For years, the 48×40 stringer pallet, commonly known as the GMA, has been the defacto standard for the U.S. grocery industry. But that has all started to change as some retailers have gotten a taste of block pallets thanks to pallet rental companies. This has led to widespread speculation that the block pallet may become the pallet of choice in the future.
The block pallets have become popular with retailers, especially at the store level. But it still has a long way to go to unseat the stringer design, which has been commonly used for years.
Jeff McBee, the market analyst for the Pallet Profile Weekly, started a discussion on the PalletBoard, the online forum for the Pallet Enterprise, on the topic of the GMA design. It mushroomed into an expansive review of issues facing the pallet industry as it seeks to find a way to meet changing demands from the grocery industry. The discussion included a grocery user, pallet companies and other logistics specialists.
This is the first time that a discussion from the PalletBoard has been transcribed, edited and published in the print magazine. Please be aware that names may not reflect the true identity of the poster. While we would normally not publish an online discussion in the print magazine, this one was just too good to pass up.
This is a shortened, edited version of the full discussion. A complete transcript of the full-length, edited discussion can be viewed at www.palletenterprise.com/gurumble.asp.
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The 5/8 GMA… a Heavyweight? by Jeff McBee of the
Pallet Profile Weekly
When I began working with the pallet industry back in 92, the 5/8 GMA was frowned upon as dubiously lightweight. Now it seems as if the 5/8 GMA is quickly becoming a dinosaur.
I know that customers often look to reduce the amount of wood in a pallet in order to reduce the initial cost of the pallet. This is sometimes at the urging of the pallet salesman, but more often the result of the customer insisting on a lower price with whatever means necessary.
I have several questions for the Pallet Board brain trust:
1) Is the 5/8 GMA truly a dinosaur?
2) If so, what is the most common GMA ‘style’ pallet?
3) What is the most common stringer for today’s GMA ‘style’ pallet?
4) Are customers no longer interested in anything other than the initial cost?
5) Do customers no longer consider potential pallet failure in the purchasing of pallets?
Cheers – Jeff McBee of the Pallet Profile Weekly
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Re: The 5/8 GMA… a Heavyweight? by Grocery User
As a person in the grocery business, I will answer the questions.
1. Dead and gone. In fact, they have turned to coal.
2. Junk. The vast majority are junk and are not holding the weight that
is being placed on them.
3. Broken and substandard. See #2.
4. Cost is still a major consideration. What works for the manufacturer of product may not work for the distribution center and the variety of racking configurations. High failure rate.
5. What works for both? (A question you should have asked) Answer – CHEP pallets, PECO pallets. Even with the issues, you know what you are getting. You get a true 4-way in the block pallet that is strong enough to hold in the variety of rack configurations. Rental pallets are still repaired to a higher standard than most GMA clones, and they are more cost effective at face value.
Twenty years ago the 5/8 GMA pallet was very hard to find, and now, regardless of the rhetoric they do not exist. The pooled pallets are by far the vast majority of the pallets in the industry, like it or not white wooders! With their quality standards deteriorating you think that white wood would be making inroads. However, other than some small victories, this is not the reality of the situation.
Let’s not forget one thing; pooled pallets are a consistent pallet size and specification. CHEP, PECO, you know what you are getting. The purchasing agent is now out of the process of setting specifications that do not necessarily work throughout the industry.
Another equally important factor is that this industry did not and does not want to mess with pallets. They want someone else, a third party, to deal with. If a CHEP breaks and $2,000 worth of merchandise is damaged, guess who gets billed? It is guaranteed money to cover the loss. Is CHEP going to say to a P&G, Campbells, etc. "We ain’t gonna pay?" Not hardly.
White wooders, you can have a good product and all of you are right. You just built what the customer wanted. But the customer now wants something different than the same old program that they got rid of in the first place. The time is now to look at changing the model of the white wood industry to take care of the major grocery chains and manufacturers on a national scale. You need to be able to go into the board rooms of these corporations, speak their language, sell your superior product and service at a reasonable price.
Gone are the old days of white wood pallets in the grocery industry. However, we all may hate CHEP, its model has been accepted and embraced by this industry. Are there problems? Yes. From these problems are there opportunities? Yes!! But you must be prepared to change the old model of selling pallets as a liability to the customer to managing this pallet as an asset for the customer.
