Pallet budgets are almost always built on unit price, because that is the number on the invoice. It is also, in a ten-year view, one of the smaller terms.
Here is a full-cost model for a mid-sized operation running 40,000 pallet movements a year, with our numbers filled in.
The seven terms
- Purchase. Unit price times units bought. The visible one.
- Freight. 20–35% of delivered cost, entirely a function of distance.
- Repair. For a returnable fleet, the term that most reduces the purchase line.
- Loss. Pallets that leave and do not come back. Almost never measured.
- Handling. Forklift minutes moving, staging and re-staging empties. Invisible and real.
- Storage. Floor space and, if you skip it, grade loss from outdoor storage.
- Disposal, net of residual. What you pay to get rid of them, minus what you could have been paid.
A worked example
| Term | Unmanaged | Managed | Difference |
|---|---|---|---|
| Purchases, 10 yr | $3,312,000 | $2,980,000 | −$332,000 |
| Emergency purchases | $580,000 | $0 | −$580,000 |
| Freight | $742,000 | $690,000 | −$52,000 |
| Repair programme | $0 | $168,000 | +$168,000 |
| Replacement avoided by repair | — | −$414,000 | −$414,000 |
| Removal of damaged units | $144,000 | $48,000 | −$96,000 |
| Core sales credit | $0 | −$210,000 | −$210,000 |
| Handling (estimated) | $310,000 | $205,000 | −$105,000 |
| Ten-year total | $5,088,000 | $3,467,000 | −32% |
Notice what did not change
The unit price. $9.20 in both columns.
Every dollar of that 32% came from operational decisions: eliminating emergency purchases, repairing instead of replacing, capturing core value, reducing double handling, and cutting removal volume.
This is the general pattern and it is why we are sceptical of any supplier promising to save you thirty per cent on unit price. Pallet margins are thin. A quote that far below the market is either cutting grade or pricing to win a first year, and both of those cost more than they save.
The two terms nobody has numbers for
Handling. Almost nobody has measured how many forklift minutes go into moving empties. Our rough estimate is 1.5 to 3 minutes per pallet per touch, and an unmanaged operation touches empties two to four times before they leave. At a loaded forklift cost of around $45 an hour, that is $2.25 to $9.00 per pallet over its life, which is comparable to the purchase price.
Residual value. Whole 48×40 cores have real resale value and a large number of operations pay to remove material somebody would pay them for. Over ten years at this volume that is a six-figure number sitting in a skip.
Both are recoverable and both require somebody to look, which is the actual reason they persist.
Where to start
Emergency purchases, because it is usually the largest single avoidable line and the fix — a buffer — requires no capital and no process change beyond an agreement.
Then loss rate, because it is the number that determines every other decision and it takes four weeks with a clipboard.
Then the residual value question, because it is free money and someone in your building is currently paying to throw it away.