Sounds like a simple question, surely the cost of a damaged pallet is the cost of replacing it, let’s say £15 right?
Wrong. The cost of purchasing a replacement pallet is only a fraction of the true cost.
Let’s discuss a couple of common scenarios:
- A forklift driver misjudges getting the forks aligned with a palletised load that is waiting for dispatch, and accidentally breaks the edge of the pallet. There is no damage to the load, but the pallet is split and a piece has come off.
You may be tempted to dispatch the pallet as is, and pretend it didn’t happen, but this runs a genuine risk of the delivery being refused. Logistics companies and distribution centres understand the costs associated with re-palletising loads, and this is why they levy high fines on companies that attempt to deliver on damaged pallets. You run the risk of having the complete delivery refused and returned, being fined for attempting to deliver damaged goods and then penalised again for failing to deliver an order on time. The one broken pallet could end up costing £1000s….
Much better to replace the damaged pallet, so what is the cost of replacing the broken pallet:
- The new pallet purchase cost =£15
- Handling and storage costs for having a supply of new pallets on site. =£2
- There could be a significant amount of capital invested in stacks of replacement pallets. This is money that is tied up so is not available for business development. =£1
- The labour required to move the load from the broken pallet to a new pallet, let’s say two operatives working for 15mins at £10/hour = £5 wages
- The lost productivity due to these two operatives and any MH equipment not being available to do their normal duties. The real cost to a company of lost productivity is approximately double the salaries, so ½ lost man hour = £10
- Now you have to store, handle and dispose of the broken pallet= £5
- The load was wrapped, strapped and labelled for dispatch, so you also need to replace these items and dispose of the waste packaging = £2
- Administration costs- reprinting pallet labels etc
So the financial cost estimate has quickly risen to over £40
In the second scenario, let’s suppose the forks not only damaged the pallet, but also damaged part of the load.
Now the costs can escalate dramatically. Obviously the cost will depend on the value of the damaged item, and whether it just needs re-packaging or needs to be scrapped. In the food industry, damage to one item on a pallet can result in the scrapping of the entire pallet. In other circumstances, the damaged goods can lead to spillages requiring expensive clean-up. Added to this any scrapped goods will probably need specialist disposal.
Replacing one item on a pallet can be a big problem when using batch or serial numbering or with goods with sell by dates. The administrative problems caused can be very difficult and costly to resolve.
In other scenarios the timing of the damage can also massively increase the cost. Murphy’s law implies that things happen at the most inconvenient time, so suppose the damage happens at 5:00pm on a Friday as you are loading the last pallet of a critical delivery that has to ship that day. The truck driver has to leave to have any chance of making the delivery. You may have no other choice than to ship the delivery short, and send the replacement pallet by courier….
In addition to the above financial costs, there are other implications of damaged loads:
- Increased Health and Safety risks.
- Handling broken pallets is a major cause of injuries in the workplace, ranging from splinters, twisted ankles, puncture wounds due to standing on nails through to back injuries caused during manual handling. In addition storing and moving stacks of broken pallets on site is inherently unstable and a significant fire hazard.
- Spillages from damaged goods could be hazardous to health or pose an additional fire hazard.
- Negative Environmental impacts:
- Significant amounts of packaging waste are generated when re-palletising a load. Disposing of these responsibly involves costly separating and storing the waste for recycling. For many smaller companies packaging waste will go straight to landfill. Any spillages from damaged goods could have major environmental consequences.
So, there is no single correct answer to the original question, “what is the cost of a broken pallet?”
Perhaps the answer that makes most sense is “A lot more than you might think…..”