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Re: The 5/8 GMA… a Heavyweight? by Worked in Grocer biz.
I respectfully disagree with Grocery User. If you were purchasing new (sorry recyclers) white wood true GMA pallets with 5/8 decking you would not be having the problems you mentioned. As for using a CHEP style pallet, we experienced way too many employee injuries with that pallet and too much product damage when double stacked (too heavy in both cases). Also, I didn’t like being responsible for someone else’s property. If our pallet count came up short, the CHEP bill was ridiculous. I’ll take the new white wood over a CHEP pallet any day. It may be a dinosaur in other industries, but it works well for the grocery industry.
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Re: 5/8 GMA by Quality Control
What kind of revenue is generated from white pallet sales every year from DCs? You can ask CHEP that question since they are in the business. You think these generators want that revenue to go away. NOT!
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Re: 5/8 GMA by Sincerely Interested
Grocery User: You make some very good points, but you also make some assumptions that are too harsh. You say that the industry doesn’t want to mess with pallets, that they want someone else to deal with it. This may be true of some companies, but not all. What companies want is a cost effective, low-hassle process and if a 3rd party can provide it, great. If not, internal processes are viable options.
You refer to the old model of selling pallets, and the problem of purchasing agents setting specifications. The "old model" for GMAs was exchange, which is still the predominant process employed by many companies. Most companies involved are frustrated by this process, and poor quality is the major issue. However, it isn’t the shipper’s purchasing agent that is "guilty" of causing the quality problem. Most inbound pallets in an exchange environment come from truckers as they pickup their next load. Typically, only about 20% of pallet volume is "purchased" to supplement the exchange program. It’s the other 80% that is the problem area where substandard pallets creep into the process and create the quality problems.
Don’t get me wrong, I am not endorsing the exchange process. It clearly has lost its favor in the industry, and new solutions are needed. This is what gave rise to the rental program in the US 10+ years ago.
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Reply to Sincerely Interested by Grocery User
First, there is the assumption that a GMA pallet spec actually exists. I will agree that there is a stringer pallet that follows the design model of the GMA, but not the specifications of the GMA pallet. The GMA hardwood pallet spec is a good and sturdy platform and properly managed and repaired would be as good as any leased or pooled pallet in existence today. One major problem with the design of the pallet is the bottom deck board configuration. The problem lies at the case pick DC level where a powered pallet jack with forks of 96 inches or 144 inches are in use. The front wheels of the jack are the scourge of this pallet, probably causing 90% of the damage to this pallet.
There is very little tolerance between the opening provided by this pallet and these wheels. If all palletized loads are within the parameters of the pallet, then there is not as much problem with breakage and getting the jack hung up when backing in or out of the pallet. If the product has overhang, the chance of damaging the pallet or product significantly increases.
Another problem is that a pallet jack can only enter from the ends and not the sides. Due to multi-store picking, many DC models require the pallet to be loaded on the 48-inch side which is not possible with a stringer pallet design.
The true 4-way pallet or block pallet does not present these challenges and is much easier to load with a jack and a lift truck. It is also easier to access at a higher rack configuration.
Pallet management and standardization whether a white pallet or blue pallet is the key to success for this industry…With a bottom line gross cost of less than $.50/pallet, much less when you figure net cost, I would challenge anyone to prove in writing how a white pallet program is cheaper.
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Grocery User by Grocery Eater
With CHEP you have added transactions and paperwork. You get CHEP pallets in, you send them out with paperwork, and then you have to deal with the depot paperwork. I am not that naive to believe that all of that paperwork matches up on a consistent basis and that it is not a big pain in the rear to straighten it all out. I have heard too many horror stories. I have also heard that DCs have hired one person just to keep up with this, probably high volume CHEP DCs. You would never need one person that could cost you $30K-40K a year just to take care of CHEP with white wood.
Lastly, you don’t speak of the time spent to separate these pallets out at the DC. Surely, you must keep the blue separate from the white? How many people are associated with this function? What is the yearly cost? Salary, benefits, forklift expense, etc.?
