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Copyright © 2007 Logistics Consulting Asia
Real Benefits from Pallet Standardization – A Case Study
John Talbot – CEO, Logistics Consulting Asia
David Edwards, General Manager – Business Development, Loscam Asia
The business• Background
– Multinational FMCG manufacturer– National market leader in beverages– Product produced at multiple factories –
mostly rural– Sales primarily in urban areas– Direct delivery to over 300,000 customers– Modern trade increasingly important (and
demanding)
The business’ logistics challenges• Relatively low value
product• Rural sources, but
primary markets in towns/cities
• Fuel costs rising (oil price & removal of subsidies)
• Product damage in transit
• Only 2-3 days pipeline inventory
• Growth of modern trade
Logistics cost as high % of revenue
Maintenance of service levels
Solution: logistics capability development program• Logistics consultants have been supporting the
business since 2005, managing a range of supply chain development projects:– Network analysis (optimal location for new plant lines)– Demand / production planning automation– Factory off-take time-slotting– Logistics skills development– Improved product care– Transport cost reduction – Factory & depot productivity
& performance upgrades
Supported by pallet standardization
Concept development thru piloting• Pool pallets and drive-in racking piloted at 1
factory and 1 depot
• Key lessons:– ECR format preferred to hi-stack– Acceptance much higher where training more intense– Acceptance much higher when scale of pilot is
substantial
(otherwise it has a nuisance factor)– ECR format opens opportunities for packaging cost
reduction
Pallet standardization benefits sought
1. Reduce pallet acquisition costs
2. Utilize drive-in racking
3. Reduced transport costs & product damage
4. “Soft Benefits”
• Operational discipline• Customer service
1. Reduce pallet acquisition costs• Imperative to review “owned” pallets
– Current 2-way (1220 x 1050) pallets– Too expensive (due to high damage rate and loss)– Undermine product care due to poor quality– Do not support installation of pallet racking– Cost of Capital (bank interest) increasing– Pallets are normally cannibalized for repairs
destroying investment – Headcount and consumables
required to repair pallets– Need redundant pallets for
peak season – Avge 3 years life
2. Utilise Drive In Racking
• Agreement that best alternative is 1200x1000 industry standard pallet “ECR Pallet”
• Utilize drive-in racking– Increase storage capacity by 70%
• Increase inventory build capacity
3. Reduce Transport Costs & Product Damage
• Reduced transport costs– Compatibility with modern vehicles– Better vehicle utilization– Faster turn-around– Increase in direct deliveries to
modern trade
• Reduced product damage– Due to block-stacking– Due to timber/nail damage– Due to movement in transport
4. “Soft” Benefits
• Operational discipline– Better handling practices– Safer work practices
• Customer service– Better protection of product through to point-of-sale– Compatibility with modern trade standards
Copyright © 2007 Logistics Consulting Asia
LE
VE
L O
F S
UP
PL
Y C
HA
IN S
OP
HIS
TIC
AT
ION
INFLUENCE OF MODERN RETAIL TRADE
HIGH
LOWHIGH
PHP
INDO
THAI
HKG
SINGMAL
CHN
INDVNM
Retail Market Maturity
Direct to Store – sustainability?
SUPPLIERWAREHOUSESUPPLIER
WAREHOUSE
Orders
Transport
Centralised Distribution Driving Efficiencies
SUPPLIERWAREHOUSE
MODERN TRADE DC’S
MODERN TRADE DC’S
One consolidated order not one order per store
SUPPLIERWAREHOUSE
Pick by SKU not by individual store order
Deliver on larger vehicles no manual handling
More Trips PossiblePriority Unload
RETAIL - Commercial benefits
MODERN TRADE DC’S
MODERN TRADE DC’S
• Decide on one standard pallet for all & introduce standardization around that pallet
• Velocity of product across docks & and for putaway and pick functions
• Truck turnaround times and yard capacities
• Supplier sponsored pallet hire
• Outsource pallet function to professional mgt company
• Reduce losses• Remove repair costs• Remove sorting
SUPPLIERS – Sales & CS
• Reduction in Invoices/missed invoices
• Reduction in collections
• Reduced credits
• Days outstanding/cash flow
• Access to forecasting & sales data
• Supplier incentives
SUPPLIERS – Supplier Operations
• Picking task reduced
• Wrapping, labeling, loading, paperwork reduced
• Reduced number of loaders
• Reduction in pallet usage
• Pallets always available
• Opportunity to modernise – suppliers suppliers, materials handling etc
SUPPLIERWAREHOUSESUPPLIER
WAREHOUSE
SUPPLIERS – Transportation
• Reduction in transport - greater trucks turns
• Priority Unloading – night time slots
• Reduction in transport management task
• Reduced transit damage
SUPPLIERWAREHOUSE
3 – 4 Hours
LOADING
20 Minutes
Bottom Line
• Savings in supply chain ~ 2 - 7%+
• No disadvantage philosophy for suppliers
• Total supply chain cost analysis critical
• Loscam works with suppliers and transporters/3PL’s to ensure smooth transition
• Modern trade influence getting stronger amongst SME’s – be prepared and achieve win win
Copyright © 2007 Logistics Consulting Asia
Questions?
Please contact us at …
John Talbot - [email protected]
David Edwards – [email protected]
www.loscam.com www.lcalink.com
