By John Andrew Shawyer, director, Associated Pallets Ltd.
Over the past few years there have been definite changes in the expectations of companies buying pallets. Not only are they looking for a reduction in costs, but they are also demanding a higher-quality product. At a time when pallet suppliers also need to keep a watchful eye on their profit levels, what changes will they have to make in order to adapt to the needs of their customers?
Consolidation of Vendors
In the past, companies would probably have looked to buy wooden pallets from a number of different suppliers. This could have been to do with the current cost, the number of pallets they required or simply a supply issue. However, many of the bigger companies are now starting to consolidate this process, with some now only dealing with a handful of vendors. This is part of their process of negotiating a better price, as they are more likely to get a beneficial rate if they promise to buy a specific number of units.
All customers are now looking for a higher-quality standard from their pallet suppliers, whether they are purchasing new wooden pallets or used ones. With wooden pallets, they expect to receive a clean product, with no evidence of mould, loose chippings and sawdust or other areas of deterioration. Pallets that would once have been accepted are now being returned, which is leading to pallet suppliers having to buy in more new stock to accommodate these demands.
Extended Payment Plans
All businesses are still trying to keep a tight grip on their finances, particularly when it comes to maintaining cash flow. This has led many of them to try to agree revised payment terms with their suppliers. Pallet companies are seeing many new and existing companies asking for longer terms. Where 15 to 30 days was considered an industry standard, many are now moving to 45 to 60 days. There has even been evidence of some businesses requesting 120-day terms. This delay in money coming into the business is not a healthy position for suppliers to be in. This situation could have more of an impact when interest rates begin to go up, as banks might not be willing to cover the shortfall needed to pay for materials, overheads and staffing.
Increased Use of Contracts
As well as trying to negotiate more beneficial payment terms, more companies are looking to tie in suppliers with a contract. This can be beneficial to the supplier as it guarantees them a certain amount of business. However, it also means that customers will try to tie them in to a lower cost per unit along with a longer payment period.
Reduced Storage Space
When companies buy wooden pallets today, they tend to be requesting smaller orders. As well as trying to limit the amount of money that is tied up in assets, they also have smaller warehousing facilities. Therefore they no longer have the space required to hold an adequate number of pallets. They are now requiring the vendors to keep hold of more of their pallets and supply them on an as-needed basis. This means that suppliers have to have the space to house the stock and ensure that it is ready to go when required.
These smaller orders mean that the process of delivering the stock has changed. A few years ago, most deliveries would have been made on flatbed lorries. However, now more companies are turning to vans, as they require less space. With these smaller deliveries being made more often, the delivery costs have increased. It's not always possible to pass this cost on to the customer, as they are looking to save money wherever they can.
These changes in customer expectations when they're buying new wooden pallets are only likely to consolidate further in the future. Pallet companies need to adapt quickly and meet the growing demands of their customers in a way that doesn't harm their business. If they fail to do so, they are unlikely to survive in this highly competitive market.
About the author: John Andrew Shawyer has been a director at Associated Pallets Ltd. since 1993. John specilises in all types of pallets and pallets distribution.