A Simulation Comparison Analysis of Effective Pallet Management Scenarios

A Simulation Comparison Analysis of Effective Pallet Management Scenarios M.G. Gnoni, G. Lettera, A. Rollo 1 Department of Innovation Engineering, University of Salento, Lecce, Italy (mariagrazia.gnoni@unisalento.it) Abstract - Pallet management usually involves direct and reverse logistics flows; it represents a critical activity for several logistics providers all over the world. Pallets are needed in order to ship products through the whole supply chain. In the European area, a standardized quality-assured system defined as the EPAL-System works as direct or postponed interchange could be applied. Service level could be improved by both increasing pallet availability in the direct logistics and reducing total cost of the reverse logistics. The purpose of this paper is to provide an effective comparison of different pallet management scenarios based on EPAL-System. The two organizational interchange procedures allowed by the EPAL-System have been tested. A simulation model has allowed to compare four scenarios in terms of supplier s service time, internal operations, and overall operating costs. Results confirm that a better coordination of actors in the reverse chain enables to increase performances of the whole system. Keywords - pallet management; simulation model; scenario analysis I. INTRODUCTION Logistic activities are mainly based on a standardized equipment: the pallet. A pallet is a widespread equipment for storing and transporting goods such as boxes, bags, cartons, etc. by a stock keeping unit. It usually represents the most applied equipment in current materials handling activities all over the world as it could be used in harsh environments [1]. Several typologies of pallet are produced: their materials and structures could vary according to the specific application in order to satisfy a huge range of material handling operations. The most common materials are wood, metal and plastic [2] [3]. On the other hand, several international logistics operators such as CHEP, La palette rouge, etc. - develop their core business by optimizing pallet management activities. An estimated flow of about 450 million of new pallets are produced annually in the U.S.A area and about 1.9 billion of pallets are in transit due to logistics activities [4]. By focusing on the European area, the most widespread pallet type is EURO pallet, a wooden pallet which is characterized by unified features defined by the European Pallet Association (EPAL). The estimated quantity of EURO-pallets all over Europe is over to 500 Million; the annual quantity of new pallet produced is more than 70 million per year [5]. Even if pallet are applied in several industrial contexts and they represent a critical asset for the firm, few research paper are focusing on this topic: recent studies focused on the structural design of pallet according to different original and recycled material types [1], [2],[3]. By an organization point of view, the main research topic is about the pallet loading problem [6], [7], [8], [9], [10], [11], [12]; few attention has been assigned to the overall process of pallet management starting from pallet loading to the reverse flow of empty pallet. Firstly, recovery of empty pallet not suitable for delivery, could contribute to increase the environmental and the economic balance of the whole pallet management activity, as the reverse logistics of empty pallet represents usually a valuable activity [13]. Different end-of-life management strategies have different environmental impacts. Reuse, combined with material recycling should be encouraged to reduce the demand for raw materials (i.e. wood) and the waste generated [14]. Furthermore, as pallets have to be available for each delivery, the reverse flow of empty pallet has to be synchronized according to the level of empty pallet storage. This is a typical problem of material procurement in very dynamic context: thus, simulation analysis could be an effective tool for comparing organizational alternatives [15]. The proposed study will evaluate how different organizational scenario for pallet reverse logistics could affect the whole performance of a supply chain. A discrete event simulation model has been developed for comparing organizational alternatives. The proposed simulation analysis could provide an effective tool to manage both direct and reverse flows involved in pallet management as different organizational scenarios - such as immediate or postponed interchange - could affect overall performance of the supply chain. The paper is organized as follow: in section II, an analysis on main activities involved in pallet management has been carried out. A description of the proposed simulation model is in Section III; finally, results of the scenario analysis are proposed. II. THE PALLET MANAGEMENT: MAIN ISSUES Producers, distributors and retailers involved in logistics activities usually share a common objective, i.e. optimizing their own logistic costs and performances. All over the world, logistic activities are mainly based on pallet: often, each actor of a supply chain uses pallet for handling, transporting and storing goods in order to 978-1-4577-0739-1/11/$26.00 2011 IEEE 1228

