How to Reduce the Cost of Pallets
“The art is not in making money, but in keeping it.” -Proverb
How much money do you spend each year on pallets?
If you don’t know, go check your income statement and come right back. I’ll wait.
Pallets are expensive business for breweries. The costs can rise into the tens of thousands of dollars each year. All for a bunch of wood that’s nailed together.
So, what if you could reduce this expense? How much would this save your brewery?
In the next two articles, we’ll look at options to reduce costs and improve your pallet program, whether you lease or buy. There’s a lot of money at stake, read on for savings.
- Pallet Goals: What’s Most Important
- The Pallet Charge: Everyone is Doing It
- Rent Your Own: Treat Pallets like Kegs
- The Blue Pallet: How CHEP works and can work for you
Pallet Goals
Before we dig into how to reduce pallet expenses, ask yourself a question: What are your goals related to your pallet program? For example:
- Save money…
- We spend $20k/year on pallets now. That’s a direct hit to the bottom line.
- Eliminate the hassle of dealing with pallets…
- Ordering pallets is time consuming
- Running out of pallets is frustrating
- Handling junk pallets that get returned costs time and money
- Get a higher quality pallet for safety or other reasons…
- We want a pallet that is of the same quality as the rest of our product offerings
- Anything we ship from the brewery should be first quality, including the lumber
Get clear on what you hope to achieve with a new pallet program. This will help you ask the right questions when meeting with vendors or writing up a new game plan for your pallets.
The Pallet Charge
When I was CFO for a beer distributor we would get charged all the time for pallets. Larger breweries simply tack a pallet charge onto the bottom of the invoice and we had to pay it.
The charge could be as little as $5 or as much as $15. In some cases, we could sell the pallet to a 3rd party company to offset some of the cost. In other cases, we could re-use the pallet later on. But in all cases, it cost us money.
In the brewery business you see these pallet charges all the time. They show up on the bottom of your material delivery invoices. Most anything that gets delivered on a pallet, comes with a pallet charge.
Many of the pallets that are received and paid for by your brewery are junk pallets. They are damaged in some way with broken or missing boards. You can’t re-use them to ship out your beer.
Other pallets received are marginal. They seem good enough, but not great. They might be OK to send to the distributor, but they might not. These are the tough choices. Sending out marginal pallets creates a potential safety issue and doesn’t reflect well on your brewery.
So, what is a brewery owner to do?
One option to reduce the cost of pallets is to play the game and charge your customer a pallet fee as well. If you pay $7 for a pallet, you put a $7 pallet charge on your invoice. Everyone is doing it, and it’s a cost of doing business.
Will the distributor react and increase the price of your beer? They might. They might not.
But if you do nothing, you’ll continue to pay thousands or tens of thousands of dollars a year to buy pallets only to get junk pallets in return.
In this scenario, you can purchase a good, safe pallet to ship your beer. No more worries about using marginal pallets and creating a potential safety issue. Source a solid pallet, buy them, and then pass your cost onto the distributor or end customer.
Presto. You just saved thousands of dollars per year.
But, of course, there are other options.
Rent Your Own: Treat Pallets like Kegs
A variation on the pallet charge is to charge a pallet deposit. This allows the distributor to return the pallet in exchange for return of their money.
This is the same way you handle your kegs now. A deposit charge of $40, for example, is charged for every keg you ship out. When the keg is returned, so is the keg deposit.
If you have good management and oversight of your keg fleet, this option can work very well. But, if your controls are poor, you’ll lose kegs fast and furious.
One key difference between kegs and pallets is the identification of the assets. Most breweries know which kegs are theirs, but the pallets tend to all look the same. Common grocery pallets (stringer pallets) all look alike, with nothing to distinguish your pallet from another.
Often, you’ll send out a quality pallet in good condition only to get a junk pallet back. The distributor returned the pallet and expects a pallet credit on the invoice.
So, you will save money by using a pallet deposit option. However, there are lots of logistics and headaches to deal with.
But, of course, there is another option. The Blue Pallet. We’ll hit that one another time.
