Distribution dilemmas

Posted on 7 Apr 2009 by The Manufacturer

With the global downturn forcing manufacturers to scrutinise every cost, logistics arrangements are bound to come under review. TM looks at the options for palletised distribution

There is a lot to be said for outsourcing certain aspects of your operations. Benefits can include cost savings, improved service offering (from having delegated key tasks to experts) and greater access to developments and changes within these areas of your operations. At times of financial pressure, your staff need to be concentrating on maximising revenue and playing to their strengths, not managing a function that doesn’t necessarily lie within their expertise.

One area that can attract high costs due to fluctuations in fuel prices and output is distribution. Outsourcing to an expert could unlock capital and free up resources.

“From a financial and environmental point of view, companies have to look at their own fleets versus shared user networks,” says Dave Holland of Staffordshire-based Palletforce. “Our growth will come from companies looking to migrate away from their own fleet.”

Tony Mellor is the commercial director for Pall-Ex. “There’s a lot of pressure on margins, particularly for manufacturers,” he explains, “and in our experience this starts to drive manufacturers to look for more cost-effective methods of distribution, particularly where they’re using dedicated vehicles.”

A pallet network solution is one way to do this. “This is an efficient solution that is very often at a much lower cost than conventional methods,” explains Mellor. His claim is backed up with hard statistics – a 2004 Department for Transport road transport survey showed that the average pallet fill is over 20% greater than with conventional haulage – and is thus a more efficient and cost-effective way of transporting goods.

Palletways has 250 depots and nine hub operations in the UK and mainland Europe. The managing director of the UK arm is Craig Hibbert, who agrees that cost is key: “As with all industries, cost reduction in the manufacturing sector is high up on the corporate agenda, but business-critical non-core operating costs, such as logistics, can often be overlooked due to time and resource pressures.

“Pallet networks, arguably the fastest growing area of the logistics industry over the last ten years, can offer significant cost saving opportunities as the business model is based on consolidating different customers’ goods along the supply chain, which increases vehicle utilisation and thereby reduces ‘empty’ miles,” he explains.

Specialist services
With large and established member bases, networks often have the resources to offer other valuable services to clients, as Holland confirms: “One of the benefits of an established member base is that Palletforce can also offer tailor-made solutions from part-load, full-load, container handling and storage, through to dedicated fleets.”

Chep Equipment Management (CEM) is a pallet pooling organisation that has been running for over 10 years and can offer manufacturers a specialist service. “We allow customers the opportunity to outsource the management and control of their equipment,” explains Kathryn Orange, head of CEM for the UK and Ireland. “In today’s climate, customers are finding that they want to concentrate on their core activity and we believe that gives some value in allowing them to concentrate on what they do best and to outsource what we do best,” she explains.

“We work within a continuous improvement methodology,” she continues. “So we look at what a customer’s charges are and what stocks they need – it’s about having visibility. Each month we supply reports showing exactly what’s happening in that organisation; we show a KPI that’s aligned to the customer’s business and we have metrics that we measure. We drive performance and know exactly what we should be seeing; we have individual controllers working with the customer to alert on red flags throughout the month. The monthly report shows what’s happening in their business for the month and year to date; they can have a look at this information and know exactly where their equipment is, and what the peaks and troughs are of their stock flows.”

CEM is also able to deal with suppliers and resolve problems: “We have relationships with the customer’s suppliers; we know who should be receiving the goods and who should be advising us if they’ve finished with those goods. And, if we haven’t received specific information, we’ll ring the suppliers so the customer doesn’t have to.”

Pallet networks can also be privy to interesting innovations within the logistics sector that could benefit manufacturers of certain goods. Mellor, for example, has recently looked at biodegradeable and recyclable pallets manufactured from reinforced cardboard – particularly suitable for homeowners, for whom wooden pallets are not practical. “They’re very clean as well, so for food manufacturers, this could be an alternative,” Mellor explains.

For food manufacturers, clean freight is also a major consideration – and this is something else that Pall-Ex can offer. “We’ve kept diesel fumes out of the hub,” Mellor reveals, referring to the non-drive-through rules in force at the hub. “By not allowing lorries through it, fumes stay outside; we also chose to run our fleet of forklift trucks on natural gas which means that the emissions are almost non-existent. It means…diesel particles aren’t dropping on the freight – which is particularly important if you’re manufacturing food or sensitive freight,” he concludes.

Carbon footprint reduction can also be a sound reason to consider a pallet network over a conventional fleet: “We saved one customer £750,000 a year,” says Mellor. “They also said [from doing their own calculation] that the change from using a conventional fleet to using Pall-Ex has saved them 890 tonnes of CO2 a year.”

Safety in numbers
Another major benefit of using a pallet network is the safety factor in using a shared network. Palletforce’s Holland explains: “More manufacturers are beginning to migrate away from their own fleet as they see the cost, environmental and efficiency benefits of using a shared network,” he says. “Due to the economic climate we expect a big switch, with more manufacturers beginning to look at companies with a shared user network set up like ourselves more favourably.”

Mellor agrees that security is a top priority for networks. “We have a trust fund that the membership contribute to called Pall-Extra,” he explains. “Basically that means that in the event of a member’s insolvency he doesn’t go down leaving bad debts to the other members.” (The company has not yet had cause to access this fund, but the security is reassuring for firms keen to protect themselves in the current crisis).

Other benefits include freedom from the financial ties of managing a fleet: “During these unpredictable times, a manufacturer may not want to be tied up with vehicle leases and associated costs,” explains Palletways’ Hibbert. “But a pallet network can collect or deliver goods on your behalf; they also provide a next day service which means you do not have to commit to any long-term contracts. The fact that pallet networks specialise in moving small volumes of goods more frequently also minimises the need for storage of goods at the point of manufacture,” he adds.

Business benefits
Recessions can have their upsides – as companies fight to gain business, they will all be concentrating on innovation and new, useful products will emerge: “A recession can often bring more opportunities as companies look at better ways of doing things to save money and drive up efficiency, which is where palletised networks can bring manufacturers huge savings,” confirms Holland.

Orange agrees: “With the economic climate, we’ve actually improved our offering to fit the customers’ requirements. We not only offer the CEM package; we offer specialist services. For example, we offer an interim if someone’s on maternity leave, or if someone’s off sick long-term.”

The moral of the story seems to be: examine the full range of what potential providers can offer your business. It may be an efficient way to boost cost saving and an excellent opportunity to improve your own service offering at the same time.

For CEM, cost saving is at the core of its offering: “We recommend areas of improvement for the customer and we not only show that through value each month but we also show a reduction in costs through actually working in a more improved, lean environment,” confirms Orange. “It’s about having a pair of eyes that’s just looking at your business. That’s what we do and that is our core activity. It’s not the customer’s core activity – so that’s why we can demonstrate the cost efficiencies available,” she concludes.