reduce handling cycle times and optimizing storage areas. Thus, a company requires a stock of empty pallets available for internal operations and for shipments. An outgoing flow of pallets is usually applied for managing by a logistics provider deliveries to retailers; thus, an effective ingoing flow of empty pallets is required aiming to support operations carried out internally and externally by the provider. The Figure 1 shows the flows of palletized loads and empty pallets for a standard supply chain where a logistics provider is managing in his intermediate depot material handling activities of different producers. Pallets represent a critical firm asset: they have to thus, they have to be maintained in a correct way. immediate interchange: all pallets have been collected by the final logistic provider at the final customer (such as the wholesaler or the retailer) during delivery activities; therefore, the total delivery time increases due to required pallet interchange activities, such as quality and integrity check. The logistics provider picks up the same pallet number delivered; thus, no waiting time due to pallet unloading has to be estimated. By an organizational point of view, only an identification of pallets will be carried out by the logistic provider. postponed interchange: the final customer supplies during delivery activities a pallet voucher to the logistics provider according to pallet number delivered in each trip. This order allows to physically collect pallet usually within three months in EPAL interchange system pallet [16]. in outsourcing management and pallet pooling pallet interchange requires only postponed type. Pallet interchange in direct management model could be immediate or postponed. III. THE SIMULATION MODEL Figure 1: Flows of palletized goods and empty pallets in a traditional supply chain Traditionally, one of the main cost added activity in pallet management is the reverse logistic: pallets have to be collected downstream in the supply chain where products are delivered to final customer. Different organizational options could be implemented aiming to reduce its costs. The main organizational model identified are direct management, outsourcing management and pallet pooling which are analyzed following: Direct Management: all activities regarding pallet management has been carried out internally by the firm, that has to deeply evaluate related operative costs as well as investment costs, in pallet park purchase; Outsourcing Management: the firm has to carry on investment in pallet park purchase; pallet management activities are carried out by an external logistic company (e.g. a third-party provider). The logistics provider retrieves the pallets downstream in the supply chain and it tracks them via customer dispatch data. Services supplied by external logistic company usually are pallet maintenance, disposal, monitoring, handling, and final collection. Pallet Pooling: a third-party logistics provider rents its own pallets to customers (i.e. producers and/or distributors) according to a service contract. The company ships pallets to his customers and usually supplies tracking service about time and location of customer shipments. Pallets reverse logistics is strictly related to pallet interchange procedures adopted by logistic actors: retrieve of empty pallet could be applied at the same time of delivery or in a second time, with different modalities to guarantee the economic value of asset, in terms of amount and quality, and to avoid legal disputes. Two organizational procedures are mainly applied: A discrete event simulation model is proposed to evaluate impacts due to alternative scenarios for pallet reverse logistics; common activities between each scenario have been modeled; main activities introduced in the simulation model are detailed following. Inflow of pallets at the distribution center: palletized loads arrive at regular intervals in the distribution center. Units could be stored as is for a certain period before shipping to final customer; other ones could be handled by a picking activity before delivery. As not-reparable pallets could be disposed, new pallets are annually purchased to restore the target level of empty pallet storage. Reverse logistics of empty pallet originated from the final customer contribute to the pallet inflow. Pallet demand: Empty pallets usually could be returned to the producer who supplies incoming goods. Moreover, the internal picking activity requires empty pallets for loading the new stock keeping unit. Main processes add in the proposed simulation model are in Table 1. Different organizational scenario could be applied for optimizing this activity. Table I. Processes of pallet management simulation. Processes Pallet input from order purchase Pallet input derived from goods in entrance Return of empty pallets Storage of empty pallets Internal Operations Description The company needs an initial pallet park; new purchases have been carried out when the stock level values is under a predefined target. Goods are delivered as palletized loads, therefore a number of pallets enter in the company with goods. This is the reverse flow of empty pallet to producer. The empty pallets are stored in a dedicated warehouse where quality control activities are carried out. Alternatives are recovery or disposal processes. It consists of internal picking activity which requires empty pallet for transportation activities. 1229

