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Sun 8 Jun 2008 04:00 AM

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Pool of thought

Encouraged by the logistics industry's current focus on environmental issues, CHEP has successfully marketed its pallet pooling service as a proactive tool in increasing efficiencies while supporting the 'green' supply chain.

Encouraged by the logistics industry's current focus on environmental issues, CHEP has successfully marketed its pallet pooling service as a proactive tool in increasing efficiencies while supporting the 'green' supply chain.

The unassuming nature of wooden pallets, with their humble appearance and simplistic design, has often led to a misconception about their importance in the world of logistics.

However, on the contrary, these stalwarts of the material handling industry have forged an unshakable relationship with logistics operators over the years, helping numerous companies to secure their cargo in a stable fashion throughout the supply chain.

It's a role that cannot be underestimated, although the changing pace of logistics has renewed the pressure on pallet suppliers to update their products and services to satisfy a recent shift in customer requirements.

"Pallets were initially manufactured using wood during the second world war to increase the speed of product handling. Since this time, they have become integral to the handling of unit loads in a variety of different industries around the world," explains Kevin Smyth, director of CHEP in the Middle East.

"Although the basic functionality has remained the same within this period, manufacturers have slowly begun to diversify from wooden pallets, with plastic pallets, metal pallets and even paper pallets starting to creep into prominence."

CHEP has established itself as a premium brand in the material handling sector, with an asset base of more than 285 million pallets and containers, which are utilised by customers in 44 countries around the world.

In particular, the company has flagged the Middle East as a strong emerging market and established its service centres in countries such as the United Arab Emirates, Saudi Arabia, Kuwait, Oman and Qatar.

"Low quality, disposable pallets have been used to ship all sorts of products to the Middle East for years, especially in the FMCG (fast moving consumer goods) sector.

As a result, there is considerable demand for recycled pallets, which are used for the onward shipping of goods. In certain territories, custom laws even stipulate that products entering specific countries must be palletized to ease the inspection process," says Smyth.

"Unfortunately, many companies in the GCC use pallets by default, rather than design. Very little attention is paid to quality, hygiene or specification. The pallet is simply a platform that enables a forklift to handle a unit load and will be dumped or recycled again," he adds.

Noticing a gap in the market, CHEP entered the region with its specialised ‘pallet pooling' service - a concept that had already proved a success in key markets throughout the world.

In addition to offering a potential increase in operational efficiencies, its also received brownie points for the obvious environmental benefits.

In basic terms, the company issues ready-for-use pallets and containers from its service centres to manufacturers and growers within the Middle East. These customers load their goods and transport them through the supply chain using the pallet or container.

Then, at the end of this process, the receiving retailer or distributor offloads the goods and returns the pallets or containers to the nearest service centre.

"The need for a cost effective pallet pooling service became apparent when companies increasingly searched for ways to improve the handling and distribution of their products," says Smyth.

"The main criteria was reducing product damage, lowering pallet costs, improving transport utilisation, addressing quality issues, improving inventory management, and reducing labour costs, whilst increasing customer satisfaction."

Once CHEP receives the pallets back from the customer, it completes an inspection and ensures they meet quality standards. The pallets are then issued to the next customer for its use through the supply chain.

"The concept of pallet pooling adds value to the supply chain by allowing companies to concentrate on their core business and not sourcing, repairing and recovering pallets. It is also indicative of a market's competitive stage.Where companies cannot pass on costs to consumers, it becomes essential to reduce marketing costs or increase efficiencies in production," says Smyth.

"The benefits of pallet pooling are intangible and will not be obvious if looked at departmentally. The simple pallet that "cost nothing" is actually the key to reducing supply chain costs and substantial savings that drop down to the bottom line."

According to Smyth, a regular examination of each customer's supply chain costs is not only good business practice, but also important to its competitive position given the speed at which the GCC market is developing.

"GCC companies have the added advantage that they can make quantum leaps in adopting "best practice" methodologies as they can often start green field projects, whereas companies in the more mature markets are limited by their existing infrastructure," he says.

"If a company is serious about evaluating its supply chain costs, it must be prepared to determine the actual and intangible costs incurred in using second hand pallets."

FMCG companies have proved early adopters of the pallet pooling concept. This is partly because the industry has adopted standard pallet specifications around the world to enable companies to handle pallets on production lines, place pallets in racking systems, containerise pallet loads with the minimum of downtime and move products throughout the supply chain as cost effectively as possible.

In the Middle East, CHEP has already secured contracts with a number of leading FMCG heavyweights, including Pepsi International and Panda Azizia.

"The GCC is an important FMCG export market, and there is also a substantial and growing manufacturing base that is starting to adopt modern supply chain practices.

CHEP established a pallet pooling service in the GCC some five years ago and is proud to have earned the support of well over 200 manufacturers and retailers in a relatively short time frame," says Smyth.

"There are pockets of excellence throughout the region and the benefits that leading companies are beginning to enjoy, by participating in the CHEP pallet pooling service, will set the scene for other companies to consider.

By far the greatest benefit is derived if the pallet journey begins at the production plant, and with so many products imported from abroad there is real value in GCC based companies participating in a global pooling service."

Case Study: Pepsi InternationalPepsi International, a leading player in the Middle East's carbonated beverages market, opted to use CHEP pallets for the launch and distribution of its Tropicana range of juices across the GCC in 2003.

Pepsi has been using the CHEP programme for its supply of finished products to Pepsi appointed franchise bottlers. To date , the company has been supplying Tropicana juices to its distributors in Saudi Arabia, Kuwait and Qatar.

The CHEP programme has been designed to provide Pepsi International with a hassle free pallet solution from placement of orders, tracking downstream finished product distribution, to final collection and return of empty pallets from its distributor sites, at the same time maintaining Pepsi's standards of quality and product integrity.

CHEP and Pepsi International embarked on a cost saving initiative to further reduce their current pallet trip cost and identified raw material integration as a possible solution.

What this effectively entailed was identifying large volume suppliers that shipped to Pepsi International's white wood pallets to see if there was a possibility of converting these suppliers onto the CHEP platform.

The same platforms would then be used for finished product distribution thereby streamlining the supply of material on a common platform from the beginning of its supply chain to end.

The benefits would include streamlined handling practices, the elimination of white wood exchange programmes, and most importantly reduction of cost related to pallet cost across the entire supply chain.

After analysing various suppliers and cost modelling, glass containers from Saudi Arabian Glass Company were identified to an ideal candidate to trail. A three month pilot study was agreed to test the various assumptions. At the end of the trial period the results were analysed and the intended cost savings were achieved. It was agreed to continue the supply of this material as well to expand the focus to other suppliers where this level of integration could be incorporated.

Pepsi International has subsequently constructed a state-of-the-art production facility in Riyadh that should officially commission in the second half of 2008. Pepsi International intends to adopt the same cost savings initiative mentioned above across their supplier base in a continuous effort to streamline handling and reduce overall pallet cost across its supply chain.

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