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| The company's specialisation in the manufacturing of wooden pallets
began when some of its staff participated in an active ECR Pallet
Standardisation Working Group as observers in 1998.
Work on standardising the 13 pallet sizes in Singapore was initiated by leading members of the FMCG industry in 1997 with the support of the Singapore Productivity and Standards Board (PSB). It was part of an effort to improve operational efficiency and rationalise the 13 different sizes of pallets in use in the FMCG industry in Singapore. The working group (WG), co-chaired by Ms Susan Chong, Deputy Director, Centre for Standardisation, PSB and Mr V Alankovan, Operations Manager, Grocery Logistics of Singapore Pte Ltd (GLS), the logistics arm of the NTUC FairPrice Supermarket Group, had a total of 35 participating companies and organisations. The Pallet Standardisation project is the first Standards Implementation for Productivity (SIP) project to be undertaken by PSB. Productivity improvement in the logistics industry is in line with the Economic Development Board's (EDB) plan to build Singapore into a logistics hub and consistent with PSB's involvement in the Logistics Enhancement and Application Programme (LEAP). LEAP is a multi-agency effort involving the Trade Development Board (TDB), EDB, Infocomm Development Authority (IDA), PSB, Jurong Town Corporation (JTC) and nine other government organisations. Standardisation has been identified by LEAP as one of the measures that would help improve productivity in the logistics industry. |
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| After 11 meetings, the WG decided on a four-way 1m by 1.2m standard size as it conformed to the international standard ISO 6780 "General-purpose flat pallets for through transit of goods - Principal dimensions and tolerances". Ideally, goods should be easily transported from the manufacturer to the distributor or the central warehouse on a standard-sized pallet. The recommended pallet size was endorsed by the ECR Singapore Council at its Board meeting in February 1999. It was subsequently endorsed by the ECR Asia Council Board to be the ECR Standard Pallet for Asia and is also used by ECR in Europe. |  |
The pilot study
After consultation with the WG chairpersons, the Singapore Article Number Council (SANC), secretariat for ECR Singapore, decided to carry out the pilot ECR Standard Pallet Implementation Study, as the lead company through its parent body, the Singapore Confederation of Industries (SCI). A one-year pilot study was done from 3 Jan to 30 Dec 2000 with the assistance of PSB to speed up the adoption of the pallet standard in the FMCG industry. This was the first pilot study in the Singapore Standardisation programme that carried out definitive measurements of productivity gains from the use of a standard during actual industry operations.
Supply chain companies that participated in the pilot study were GLS Pte Ltd, Yeo Hiap Seng Ltd and Unilever Singapore Pte Ltd, with Singapore Polytechnic conducting the measurements. PricewaterhouseCoopers (PwC) acted as an advisor. PSB also facilitated the project by providing about $200,000 or 50% of the project cost from the Industry Productivity Fund.
LHT decided to take an even more active role in this milestone project. It manufactured the ECR pallets by using the latest technology and Technical Wood2 to meet the transportation needs of customers dealing with FMCG. The lower moisture content of the Technical Wood serves to prevent the formation of cracks and algae normally found on natural solid pallets. The ECR pallet is also a maintenance-free finished product and is certified to the ISO 6780 'General-purpose flat pallets for through transit of goods - Principal dimensions and tolerances' and SS 334 ' Specification for Timber Pallets'. Besides being a heavy-duty pallet that can withstand wear and tear, it also costs lower than normal pallets, resulting in cost savings for the customers.