Processes Reverse Logistics of empty pallets Pallet recovery or disposal Description This is the reverse flow of empty pallet from the final customer. Immediate or postponed interchange could work. Some pallets pull off the system as they were lost or were broken. When pallet does not fit the standard, maintenance activity could be accrued out. The simulation model focuses on the Reverse Logistics of empty pallets as it could be usually organized in two main ways: immediate or postponed interchange. Thus, four different organizational scenarios have been estimated by the simulation model: details are proposed as follows. Scenario 1: this is the total immediate interchange scenario where the interchange works immediately i.e. during the delivery route. After a quality check activity the total number of pallets to be returned is defined together by the carrier and the final customer. The logistics provider doesn t accept the postponed interchange. Scenario 2: this is the total postponed interchange scenario where the carrier could return both an equivalent number of empty pallets or vouchers. Vouchers represent an economic reward supplied by the customer when no empty pallet could be returned to the carrier. Scenario 3: this is a partial immediate interchange scenario: the carrier returns immediately an equivalent number of empty pallets following the same procedures of scenario 1. On the other hand, similarly to the scenario 2, the company accepts the postponed interchange of its pallet by customers up to a maximum value of 20% estimated to the total number of pallets delivered. Scenario 4: this is a partial postponed interchange scenario: the logistic provider can return empty pallets or voucher to the carrier if it hasn t empty pallets available in the warehouse. Differently from the scenario 2, it doesn t accept pallet vouchers by its customers. Main features are in Table 2. Table II. Pallet management activities in the simulation model Scenario Return of empty pallets in entrance to logistics provider Return of empty pallets from customer level 1 Direct Direct 2 Direct/Postponed 20% Postponed, 80% Direct 3 Direct 20% Postponed, 80% Direct 4 Direct/Postponed Direct IV. THE SIMULATION ANALYSIS The total number of handled pallets, which is a function of the number of palletized loads received and shipped in a period) is equal in all scenarios aiming to compare analogous operative conditions. Thus,, the total quantity of palletized loads in input is 215,970 (i.e. 30 palletized loads are received every 60 minutes) in all simulation runs, and 249,332 is the total quantity of shipped loads. Thus, an increase about 15% in pallet shipped has been evaluated by the simulation during the total period of observation. Safety stock level of empty pallets - available for picking and interchange activities has been set on 500 units. If the empty pallets stocks falls under safety level, 100 units of new pallets are purchased and they arrived after one day. the direct interchange period is set in one day in scenario 1 and 3; the returning period has been estimated in one month for the postponed scenarios (i.e. 2 and 4). Furthermore, pallet lost rate is estimated about 4% of the total quantity of pallet handled in the period. Critical indicators have been introduced in order to evaluate simulation results; two main categories have been introduced: the first one affects time performances and the latter affects the overall costs. Following a brief description of performance indexes: 1. Goods Unload Time: this index evaluates the average time required to unload the goods for each carrier. The operational time required for a single operation is 1 hour, but random delays may occur if empty pallets or vouchers to be returned are not available. 2. Picking Queue Time: it represents is the average waiting time of a palletized load during internal picking operations. The queue length increases if empty pallets are out of stock during the picking activity. 3. Number of new pallets purchased in a period: as annually the level of the empty pallet parks has to be equal to a target. 4. Number of vouchers managed by the logistics provider in a period: as pallet vouchers management involves administrative activities. 5. Number of vouchers received from customers. 6. Average number of empty pallets in stock: as storage of empty pallets requires a dedicated area. Statistical values are collected for time performance indicators: the minimum, maximum, mean, standard deviation value are reported in Table 3 for Goods Unload Time and Picking Queue Time indicators. Results obtained under different scenarios show interesting issues. In detail, the Goods Unload Time is quite constant except for scenario 3 which is characterized by the worst value (i.e. the highest one). Moreover, the internal waiting time (i.e. time required by picking activities at the logistics provider depot) is characterized by the highest value. These delays are mainly due to the lack of empty pallets in the storage. This is due to the operational procedures characterizing this scenario: pallets have to be returned and no voucher could be accepted by the carrier. Goods Unload Time [minutes] Table III. Statistics for the scenarios simulated. Scenario Min Max Mean Deviation 1 60.00 60.00 60.00 0.00 2 60.00 60.00 60.00 0.00 3 60.00 3,092.00 228.15 577.79 4 60.00 60.00 60.00 0.00 Picking Queue 1 0.00 12.00 3.28 5.35 1230

