firing line who can really make things happen.”
Cardinal offers a variety of incentives for drivers with the best retrieval records, including free dinner packages, but money seems to be the best incentive.
In other third-party logistics relationships, such as providing warehousing and distribution services for 7-Eleven, pallet management is less central to the client’s business. In 7-Eleven operations, outbound shipments are unpalletized; perishable fresh products are delivered daily to stores in insulated containers.
For palletized shipments inbound from suppliers to customer distribution centers, Jerry noted that customers typically already have relationships and a system in place to manage pallet transactions, such as pallet exchange, pallet rental or other options.
“We can offer them some improvements from our knowledge of what we have seen work to enhance their efficiency,” he said. “In most cases pallets are a significant cost factor, so they already have a system set up to manage it themselves or outsource it, and we typically follow that direction.”
Cardinal and CHEP:
Successful Outsourcing
While the logistics of pallets can be an important variable to customers in the construction industry, pallet logistics is the business for one key Cardinal Logistics client, CHEP.
Cardinal is one of the several major players that provide U.S. transportation services for the world’s largest pallet rental company.
Cardinal initially was involved in providing dock sweep operations for CHEP, picking up empty CHEP pallets from CHEP customers. Now, however, its services to CHEP are concentrated on delivering new and refurbished pallets to CHEP customers. Dock sweep operations have been in large measure contracted to other service providers that sort and repair pallets, Jerry said.
“We first started delivering for CHEP four or five years ago, and we have grown that relationship substantially since then,” Jerry said. “We’ve helped them grow into new markets and helped them stabilize other markets where they had issues.”
Commenting on Cardinal’s third-party relationships with customers, whether providing non-core pallet management activities for a building products manufacturer or core pallet delivery operations for a company such as CHEP, Jerry emphasized that outsourcing is very much a close business relationship, and the relationship is at the heart of its success.
“Outsourcing only really works well when both parties share similar goals,” he said. “It is important that you have a contract and financial arrangement driving efficiencies into the business benefiting both parties. If your goals are not aligned, and your financial rewards are not aligned with success for both parties, it is not going to work long term.”
For more information on Cardinal Logistics, visit www.cardlog.com.
