EVERYBODY INTO THE POOL

PAT NATSCHKE LENIUS

In the age of Efficient Consumer Response and enhanced supply chain practices, third-party pallet pooling is credited with providing a high-quality solution for delivering products from the manufacturer to the distributor.

A growing number of retailers and wholesalers point to the benefits of third-party programs in cutting costs from product damage, as well as from repairing and replacing broken pallets.

The question now is how widespread the practice of pallet pooling will become in the industry, and how quickly.

An estimated 25% of all dry grocery volume in the United States is now shipped via third-party pallet pooling, up from zero in 1990, according to industry sources. The rapid rise in pallet pooling has been spearheaded by Chep USA, Orlando, Fla.

Supervalu, Minneapolis, is one major player that has participated in third-party pallet pooling since the beginning, and credits the program with lowering expenses by reducing the need for repairing and purchasing new pallets and cutting the administrative costs of pallet exchanges, said Bruce Trippet, operations manager.

"Last year, close to 2.5 million transactions were brought in on rental pallets. Third-party pallet pooling fills a need in the industry by providing a reliable, usable pallet that always meets specifications," Trippet said.

"We now have better pallets, and sanitation is improved because there are fewer wood chips. Third-party pallet pooling has captured a good chunk of the dry grocery business. I see more and more distributors moving that way," he said.

Holiday Cos., Bloomington, Minn., also has been involved in third-party pallet pooling for several years. The decision to go with the program was based on the desire to use better quality pallets at its distribution centers, said Chet Harkonen, vice president, distribution.

"The program has reduced pallet costs and product damage. It has improved the safety of the environment in our distribution centers," Harkonen said.

About 35% of in-bound product is now shipped via third-party pallets, he said, with the company hoping to see that number go as high as possible.

"In the next several years, I think we can probably reach 75% to 80% of inbound shipments arriving on rental pallets. We endorse the use of third-party rental pallets to anybody who asks," he said.

Nob Hill Foods, Gilroy, Calif., has been involved in third-party pallet pooling about three years and has reaped considerable benefits from the program.

"A lot of distributors are in favor of it. We were against it at first because we were having some problems in getting the pallets back to the third-party providers, said Craig Godwin, Nob Hill's director of warehousing.

"I didn't want to incur the expense of time and labor by using our own trucks. That would not have been be cost efficient. But I changed my mind when our wholesaler supplier agreed to haul the pallets back to the depot at no cost to us," Godwin said.

The biggest advantage to the program has been in eliminating worry about billing for pallets or getting them back, he said.

"We're also seeing product arrive in much better condition at our facility. The pallets are of good quality and there is less product damage with them. The program keeps the cost of buying pallets down. We can also now have a smaller inventory of pallets on hand, which opens up space," Godwin said.

The director of distribution at a self-distributing chain in the South cited the role of third-party pallet pooling in reducing capital expenditures.

"With pallet pooling, we no longer have to handle the pallets separately and repair them. We have a lot of vendors using third-party pallets. We collect and return these pallets to a local depot," said the distributor, who asked not to be named.

"At this time, less than 25% of our dry grocery products are received on third-party pallets, but we like the program. Third-party is growing, and at the same time, we are seeing a gradual decline in quality of other pallets," he said.

TreeTop, Selah, Wash., a cooperative of 2,300 apple growers in Washington, Oregon and Idaho, was also sold on the benefits of third-party pallet pooling when a study indicated it cut costs substantially by participating in the program, said Charles Johnson, director of sales services.

The study estimated that workmen's compensation claims due to substandard pallets alone add up to 0.4 cents per case, he said.

"It is hard to measure the impact of line stoppages, pallet jams, and poor quality or broken boxes on a manufacturing plant. Initially we claimed some production efficiencies of about $20,000, but now we are finding the savings are significantly higher than that," Johnson said.

"We are very satisfied with the third-party pallet pooling program and service. We see it as part of our effort to take some of the problems and costs out of the supply chain. It is a preferred way of doing business," he said.

In addition to reducing the risk of product damage, third-party pooling can also hike warehouse productivity levels and shorten receiving time, some observers said.

"There is an array of benefits with cross docking and other ECR activities. Pallet pooling could save up to $1 billion a year once it reaches critical mass," said one industry source, who asked not to be named.

An estimated $1 billion in annual grocery product damage can be traced to pallet-related issues, the source said.

While enormous progress has been made in enhancing distribution practices via third-party pallet pooling in the dry grocery and meat categories, other areas have yet to cash in on the program's potential.

Enacting an improved pallet program for perishables, for instance, remains a huge opportunity and challenge, Supervalu's Trippet said.

"In the meat category, third-party pallet pooling has made huge strides working with major suppliers. Produce also represents a growth opportunity," Trippet said.

"Produce is put on pallets in the fields, but to keep costs down, the growers often use pallets that are not as sturdy or have different specifications than what we would like. By the time the pallet gets to us at the depot, it often is in bad shape and the produce itself may be damaged," he added.

According to Trippet, another opportunity also exists in frozen food and in other categories.

"There's a lot more product in the warehouse that is not being moved on third-party pallets. A lot more growth is possible even with companies already using the program," he said.

Holiday Cos.' Harkonen also sees third-party pallet pooling moving downstream in the supply chain in the future. Rather than focusing almost entirely on the supplier-to-distributor loop, pallet pooling could also play a role in distributor-to-store shipments, he said.

"We are downstreaming already to retailers. We take ownership at the warehouse for getting the pallets back and returning them to the third-party provider. We have a good tracking system for the pallets. We charge retailers and credit them back for the returns," Harkonen said.

"In the future, we see a combination of pallet transfer with one or more third parties and the use of plastic pallets downstream. We want everything directed to the retailers to be of good quality. We are testing a few plastic pallets in our warehouse," he added.

While most everyone praises the substantial benefits of third-party pallet pooling, some issues remain, particularly in devising a lighter pallet, industry sources said.

The director of distribution at a chain in the South, for example, said that a lighter third-party pallet, especially for the four-way block pallet, needs to be developed.