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Independents and National Programs: Ready, Set, Sell
Markets in Transition
By Rick LeBlanc
Date Posted: 6/2/2004
All those years of building a solid relationship with the customer’s local purchasing agent just flew out the window – again.
Last time it was because the head office wanted to test out the Internet reverse auction route. That brought the production line to a halt, and pallet procurement finally reverted back into the old plant-level pattern with the independent pallet company.
But then last week corporate was swept up in a euphoric new vision of procurement and logistics centralization at Friday sushi, and guess what - you were not in that vision. The local plant guy tells you that his pallet contract will now be looked after by an accounting intern located across the country at the new post-merger global headquarters.
Are we finally in a significant shift from plant level pallet programs to national or corporate level deals? A couple of recent news items made me think.
One announcement was a news release issued by First Alliance Logistics Management on the occasion of its 10th anniversary. First
Another item was a press release that came across my desk just this morning on IFCO winning a pallet supply contract with Del Monte covering six plants in as many states. Del Monte was quoted as saying that it was looking for a single solution. “We chose IFCO Systems because of their unique ability to offer us one solution to meet our pallet supply needs at multiple locations, to implement a pallet standard and to provide a pallet program acceptable to our customers,” said Helmuth A. Lutty, senior director of purchasing of Del Monte Fresh Produce Co.
There are many potential benefits to a centralized pallet supply program, such as the elimination of duplicated processes at the plant or distribution center level, simplification and cost reduction of accounting functions, better visibility and executive reporting through Internet software, plant-to-plant comparables and benchmarking, better corporate control, and more.
At the same time, some centralized programs have not delivered. They left money on the table that could have been won locally, and they have been hindered by tracking program problems or lack of coordination with account service reps or local service providers – especially when there has been frequent employee turnover.
The news from the front line is certainly mixed when it comes to predicting a swing to the national-level type of program. CHEP, of course, as well as others, such as IFCO and the Pallet Alliance, have announced some impressive wins in this category. The market for national pallet contracts has been one that has been in the industry’s gun sights for many years. It seems like the industry was ahead – arguably, too far ahead -- of the trend.
Going back 10 years, the
Typical scenarios of local procurement migrating to head office include the following:
n Multi-divisional companies centralizing procurement as technology improves
n Mergers of customers and suppliers (vertical integration)
n Mergers of competitors (horizontal integration)
n Consolidation of multiple processes (pallet management included, for example, in the services of a lead logistics provider or pallet disposal as part of an overall disposal deal)
This is in addition to local pallet procurement or management being shaped by powerful customer demands or industry initiatives.
It seems likely that the trend toward centralized pallet procurement and logistics will continue and escalate. In logistics, and likely in procurement, centralization typically begins with the most strategic aspects of the business and then trickles down. Cost-cutting opportunities, driven by improved technology, are opening the door. Is this happening with your customer? Higher level centralization efforts may be an early indicator of changes to pallet procurement and management.
As with any market change, national deals bring both opportunities and threats. As an independent, what do you do when the customer says that he is being forced to go national? You could make the argument that money-wise and service-wise, you can provide a better deal locally. Alternately, if you are connected with a national broker or pallet banking scheme, you could try to work something out with that entity to market at the corporate level and thereby preserve your business locally. Another angle, depending on the customer, might be to network with other pallet contacts in affected markets to create some type of alliance. All of these are possibilities.
You may just wish to keep your local accounts, but just in case those accounts catch a dose of the centralization bug, be prepared. Walk into that conversation knowing your customer’s other locations, and having an idea what companies serve those locations. And if that customer is already centralizing other, higher level functions, you are already prepared for the possibility of trickle down to pallets.