Scenario Min Max Mean Deviation Time [minutes] 2 0.00 12.00 3.19 5.30 3 0.00 184.00 5.88 16.00 4 0.00 12.00 3.28 5.35 Differently from the scenario 3, if the logistics provider hasn t empty pallets (i.e. the producer), it could supply vouchers to his customer in scenario 2 and 4. Thus, transporters don t have to wait for pallet unloading. In analogous way, the estimated time for goods unloading is a constant value (i.e. the mean value is 60 minutes and its standard deviation is null) in the scenario 1 as the logistics provider has always empty pallets to return to its customer. This is the main consequence of the application of direct interchange at the distribution center level: the quick return of empty pallets (i.e. in one day) applied in immediate interchange scenarios compared with the longest one (i.e. after 30 days) in postponed interchange scenarios assures an effective availability of empty pallets. The low value estimated for the Picking Queue Time indicator (about 12 minutes) confirms this issue: the which is very low. It represents the maximum allowed delay due to the normal conditions: By comparing all scenarios, it could be noted that scenarios 1, 2 and 4 allow the distribution center to achieve similar time performances and an high efficiency; on the other hand, scenario 3 is characterized by a global lower performance in terms of service level mainly due to a high value of waiting time (i.e. up to 51 hours) for the carriers during the delivery at customer level. Moreover, by analyzing other indicators, more information could be acquired. Pallet vouchers could not be emitted by the distribution center in scenario 1 and 3; on the other hand, the distribution center could generate vouchers but it not accept then from customers in scenario 1 and 4. Data about this issue are reported in Table 4. Pallet lost contributes to high values estimated in scenario 2 and 3;moreover, postponed interchange procedure also contributes as vouchers are received and changed with pallets after 30 days (see Table 4). Table IV. Estimated values for New pallets purchased and Pallet vouchers emitted and received. Index Scenario 1 Scenario 2 Scenario 3 Scenario 4 New pallet purchased 300 5,100 5,100 300 Pallet vouchers 0 * 1,050 0 * 0 emitted Pallet vouchers 0 * 42,895 42,895 0 * received Average empty pallet in stock 973 660 658 973 * Scenario Hypothesis Finally, where postponed interchange allowed to the customers (i.e. scenarios 2 and 3), a reduction of the average number of empty pallets in the distribution center is realized. This condition determines for the logistic provider an increase in the total number of pallet purchased in the period and/or the total number of vouchers aiming to overcome the temporary unavailability of empty pallets. On the contrary, when an immediate interchange is working; the logistics provider could not apply vouchers in any way. Therefore, by only considering costs due to new pallets purchase and vouchers management, scenario 1 and 4 are characterized by lower costs. In the same scenarios, the cost to store about 300 empty pallets more have to be considered to evaluate the overall cost. V. CONCLUSIONS The paper proposes a simulation analysis to assess impacts of empty pallet interchange procedures on performances of a distribution center managed by an unique logistics provider.. Four scenarios have been analyzed and a comparison of performances in terms of supplier s service time, internal operations, and overall operating cost, is reported. Results confirm that a better coordination of actors in a supply chain enables to achieve better performances in terms of efficiency and effectiveness, also focusing the supply chain analysis on handling asset management. The optimal organizational scenario of pallet management is characterized by direct interchange of empty pallets (scenario 1) where the coordination of the actors ensures the interchange of physical pallets without pallet voucher management. On the other hand, if coordination could not be reached in the supply chain, results obtained suggest that the critical tier in this supply chain is the downstream level as their organization could influence heavily the reverse logistics flow of all actors. As shown in scenario 4, if the final customer applies direct interchange (i.e. by always returning physical pallets to its supplier), the supplier could be able to apply this organizational scenario for its own customer upstream in the supply chain. This is also confirmed by results obtained in scenario 3 where logistics provider is forced to reduce its service level as its final customers do not adopt virtuous behavior, i.e. direct interchange. 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