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Re: Grocery User by GU
Just remember that a pallet is a pallet is a pallet. A DC performs many of the same motions regardless of the type or color of pallet. In the beginning, sortation was no big deal because there were so few CHEP pallets. There was a time where it was a pain and somewhat time consuming as the number of CHEP pallets steadily increased. Now since they have the majority, it’s not a big issue. Does it take time, people and equipment? It sure does. However, you still have to deal with pallets and that is mostly considered a fixed cost of doing business. It just depends on how that piece is managed and contractual obligations that you may have to work under. In other words, the total third party of pallets may not be possible due to collective bargaining agreements.
When 100% were white, we sorted good from bad for reuse, so that never went away. In addition, we had to track and handle the white pallets to the recycler, dock exchanges, pallet banks, paying vendors, etc. From an inventory standpoint, pallet accountability with white pallets was more of a problem and more time and people consuming. With the rental program we do not worry about vendor returns, counting the pallets on the dock, billings, exchanges, etc. The bill-of-ladings are the same as with white being returned to recycler, vendors, etc. The depot gets a BOL from us, and we get a weekly transaction report in the mail. As far as matching up, I am just dealing with one entity, CHEP, not the depot, about irregularities. In the pre-CHEP days, you had to manage each vendor individually requiring more time and effort for reconciliation.
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To Grocery User r.e. Your Challenge by Dave Sandoval
Grocery User: In your Jan 11 post, you issued a challenge to anyone who can show you, in writing, how a white wood program can be a lower cost program for you than the rental program. I am reiterating my acceptance of your challenge, and ask that you contact me.
Also, I will no longer use "Sincerely Interested" as my handle on this board, as someone has recently decided to use it as well (see post dated Jan 18 r.e. NWPCA).
-Dave Sandoval (formerly SI)
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Re: To Grocery User r.e. Your Challenge by GU
I am neither blue nor white. I view way too many posts that are ill informed and very closed minded. We had a very good dialogue going which several believe there was good info passed. I am neither 100% right in all instances and I know that, but I am not 100% wrong either. I was just sharing some of my experiences with pallets and various programs that I have observed and dealt with over many years working with members of this industry, blue, white, red, green, etc.
Therefore, if you want to have a public, professional discussion about the challenge I put forth, then let’s have it. As Michael Buffer says, "Let’s Get Ready to Ruuummmble!!!"
Grocery User Rumble by DS
Let’s look at a simple scenario, using actual regional price data from the Recycle Record (December ’04 edition). #1 GMA’s range in price from $5.00 in Virginia to $6.35 in Illinois, and cores range from $1.20 in New England to $2.25 in Illinois. The average "spread" between core price and #1’s is $3.71. #2’s range from $3.20 in North Florida to $4.60 in Illinois, with an average spread of $1.92 relative to core price. Keep these numbers is mind…
You indicated that you "have eliminated pallet purchase" and that you have "revenue from sale of white pallets". Further, you do pallet exchange (97% full loads, 3% dock), yet have only 37% of inbound white "good as is". I will assume from this data (correct me if I am wrong) that you are not exchanging with all shippers delivering on white, and that you are not satisfied with the overall quality of white wood coming in under load. You also said that you have told several vendors using white wood to improve the quality or go to CHEP. I assume that these "problem" vendors are not on exchange, and that these poor quality pallets are the pallets that you are selling, and that these poor quality pallets have a negative effect on your productivity.
What if…all inbound white pallets under load were GMA #1’s in good condition, and you had no exchange programs to support? Your productivity would improve, and you would have large quantities of excess GMA #1 pallets in good condition to "sell". What could you get for them in the market place? What are you getting now? And what is the quality of what you are selling? Can you get a better price for a GMA #1 in "sellable" condition? Getting a handle on the revenue potential is the first step to understanding the value proposition. Could be, depending on your DC locations, that this scenario may look like a pretty good revenue opportunity. Today’s reality however is that only 37% of your inbound white wood is good, and you need these to support your exchange programs.
What if…you approached your vendors on white wood with a proposition to buy GMA #1’s under load at a negotiated price that meets your net cost objectives. This will give you the leverage to address the quality issue, (vendors shipping on #2’s will upgrade to #1’s if you pay them the difference) while at the same time achieving a net lowest cost pallet program, even a negative cost (otherwise known as profit) program.
-DS
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Re: Grocery User Rumble by GU
Round 1 – What if… all inbound loads were GMA #1 in good condition with no exchange program. I would be a happy camper if this were the case. In fact, if I could dictate the pallet of choice would be a pallet meeting the 9-block specification similar to the CHEP block pallet. Hardwood is fine just as long as the specification is equal.