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Under the pilot study, the usage of warehouse space was optimised and wastage was reduced as manual transfer of goods from one pallet to another of a different size was unnecessary. It also eliminated the use of a slave standard pallet as a base for the non-standard pallets to sit on. Previously, a slave standard pallet was used so that the non-standard pallet can be handled by the forklift without having to change the forklift blades. The use of the racking system was also optimised with the standard sized pallets. |
An innovative rental scheme
Equally innovative was the introduction of a pallet-leasing scheme. The pilot study also found that customers can only enjoy a higher internal rate of return (IRR) through leasing instead of buying of pallets. According to Mr Tan Jin Soon, Executive Director SANC, companies opted to lease rather than purchase the Standard Pallets due to the huge price differential offered for the pilot study. "Adopting (buying) each pallet costs $33, but leasing can cost as low as 2.9 cents per day! The reduction in the cost of ownership makes up 51% of the benefits of adopting standard pallets, making it a compelling reason to lease in the pilot study," said Mr Tan. As all pallet-leasing businesses then were foreign-owned, LHT seized the opportunity to become the first local company to lease the ECR pallets in Jan 2001.
"By introducing our ECR pallet rental scheme, we allow our customers to better manage their logistics requirements and optimise storage space; offer them significant cost savings; and help reduce the cost of ownership," said Mr Neo Koon Boo, Managing Director, LHT. In addition, companies who chose to lease the ECR pallets also experienced an increase in productivity.
Currently, an average of 65,000 pallets including those from other leasing companies are leased out daily. By year's end, LHT hopes to hit an average of 100,000 pallet rentals per day. The rental business has also paid off handsomely as it brings in an annual revenue of about $600,000.
Looking forward
LHT has a pool of about 30 customers who are mainly from the food & beverage and freight logistics industries. Some of them include Fraser & Neave (F&N), Coca Cola, Yeo Hiap Seng (YHS), Grocery Logistics of Singapore (GLS), UIC, Unilever Singapore, National Library Board (NLB), Zenecon Pte Bonded Warehouse operator and Kimberly Clark.
Currently, ECR wooden pallets make up 2% of LHT's total business, which is worth about $32 million in turnover. Production efficiency has been improved as a result of the manufacture of a single standard-size pallet. The savings are substantial and the pallet rental scheme adds value. During the one-year pilot study, LHT achieved $351,000 Net Present Value (NPV) and 273% Internal Rate of Return (IRR). The payback period was four months.
LHT has come a long way from its humble beginnings, transforming from a sawmill into an integrated supply chain provider. "We aspire to become a one-stop solution provider to provide better service and convenience to our customers," said Mr William Yap, Senior Sales Manager, LHT. The company hopes to achieve this objective by diversifying into logistics services to meet the distribution needs of its customers.
Looking forward, LHT hopes to find new ways to help customers in every aspect of their business, from supply management to demand management, by participating in more ECR working committees. "We want to help businesses, especially the small and medium-sized enterprises (SMEs), to gain competitive edge by developing new tools," said Ms May Yap, Director of LHT.
The overall findings of the pilot study on pallet standardisation showed an average internal rate of return of 155% over five years on a recurrent basis. Total potential savings to the FMCG industry based on the pilot study was estimated to be $2.6 million per year for 100,000 pallets on a conservative basis.
Pallet standardisation could be extended to and will be promoted to industries other than the FMCG industry. This first SIP project, which incorporated a pilot study on the benefits of standardisation, is also a model for future SIP projects with other industries.
1 The Pallet Standardisation Working Group is one of the many working groups targeted at improving consumer choice, satisfaction and service and at the same time, reducing total costs, inventories and physical assets under the strategy called Efficient Consumer Response (ECR), a movement which began in the United States in 1993 in response to the recession. ECR Singapore was launched in Aug 1998, an industry-led initiative of the Fast-Moving Consumer Goods (FMCG) industry in Singapore which includes the grocery industry.
2 Technical Wood is a new wood product made of high density recycled waste wood material using modern technology in Singapore. It has a lower moisture content than natural solid wood.
| Call for case studies
We want to give our readers a voice in the newsletter. PSB is looking out for companies that have successfully adopted standards in the working environment. If you would like to share how standards have benefited your company and propose it as a case study to be featured in Standards and Testing News, please Email Winston Wong at winstonwong@psb.gov.sg, or fax the relevant details to 776 1280.
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