What Your Customers Say!

The problem with customers is that everyone needs them but nobody really wants to deal with them. This can be especially true in the wood pallet market where customers place an order in the morning and want it delivered that afternoon. Customers demand a variety of sizes and services to match their internal warehousing/distribution processes.

No matter how difficult customers may be, pallet manufacturers and recyclers must listen to them and understand their needs and internal processes. The PE staff has interviewed four pallet users representing a variety of industries. Below, they discuss their pallet experiences and provide a snapshot of what the future may hold for the wood pallet.

When Bob Sanders first joined IBM in San Jose, Calif as a packaging engineer 22 years ago, shipments were typically domestic. For the most part, products were shipped as banded loads on 2-way or 4-way standard full and half-size wooden stringer pallets.

A graduate of Michigan State's School of Packaging, Bob is now senior engineer of corporate packaging programs for IBM in Research Triangle Park, N.C. Global commerce has brought tremendous change to the packaging world, he noted.

“We have seen many business trends, such as six sigma quality, just-in-time inventory management, and now intensive focus on cost due to market and competitive pressures,” Bob said. “Oddly, the cost focus has actually led to longer shipping distances overall as manufacturing moves to locations with lower tax and labor rates despite the added shipping costs.”

Unfortunately, the focus on cost can sometimes lead to shortcuts on pallet construction quality and the risks associated with cutbacks. Regulatory initiatives, such as international restrictions related to the pinewood nematode and Asian Longhorned Beetle, are also causing shippers to consider alternative pallet designs and materials to ensure uninterrupted flow of goods across international borders. The good news, according to Bob, is that regulatory pressures have spurred considerable innovation.

The computer industry faces some key challenges. The proliferation of alternative pallet designs and materials may compound the industry's problem with regard to reusability, recyclability and disposability. Also, the computer industry still struggles to achieve global standardization due to the momentum behind regional standards, such as the Europallet.

Optimizing utilization among air, ocean, rail and truck transport has proven difficult. “We still don't have good dimensional modularity between these various transportation modes and warehouse storage facilities, which inhibits standardization,” Bob said. “And we still have handling problems which defeat marginal designs. If something could be done about handling quality, overall costs and environmental factors could be improved considerably.”

Cross-dock handling within carrier hubs as well as on the shipping dock or the destination receiving dock can be rough. “This, too, is spurred by the trends toward faster and cheaper transportation as well as less well-trained temporary workforces in any of these areas,” he said. “Companies may be more inclined to measure their carriers on cost first, speed second, and, unfortunately, damage may be a distant third priority.”

However, not all distribution environments are bad. In Japan for example, handling quality is generally better than in other parts of the world since workers seem to take a “white glove” style approach to the goods they handle. This seems to be a cultural phenomenon mainly in Japan. But IBM definitely benefits by not needing as much packaging there.

Bob is affiliated with several major packaging organizations and standards bodies. He is also founder and current chairman of the Electronics Industry Pallet Specification Task Group, which is trying to develop voluntary pallet performance standards for the global computer industry supply chain (and perhaps eventually to the entire electronics industry).

“We want to do away with the inefficiencies caused by every company requiring a unique pallet spec in its purchase contracts,” Bob said. “This is similar to what has been done in other industries, such as automotive and chemicals.” IBM anticipates that a globally acceptable pallet may have to be the 9-block style.”

Fundamentally, the group wants to introduce the best possible pallet at the beginning of the supply chain and then use it all the way to the end. The pallet may be more expensive but it should provide savings by not needing repair or replacement as often. Plus, overall load quality should also improve, which would result in less product damage.

In the short term, Bob believes that the focus on cost and regulatory compliance will continue to put pressure on all shippers and therefore the pallet industry. It appears that pallets, crates or other types of packaging made from untreated non-manufactured wood (NMWP) will soon be restricted or banned for export altogether. He pointed out that the limited capacity for treatment globally and the cost of it may begin to preclude the use of treated wood from an economic perspective. “One big concern is the monthly cost associated with getting authorized to stamp heat treated materials. Many small operators will refuse to do it and this will tighten supplies. This reality will continue to present many opportunities for innovative solutions and perhaps break some very long held habits on how pallets are built and used.”

