THE POOL QUEUE 1994-10-17

CHRIS O'LEARY

Third-party pallet pools are becoming a more powerful player at all links of the supermarket distribution chain, with pool members reaping the rewards of higher-quality pallets and shorter receiving time.

Pallet pools are slashing pallet replacement costs while enabling more reliable distribution, reducing product damage caused by inferior pallets and minimizing dock time spent inspecting pallets and processing orders.

Industry analysts estimate that third-party pools represent about 10% of the industry market today, with 75% dominated by traditional pallet exchange programs and the remainder belonging to a mix of alternative programs, like plastic palleting.

But the numbers may soon change as third-party pools rapidly expand, listing among their members such major manufacturers and wholesalers as Kellogg Co., Battle Creek, Mich.; Campbell Soup Co., Camden, N.J., and Supervalu, Minneapolis.

"It's just a matter of time before manufacturers understand the program and see the merits and cost savings that they will be getting," said Joe Fagan, director of warehousing at Associated Wholesale Grocers, Kansas City, Kan. "It's an enhancement and a bonus to me to have that [pool] pallet come across my dock."

"One of the main things we've seen is tremendous support," said Rick Burn, manager of transportation and logistics at Michigan Sugar, a Saginaw, Mich.-based manufacturer of packaged goods. "The third-party people are working in an area where most people [in the supermarket industry] don't really want to spend a lot of time."

Third-party pallet poolers such as Chep USA, Park Ridge, N.J., and First National Pallet Rental, St. Louis, are increasing their presence in the manufacturer-to-wholesaler loop. Manufacturer clients are seen as key to the success of pallet pooling because with each high-volume manufacturer signed up, wholesalers can receive more products on third-party pallets.

"Some manufacturers don't manage pallets as a resource, they manage them as an expense," said Mike Olkowski, manager of delivery services at Lever Bros., a New York manufacturer of soaps and detergents. "I'm surprised more haven't picked up the program.

"There's a learning curve associated with going into the program," he added. "The longer you wait, the longer it's going to take you to get up to speed."

One of the main benefits for manufacturers who ship their products on rented pallets is improved loading time. "There's no doubt the program has improved our loading efficiencies," Olkowski said. "It's eliminated problems upon receipt with our customers who are participating in the program."

Pooling has enabled Lever Bros. to predict and manage costs more accurately. "These are the intangibles on the accounting side that just get lost in the cracks if you don't consider them," he said.

"Chep USA has provided excellent knowledge in reconciling pallet differences," Olkowski added. "They handle all the administration aspects with the customer, and the carriers are no longer caught in the middle." As a result, "we've sharpened our approach in dealing with pallet reconciliations and pallet ordering.

"Our pool gives us performance reports on our costs, our usage, our activity -- information we don't typically get on a pallet basis," he said. "It gives you predictable costs with no variations within the country. You have a steady supply and there's no question of the quality."

Burn of Michigan Sugar praised his company's rental firm, First National, for freeing the manufacturer from having to deal with wholesaler clients about pallet issues.

First National "can go talk to one of our customers as a third party. If we go, we're also trying to make a sale," Burn said. "Now they can go and talk pallet problems and it doesn't influence our sales department."

For wholesalers, the pool system also has meant a vast improvement in receiving efficiency. Associated praised its rental company for providing high-quality pallets that improve receiving time because they don't need to be exchanged with inbound pallets.

"If products come in on a third-party pallet, you don't have to be concerned about exchanging pallets," Fagan said. "You simply bring it across the dock and put it away. With a lot of product [on traditional pallets], you have to wait for it to be palletized on your dock.

"You don't have to be concerned about the quality of the pallet," he added. "So you don't have to be spending the time to inspect it. You can just check your load in and go. After I unload the pallets, I take them down to their pool terminal, where they're inspected and put back in the system."

Fleming Cos., Oklahoma City, which receives about 2,000 pallets a day at one of its branches, has found pallet exchanges hinder a smooth distribution system.

"With the velocity and rapid movement of products in and out, you don't always check your pallets until you go to put them away, and when you put them away you see a stringer's missing," said Dennis Gleason, distribution manager of Fleming's Massillon, Ohio, division.

In addition, the pool system is allowing Fleming to better manage its costs. "I know where I stand at all times," he said. "I always know the [pallet rental company] charges me money when the pallets come in and they give me my money back when the pallets go back to them."

Wholesalers and manufacturers agree that the pool system provides for unequaled pallet quality. Third-party pallets have lasted much longer than traditional wooden stringer pallets, which last only a couple of trips, and whose weak structures often have damaged products.

Wooden stringer "pallets only last one and a half trips downstream, and you have to repair them constantly," Associated's Fagan said. And that means a high degree of waste. "The distribution business is the second-largest user of wood, next to the building industry."

Traditional exchange programs leave retailers powerless about pallet quality, said Charlie Swander, warehouse superintendent at Marsh Supermarkets, Indianapolis.

"You can't control pallets very well coming into the system, and there were a lot of bad pallets coming in," Swander said. "Pooling assures you of getting a good pallet into your system. Because we could not control the condition of the pallets coming in, we had a lot of delayed time in unloading."

"The key problem in pallet exchange has been that 'quality in' does not necessarily equal 'quality out,' " Burn of Michigan Sugar said. "It's not belligerent or deceitful, and sometimes we may even get better quality. But pallets wear out just like tires or anything else does. The [exchange] system assumes pallets will run in perpetuity."

Olkowski of Lever Bros. also cited pallet pooling as a way to ensure manufacturer and wholesaler responsibility. Pallet rental "is an answer to a problem that has plagued the industry for a long time, which is cheating," he said. "When anyone cheats on the quality, there's no policeman to regulate either the shipper or the receiver of the pallets."

Fleming is also grateful for the pallet upgrade. "A big problem that regular pallets can have is broken stringers," Gleason said. "When you stick them 20 feet in the air and all the weight gets put on the crossbar, those things break. Then you've got a mess up there."

"You've either got product all over the floor or somebody's got to crawl up in a lift trying to get the product down by hand," Gleason added. "That happens quite frequently with the soft wood you get on pallets."

As third-party pools expand, Gleason said the impact the system is having on retailers is not being adequately addressed.

Pallet rental firms "don't want pallets to go downstream to the retailer, because they're afraid of losing them," Gleason said. "But the more vendors you get on a lease program, the less pallets are going to be available for outbound freight.

"Sooner or later you're going to have to let the pallets go downstream or have a supply available for nothing but outbound shipment," he added. "If a customer orders a full pallet of product, the order selector wants to go in and pull the full pallet. He doesn't want to be transferring that from a [pool] pallet to another shipping pallet."