Identifying Success Factors in the Wood Pallet Supply Chain

Abstract

Pallets are a critical component of logistics infrastructure. Approximately 1.9 billion pallets are used each year in the United States for transportation of goods, from raw materials to finished products. Solid wood pallets represent 90% to 95% of the pallet market. To run their operations, wood pallet companies deal with suppliers, customers, and other supply chain components. Each of the steps is important to deliver the right products, with the required quality, and in a timely fashion. However, there is little research about the industry's supply chain practices. The objective of this research is to increase the understanding of the U.S. wood pallet manufacturing industry, its supply chain management practices, and factors affecting the supply chain management processes. To accomplish the research objectives, a nationwide mail survey of wood pallet manufacturers was carried out. In total 1,500 companies were sent questionnaires and the response rate was 14%. A model for supply chain success factors was developed based on previous research and was analyzed using the results from the survey. Results of the survey provide an up-to-date profile of the US wood pallet industry. It was found that pallet production per company was 727,229 units on average during 2009. Out of the 1500 respondents, 38.6% indicated they were medium-sized companies (20 to 99 employees) and 53.9% small companies (1 to 19 employees). Thirty five percentage of respondents indicated that their sales were less than one million dollars and 43% from one to five million dollars. Also, 45% of respondents were involved in pallet recycling or repair, and these companies indicated that, on average, 42% of the material in a recycled pallet is, in fact, new material. Regarding Supply Chain practices, close to three-quarters (73.1%) of respondents sold their products directly to customers and the order lead time for raw materials to shipment was 1 to 10 days for 81.9% of companies. The most important factors for purchasing decisions are availability, cost, and reliability of supplier (all rated 4.4 in an importance scale from 1 to 5, respectively). Respondents' answers suggest a preference to work with domestic materials (rated 4.3); however, respondents also indicated that there is currently a high level of competition for raw materials (rated 4.3). Results also indicated that information technology (IT) appears to receive little attention from wood pallet manufacturers, given that the importance of items in this area were rated relatively low, especially the use of internet for purchasing and training in IT (rated 2.2 and 2.1, respectively). Lastly, 86.0% of respondents did not believe that their customers would be willing to pay a premium for environmentally certified pallets, citing cost as the major barrier for a higher demand of these products. Also, a theoretical framework of supply chain management was designed, developed, and tested with factor analysis, allowing identification of seven factors in the wood pallet supply chain: (1) environmental uncertainty, (2) information technology, (3) supply chain relationships, (4) value-added process, (5) supply chain management performance, (6) business management, and (7) customer satisfaction. Relationships between factors were tested using multiple linear regression. Results show that value-added process positively affects supply chain relationships, and these in turn are positively correlated to supply chain management performance and customer satisfaction. Results from this research are useful for the industry to formulate a well-informed supply chain management strategy by understanding the connections between the different supply chain management practices and the business performance and customer satisfaction. The information presented is also useful for organizations supporting the wood pallet industry to design more effective assistance and educational programs.

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