by Keith Schall | Material HAndling & Logistics
If you’re not tracking and managing your reusable pallets and containers, someone else is likely benefitting from your investment. Here are four steps to making sure you reap the rewards.
At any given time, a manufacturer can likely tell you the quantity of bulk items available for processing, and a distributor can tell you the number of trucks it has on the road and the number in for repairs. However not every company can tell you how many reusable assets, including pallets and containers, they have out at retail stores, in the warehouse or waiting for repairs. These reusables are recorded on a company’s books as assets, yet often they are not tracked and managed the same as other assets because historically packaging is often treated as an expendable commodity.
There is a strong secondary market for reusable containers, with resellers and regrinders capitalizing on companies that do not properly monitor their reusable assets. Implementing an effective system to track and manage your assets requires four steps:
1. Understand the issues;
2. Understand the available asset management systems;
3. Develop the processes & KPIs necessary to create actionable and enforceable data;
4. Obtain stakeholder alignment, educate the supply chain and implement a discipline to ensure compliance.
1. Understand the Issues
If you use reusable transport assets, you need to be able to answer the following questions in order to address any issues associated with managing and tracking them:
- Where are your products shipped?
- How many containers are in your fleet?
- Where are they currently within your supply chain?
- What is your utilization rate? (Understanding dwell times and dormant assets)
- What is your annual loss rate? (How many you recover and how many you lose)
- Can you calculate container damage and repair rates?
Depending on the complexities of your business, attempting to understand these issues may take a considerable amount of time and resources. Understanding your true loss rate is a good place to start. To calculate this rate, begin by referring to the total number of reusable assets you purchased, which should be listed on your company’s Fixed-Asset Register (FAR). If you own the assets, each one should be marked in some distinct way, either serialized or barcoded, to indicate it belongs to your company.
If you are working with a pooler, ask them if it is possible to have a uniform color for your reusables. This will help decrease your volume of “like-kind exchanges” or instances in which you receive back a similar asset to the one you sent out, but not the exact same item. This can be an issue because your replacement may be an 8-year-old asset in place of your original which was newer, creating a loss on your FAR.
Next, you need a clearly defined audit process. This requires evaluating various entities that may perform inventory counts and establish controls points within your supply chain. What are the risks of a supplier or 3PL (third-party logistics provider) reporting counts or activity? You will also need to clearly define how assets in transit, WIP, at off-site warehouses, or unusable assets, should be treated for standardization.
Additionally, your inventory must take into account damages and repairs to your reusable assets, keeping in mind all damages are not weighed equally. For example, damage to the base of a bulk bin is more significant than side wall damage, which can be more easily repaired. It is also important to track spare parts and attrition rates, and then incorporate those figures into the annual loss rate.
After you have gathered these data, you are ready to calculate your true loss rate.
The diagram on page 22 is an example of how the methodology can be applied. Because the period is 27 months, we divide 27 by 12 or 2.25, calculating the loss rate to be approximately 7.8%. You then need to compare your loss rate against your industry’s average acceptable loss rate to help gauge where you stand and determine whether there might be best practices for you to model. The RPA has been conducting a detailed loss survey and is observing a variety of variables from single digits in the automotive industry to as high as 40% in other markets. To participate in this survey, visit http://reusables.org/1481/general/rpa-asset-loss-survey.
Lastly, you will need to factor in the cost of your reusable assets. For instance, if you have $4 handheld totes, you may find a 7.8% loss rate to be acceptable, however if your assets are $1,000 stainless steel bulk containers, even 1-2% might be too much.
2. Understand Available Asset Management Systems
The asset management system you put in place will be dictated first by whether you need to track your reusable assets individually or in the aggregate. The supporting systems include manual paper and pencil, barcode scanning, passive and active RFID tags, and GPS.
Whichever method you choose, it must meet the following four requirements:
- Asset visibility. Your system should answer the questions: ‘Where are the containers today?’ and ‘Can I accurately dictate where these are and where they should be based on current demand?’
- Easy to use. Everyone in the supply chain should understand how to use it, from the floor to management.
- Bill-back accountability. If suppliers or manufacturers are using your corporate-owned assets, you will need to have detailed data showing the day the assets left your facility, arrived at the supplier, and whether they were returned.
- Ability to produce reports and proactive alerts. An alert could tell you reusable pallets have been sitting at a supplier’s site for 90 days so you can in turn notify the supplier they have 10 days to return the assets before they are billed for loss. Data also allows you to identify supply chain bottlenecks.
3. Processes & KPIs for actionable, enforceable data
KPIs help answer:
- What is your utilization rate?
- Are assets being used?
- Are assets turning?
- Are assets sitting?
- Where are the bottlenecks in the supply chain?
Reviewing this data will also help you identify other opportunities for improvement.
4. Alignment, Education and Compliance
Identify all stakeholders involved and make sure everyone receives ongoing communications and adequate training on the processes and any new software or systems you are using. Your stakeholders will likely include corporate headquarters staff, plant workers and your suppliers. Be sure to clearly state the importance of tracking and managing your reusable assets, while keeping in mind that you are asking people to take on new tasks or responsibilities. Explaining to them how it saves the company money, which ultimately benefits the employee, will help them buy into the new system. Finally, provide a method for people to voice feedback on the new system.
With compliance standards and governing entities such as Sarbanes Oxley, it has become even more critical to implement reliable tracking solutions in supply chains. If a company has $10 million of returnable containers on their balance sheet, Sarbanes Oxley will require the company to know exactly where and when those assets passed what point. This is a significant development and will greatly accelerate the use of tracking systems.