Now, back to the GMA #1, pallets are a commodity like anything else. I have seen a variety of pricing schemes where the full market price of the pallet was paid to the vendor as part of the invoice, the vendor cost of the pallet was buried in case cost, transportation, etc. In the pre-CHEP days, out of 100 vendors, there may have been 25 different pricing points, and with many vendors, multiple price points. It was quite frankly mind boggling to manage when dealing with 9500 vendors. Some vendors made money on pallets and others did not. Quality and spec was across the board. Pallet repair and sortation was once a union job costing a few thousand dollars/month in wages and benefits alone. It was close to a full time clerical job to manage with usually support from 2 to 5 management folks. Indirect cost of the receiver’s time to inspect and log each pallet coming in and noting problems on the bills.
Now I have this pallet that is saleable. I have two choices. One, take on the in-house cost of management and execution of the pallet purchase program and take on the challenge of selling these pallets back. The second option is to do away with this cost and sell them direct to a pallet company and get what the market will bear.
Let’s use the Illinois example: I pay the vendor $6.35 for his pallet. The pallet flows through the operation in the normal manner which I will not put a handling price to because as I have stated, a pallet is a pallet. There are certain fixed costs that will always be there.
Choice 1, I take these pallets and sort good, repairable, non-repairable. There is a per pallet cost to do this. I can now turn and sell this pallet back to one of my vendors, or sell it back to the original vendor for what I paid for it. I can repair the pallets needing repair in house at a cost, or I can hire a pallet company to do that for me, at a cost. In addition, I could just have the pallet company purchase the repairable and non-repairable pallets. I am quite positive it will not be at the original price I paid for the pallet.
Choice 2, eliminate all in house pallet handling, pallet repair, sortation, all but just the normal fixed cost of handling a pallet. Get the most money I can by selling to a pallet company, add the savings of labor, materials, and equipment, benefits, etc. and just try to reduce the overall cost of the program.
Now, let’s say the vendor in Illinois does not want to buy this pallet back. Now, I may have to sell this pallet at a loss to a vendor in Virginia at $5.00/pallet. Not only that, I may have to foot the freight bill to get the pallet to Virginia. Whoever the vendor is, I will probably have to pay or share the cost of freight in some manner.
The same program can work in reverse with the lowest cost pallet going to the highest cost vendor so you could make a case for more revenue or profit going that direction. However, you are probably going to look more at the average cost of the sum total of the pallets you purchased from all vendors and use that number as a baseline number for pallet cost. In the scenario just played out, it is virtually impossible to reap a profit on pallets in this manner. Pallet sales in this scenario will reduce only the total cost of your pallet program. The degree
of that cost reduction is dependant upon many, many different factors and how the program is managed.
At no time will 100% of the pallets go through a distribution system and not be damaged, regardless of the quality of the pallet coming in. The GMA style is more likely to have a higher percent of damage due to its configuration in regards to some of the material handling equipment that is used in many DCs. The block style pallet generally has a lower degree of damage because by design it is more compatible with the equipment in use, and you never have to deal with stringer stress cracks which can significantly reduce the weight capacity of the pallet, especially when factoring racking that does not completely support the pallet.
As far as the quality issue, I have that leverage with white wood now as I did back then. I can charge back a significant per pallet fee for the cost of the bad pallet, plus labor and "punitive damages." But once again, this can be a real management nightmare and many will get through the system unless tight controls are in place.
I can also have the product shipped on the floor, making the vendor foot the bill for the break down and palletization on my dock, and just say to heck with the pallet. This may not be the most cost effective way to do business, but it can be an effective hammer.
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Re: Grocery User Rumble by Fast Freddie
GU, I agree that a nine block style pallet is an easier to use pallet, but a properly built stringer style GMA pallet can hold up as well or better, when you compare $1 to $1 spending on pallets, a new $15.00 (cost to build) GMA will be comparable or better than a $15.00 9 block style pallet.
I personally like the nine block style pallet and am presently trying to sell several of my Grade A GMA pallet users to a nine block style pallet as it will be more versatile for its application. I wish that as an industry we would embrace a certain specification of pallet design (similar to the policies and procedures of EUR or CP in Europe).
