Supermarkets are no longer tolerating smashed fruits and vegetables and melted ice cream. In an effort to crack down on damaged goods, they are increasingly using third-party pallet pool leasing.
Despite the drawbacks of an initially higher up-front investment, from Stop & Shop, Quincy, Mass., to Raley's Supermarkets, West Sacramento, Calif., supermarket chains are turning to pallet leasing as the preferred way to control product movement through the supply chain.
Third-party pallet pooling is catching on quickly as an increasingly attractive option for wholesalers and retailers alike to increase efficiencies and reduce potential product and worker damage, said a spokesman from Food Distributors International, Falls Church, Va. Third-party pallets, he noted, reduce injuries to workers and are more economically sound than wooden pallets used in traditional pallet exchange. As opposed to wooden pallets that don't make a second trip, in third-party pallet pooling, companies lease pallets to manufacturers for transport to food distributors. To complete the cycle, food distributors must return the pallets via a depot to the leaser.
Those in favor of third-party pallet pooling contend it will be more cost-efficient than traditional pallet exchange in the long haul. Said Bavel Cummings, director of distribution at Stop & Shop, while some vendors still think they can't afford third-party pallet leasing, "they probably haven't studied the problem because damage to trucks and to the products is so prevalent with the pallet-exchange system."
Another big advantage for third-party pallet pooling is to help standardize the materials-handling arena for supermarket chains. Don Weersing, special projects manager at Raley's, noted that while Raley's originally made its own pallets, it switched to using those from third-party leasers to find common ground with peach and nectarine growers and with meat and product producers who use them.
Raley's eventually took a proactive stance toward third-party leasers, adopting 48-inch by 40-inch U.S. size pallets, which is the industry standard. "If you have off-size pallets, the truck drivers can't pick them up" without damage and inconvenience, Weersing noted. "The ideal situation would be if every vendor used third-party," added Stop & Shop's Cummings.
And many in the industry agree that the volume of use for third-party pallets is evolving upward. According to an international pallet- and container-pooling company regarded as the industry leader, the third-party pallet-leasing segment has grown from 20% to 35% over the last year.
Supervalu, Minneapolis, processes about 5 million transactions per year, which is roughly 25% of its overall transactions, through a third-party pallet-leasing program, said Bruce Trippert, operations manager for corporate distribution. "We've strongly supported them since their inception because problems with damaged pallets are mostly eliminated," he said. He added that while Supervalu uses third-party pallets in all areas, "for grocery, it's a more nicely closed loop" since it's a closed system where pallets are easily returned.
Raley's Weersing said the supermarket chain handles about 7,000 to 8,000 third-party pallets a month, which equals roughly five loads a week. This amount is primarily in-bound pallets, or those coming from distributor centers to the store. Others agree that the primary benefits of third-party in-bound pallet systems are numerous. According to Stop & Shop's Cummings, with third-party pallets, there is about a 35% shorter unloading time for truck drivers. Third-party pallets, moreover, break less often.
Supervalu's Trippert noted that manufacturers' use of third-party pallets is ultimately more cost-efficient than buying new ones. "We have some transportation costs, but the fact that we have a good pallet coming in makes sense to us. The concept is sound."
"What we are doing is we are moving toward the assistance of a high-grade pallet to be used in our system. As an alternative to suppliers accepting pallets that are badly made, it's more cost-effective to rent good pallets," said Bruce Peterson, vice president of perishables at Wal-Mart, Bentonville, Ark.
"The savings for us are in workmen's comp, maintenance, fragmenting and environmental cleanliness," said Raley's Weersing. He explained that in terms of the environment, for instance, third-party pallet leasers wouldn't just throw pallets away into a landfill. Environmentally, the third-party pallet is more sound because leasers keep fixing them. For the most part, food distributors recognize that the downside of the third-party pallet system is acceptable. Wal-Mart's Peterson said there are two major challenges for users of the third-party pallet system: the expense for suppliers that inadvertently lose pallets when they send them to parties outside the system; and dwell time, or how long pallets sit in a store before they are picked up. "You want to keep the pallet moving; that's the challenge of a good tracking system."
In order to forestall damaged goods, it's worth paying the price to return pallets to depots, Raley's Weersing said. "The third-party pallet leaser holds you liable for getting a certain number of pallets back. The second challenge is when a depot lacks the capacity to take all the pallets we have back," Supervalu's Trippert said.