Let’s set aside the current international pallet shortage for a moment. It is fair to say that most of the time, pallet buyers have many options when it comes to selecting a provider in a highly competitive pallet market. However, a critical first step in their selection process is to become familiar with the fundamental differences between asset-based and non-asset-based suppliers. Those differences can be crucial to a supplier’s ability to address particular pallet needs.
In simple terms, the asset-based pallet supplier owns much or all of the assets necessary to service customers in its operating area or operating areas in the case of multi-site companies. The list of assets includes property, structures, and machinery as well as warehouses and transportation equipment. Alternatively, the non-asset-based provider, often referred to as a pallet broker, relies on relationships. It leverages its connections with asset-based companies across its network rather than bricks and mortar to serve the needs of pallet customers nationally or internationally.
Asset-based pallet suppliers
First, let’s look at the characteristics and benefits of asset-based pallet suppliers. As mentioned above, asset-based providers rely on their production plants and transportation fleets to service their customers. Therefore, they require significant investment in that asset base and carry the inventory needed to run the business. They also need a large workforce to produce and deliver products and services.
On the inbound side, they purchase lumber from mills that often have shorter terms such as COD and 10 days NET. On the outbound side, they are generally required to carry the cost of finished goods where customers often require NET 30 or longer.
For asset-based producers, their focus is typically on manufacturing. That is because manufacturing excellence is directly related to their profitability. An emphasis on minimizing production costs allows them to maintain profit levels in an environment where lumber and finished pallet prices are strongly shaped by the highly competitive marketplace.
Let’s consider the benefits of asset-based pallet suppliers. First, given their capital investments in production capacity and trucks, they have complete control of the sales and fulfillment process from start to finish. This degree of control and certainty can be desirable to specific customers, especially when pallet supply is tight. Multi-site operators can also serve customers in the various locations where they have plants, and over time, establish new locations to serve the expansion needs of existing customers. As a rule of thumb, pallet plants usually deliver up to a 150-mile radius.
Also, some local clients look to build goodwill by sourcing locally. Such companies can enhance their reputation in the community by dealing directly with the pallet supplier located in their town.
Non-asset-based pallet suppliers
Unlike the asset-based provider, the pallet broker or non-asset-based pallet supplier does not rely on bricks and mortar. As such, it is not constrained existing locations or production capabilities. Instead, it builds off its relationships with asset-based pallet and transportation businesses to serve customers, subcontracting with pallet producers that best meet customer requirements such as pallet specification and delivery requirements, physical locations, and remittance terms. The broker takes a small margin to facilitate transactions.
And whereas asset-based providers typically require a substantial number of employees, the broker has a limited staff, relying predominantly on an inside sales team. Rather than manufacturing, the focus of the non-asset-based provider is on sales and service, placing orders with plants that best meet customer needs.
The non-asset-based supplier typically relies heavily upon its investment in technology to coordinate sales orders and fulfillment processes. Generally, their digital systems are matched only by a few of the largest asset-based operators.
Because the non-asset-based provider is not constrained by existing plant locations or production limitations, it can offer great flexibility to customers and a highly robust and reliable supply chain to deliver the types of pallets needed, where needed. When an existing client launches or makes an acquisition at a new location, for example, non-asset-based providers can leverage its relationships with local pallet providers to quickly address the pallet requirements. Likewise, suppose a particular pallet manufacturer faces a production disruption or doesn’t have the equipment to make a certain pallet. In that case, the broker can shift the order to a different pallet operator to ensure delivery.
Non-asset-based pallet providers also rely upon their transportation expertise to provide affordable delivery at distances that regularly exceed 150 miles, utilizing underserved freight lanes and leveraging transportation relationships to move pallets beyond local markets.
How asset-based pallet suppliers and non-asset-based providers work together
While non-asset-based pallet providers do not have the same geographical and production constraints as asset-based operations, pallet brokers must rely on trusted relationships with them to successfully serve customers. Many asset-based operations value relationships with brokers to supplement or replace in-house sales requirements, especially during slower periods. Alternatively, some pallet companies rely entirely upon leads and sales generated by brokers, which act as their sales department.
Non-asset-based companies can bring new opportunities to local pallet companies that they might not otherwise know about and work with them to provide acceptable remittance terms to eliminate their risk of late payments. Ultimately, non-asset-based pallet providers can only offer comprehensive national solutions through collaboration with local pallet plants and other subcontractors.
Ultimately, there are pros and cons to working directly with local pallet producers or working indirectly with them through a pallet management firm. For predictable, local requirements, a local asset-based supplier can work great. However, where greater reliability, flexibility, and simplicity are prerequisites to growing and risk-proofing your supply chain, you should consider a non-asset-based provider.
Why FALM?
First Alliance Logistics Management (FALM) is a leading North American non-asset-based pallet provider. Founded in 1995 by several leading North American pallet companies, the vision of those founders was to create a company that could design and deliver national pallet programs, unconstrained by the physical plant locations of that ownership group.
It was a vision that proved to be an astute one, as FALM was subsequently followed into the marketplace by numerous pallet brokers. Today, as a Top 10 North American pallet management provider, FALM offers a network of over 225 U.S. pallet manufacturing, recycling and repair companies. It prides itself on its ability to deliver on pricing, quality, and service through the strength of its relationships with both pallet suppliers and customers alike, supported by robust technology solutions, vast industry expertise and experience, and sound business practices. To find out more, contact FALM today at (866) 376-0165, email info@falm.com or visit www.falm.com.