Also, if the people loading the pallets (our customers) would appreciate a well designed pallet, some of the ideas being boxed around would have a better opportunity of becoming a reality. -FF
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Re: Grocery User Rumble by GU
FF – it is not just about the platform. It is also about the versatility of that platform and the potential operational savings from the variety of powered industrial trucks that can easily be used with that platform. You cannot use a pallet jack in a stringer pallet, therefore if you pinwheel a load, you must have a forklift and another operator to load that pallet vs. having the selector load.
Often fork tines have to be adjusted several times a day to adjust to the variety of notch sizes and positions. This is a major factor when grabbing a pallet from 30 ft. in the air. The hardwood stringer in unsupported racking tends to fail in the freezer faster than the CHEP style stringer due to cracking. A small crack in a hardwood stringer will progressively fail as the wood freezes. The weight of the load will determine the degree of the damage up to
failure.
The block pallet works great in racks and the retail outlets love them. Easier to access with trucks, higher profile than standard white stringer pallets, and damaged blocks less likely to collapse. In other words, if a block fails, it tends to hold together whereas a stringer may collapse enough that makes it very difficult to access with a truck. Then you have to have people go up and recover the product. Unloading is easier at retail outlet since all four sides are compatible with straddle stackers, especially when pin wheeled.
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GU Rumble Round 2 by DS
You make some valid points, GU, but you’re missing the main idea…don’t pay the Illinois vendor $6.35, offer to pay him $3.00, or $2.50. A vendor from Virginia is only paying $5.00, so offer him $2.50, or $2.00. Set a strategy to pay "half" the market value for a GMA #1, and pay nothing for any pallet not meeting quality standards that you set. Never pay freight to sell pallets out of your local DC market. If there are no major shippers in your DC market, then work a deal with your local recycler that makes sense, i.e. maximizes your revenue while maintaining an efficient operation. Then factor your revenue potential into your payment strategy, i.e., don’t pay half if you can’t get half. Or, better yet, only pay $.20 per pallet less than what you can get, giving yourself a margin to cover your administrative costs and your occasional damaged pallet, and create a positive variance in your operating expense budget.
Don’t take a big bang approach. Work the issue from a bottom up perspective, i.e., start with your worst offenders on poor quality. If they balk, then use the hammer. It doesn’t need to be an administrative nightmare if the process is well planned and managed. As the buyer, you are in a position to completely control the process to ensure that only positive results impact your bottom line.
The block pallet will become a feasible alternative after the new paradigm is in place, which will eliminate the current barrier of initial investment cost. The added value the design brings to your operation will be the incentive for considering the transition costs involved, and if enough supply chain participants see similar value potential the transition can occur.
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Re: GU Rumble Round 2 by GU
This strategy does work with many vendors but is not across the board. Some vendors will not budge from their price. The vendor will cover the pallet cost in some manner, add to case cost, reduce CPU rates, dock unload incentives, etc. The buying group can be helpful in negotiations with a vendor on pallet pricing due to the millions of $ of product they are buying. Remember, they are looking at case or unit pricing out 3 to 4 zero’s. 100th of a penny may be a deal breaker and the pallet part of the pricing may be the difference.
Freight is also negotiable. You can build that into the pallet price, create freight lanes for carriers, especially local carriers, and fleet hauls. Unfortunately, pallets are not a deal breaker with a buying group so we are somewhat at their mercy because they are protecting their bottom line.
Actually, our goal was never 1/2 of the value, it was to get the pallet for free. We accomplished this with banking, full load exchange, and working with transportation fleet and general carriers to achieve this. In many instances, the pallet was a means to an end to get more revenue out of another part of the operation. Again, part of pallet management is to understand the total logistics picture and to integrate each piece in the best possible way to increase the bottom line and reduce cost.
Bottom line, our core business is not to manage pallets. That is not what we do best. Distribution and transportation systems are going to third party operators because of many factors. Why not pallets? There is a tremendous opportunity for the right operators to go into major corporations and look at their total logistic network and come up with the best, most cost efficient process(s). One thing I am certain of is that there is no "one size fits all" program out there.
[To read the rest of the conversation, visit www.palletenterprise.com/gurumble.asp for a complete transcript of the edited PalletBoard discussion. To enter the discussions currently taking place on the PalletBoard visit www.palletboard.com.]
5/8 GMA by Grocery User
