Thursday, April 26, 2012

Go Wood: Toilet Paper, Wooden Pallets, and Costco

There's a special on CNBC this evening you may want to catch. It's called The Costco Craze: Inside the Warehouse Giant. Costco is a prime mover of a lot of wood products, especially of the paper type. One preview I saw of the show highlighted the amount of toilet paper it sells (over one billion rolls) and the process their product testers go through to differentiate the best toilet paper for sale in their stores. The rest goes to companies and universities to discourage their employees from taking restroom breaks.

 Here's a short trailer of tonight's show, airing at 9 and 12 Eastern time on CNBC.

Costco is also a big influence in the wooden pallet business. One of the keys to their success is their distribution efficiency. A couple of years ago they figured out that the variability of wooden pallets in their automated warehousing systems caused problems, so they decided to develop their own pallet standard and force their suppliers to ship only on pallets that meet that standard. From Modern Materials Handling...

The catalyst for the new spec was in part driven by the quality of some pallets Costco was receiving from suppliers. For the most part, Costco does not store products in pallet racks in warehouses: instead, it cross-docks merchandise directly from depots to its stores, where pallets are stored in pallet racks. It’s bad enough if a pallet fails and comes crashing down in a warehouse. It’s another thing entirely if a pallet fails in the middle of a crowded aisle in a warehouse store. Costco wanted to avoid that issue. 

“When you’re walking through a Costco store, and all our product is up on steel racks, you want a safe pallet,” Thelan said. “We felt that the stringer pallet world had deteriorated and we were concerned with a less than perfect board finding its way through our system. In our opinion, block pallets are more durable than a stringer board.” 

There was another reason for going to a block pallet design similar to the pallets used by the big three pool providers: “We have a long-standing history with CHEP, PECO and iGPS and they work,” Thelan said. “But we did include the ability for someone to give us a non-rental pool pallet if they provide a block pallet.” He added that some manufacturers prefer to ship their own pallets rather than participate in a pool, although they are a minority of Costco suppliers. 

But isn’t a block pallet more expensive? “It’s less expensive,” Thelan argued. “The supplier is only paying the rental fee. They’re not buying the pallet.” In fact, Costco expects to negotiate lower costs with suppliers who are no longer paying for GMA-style pallets. 

Beyond the increased safety that comes from standardizing on a heavier duty pallet, there are operational benefits to a block pallet. “We off-load a million trucks a year at our depots,” Thelan said. “We do a lot of that with electric pallet jacks. If the pallet is loaded so that the stringer side is facing the opening of the truck, you can’t get under the pallet with an electric pallet jack.” 

Instead,  associates had to “pinwheel” the pallet – maneuvering it around until the forks could get into the 40” opening. That not only takes time, it can potentially lead to product damage. 

“We believe we’ll see benefits by being able to off load all of our pallets with electric pallet jacks,” Thelan said. “And, there are benefits to moving the product across the floor to get to shipping lanes.”

- Bob Trebilcock, Modern Materials Handling 

Photo: The Shelby
Since the new Costco standard is for a "block pallet", and since they represent a huge slice of the potential pallet market, the wooden pallet industry took notice. It may be that one day, all pallets in the U.S. are block pallets, simply because of Costco's automated warehouse. Others think that there will always be a niche for a stringer-type pallet, which costs less to produce than the block pallet.  Regardless, making wooden pallets better in quality can only be good in the long run.

Hope you watch and enjoy the show tonight. Go Wood prize to the viewer who spots the most wood products in the show.


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