Bob would like to see cooperation within the transportation industry between all applicable modes to standardize equipment dimensions. “This could make it possible to build a consistent unitized load which does not force those that ship on all modes to always have to sub-optimize one or more of those modes,” he said. “This would be a very long term initiative but would improve overall system efficiency.” Case in point, the task force group found that a very small change to the dimension of the standard air cargo `cookie sheet' could greatly improve efficiency with the world's two most common pallet dimensions (1.0×1.2m and 0.8×1.2m.)

“Another interesting concept is to break from the paradigm that pallets must always be used as shipping platforms, Bob stated. “Imagine if all over-the-road shipments were done on slipsheets, which were then placed on pallets upon arrival (if needed) only for local storage and handling purposes.” With this approach, he noted, cargo capacity increases, shipping costs are lowered, pests do not hitchhike on the loads to other continents, and waste created by non-standard pallets and damage due to loads speared by forklifts is eliminated. “Furthermore, this presents an opportunity for pallet users to stick to their regional pallet pool and not impose it on shippers from other continents. This would improve these programs since pool pallets would not be exported and the regional pool itself would not be contaminated with non-standard imports.”

This vision would require a major shift in thinking throughout the transportation industry. “It would also create a shift from disposable pallet making to greater use of durable pallets and the associated asset management of those pallets,” Bob said. “As pressure continues to build on the environmental impact of global commerce, regulatory compliance, cost containment and so on, this may be inevitable, but it is certainly still a long way off in the future.”

Lawrence (Laurie) Stern recently retired as Sunkist's director of transportation. He has witnessed considerable change in his four decades of produce industry experience. Laurie played a key role in the growth of produce industry palletization and its conversion to the 48×40 footprint.

When Laurie started with Sunkist in 1965, very little of its citrus fruit product were shipped on pallets, and slipsheets were unheard of, at least in the produce industry. “The palletization we did was primarily for export,” Laurie said. “It was a 35×41″ pallet. Almost all of domestic was on the floor, over 90% of it.”

Over the years, pallet usage has increased primarily because receivers have demanded it. “Pallets reduce their costs and they (receivers) are driving that process,” Laurie commented. A big change occurred a few years ago when the retailers put their foot down and demanded produce be standardized on a 48×40 pallet.

One of the obstacles to standardization was the fragmented state of the produce industry. There were many different growers and a number of different pallet footprints in the supply chain. Retailers hated it because their racks and forklifts were not setup to accommodate all the different sizes.

“They would bring it in on the floor (of the trailer) and palletize it, which was very costly, or bring it in on an oddball pallet and repalletize it onto their standard 48×40 pallet, all of which was costly and stupid,” Laurie recalled.

As co-chair of the produce pallet working group in the mid- 90s, Laurie played a key role in the transition to the 48×40 footprint. He joked that the group used a combination of regular meetings, coercion, and peer pressure to bring a fragmented industry together – basically whatever it took.

“The real big breakthrough was the strawberry industry,” Laurie said. “To their immense credit they stood up and said this is the right thing to do, and we recognize we are going to have to redesign our packaging.. and they did at I think a rather significant expense.” Resistance because of cost or other difficulties became very hard for other produce industry segments to justify.

For citrus, Sunkist forced the issue by switching to a 48×40 pallet. Once Sunkist did it, it was pretty hard for competitors not to do it, and they fell into line. Eventually the conservative tree fruit and melon people migrated to the 48×40 footprint. Most of the vegetable shippers were already compliant.

Sunkist was the first produce shipper to sign up with CHEP, Laurie said. Although there have been many ups and downs to the rental program, Sunkist still supports the concept of reusable leased pallets. “Our volume of CHEP has gone up every year as more of your customers have seen the merit of that program,” Laurie said. “But if you are a customer of Sunkist and you want to buy a pallet, we'll sell you a pallet. We'll give you what you want, either way.” The charge to the Sunkist customer is the same for a pallet whether it is a rental pallet or a reconditioned pallet sold under load.

Laurie thinks that one trend worth watching will be the rekindling of interest in slipsheets. “Kroger allegedly made a commitment to put produce on slip sheets,” he said. “It started with apples. They are telling us that citrus is next. It appears that they are serious about this. They have gone through a reconfiguration of their distribution centers to handle slipsheets, and we are making preparations to accommodate that if they do order on slip sheet.”

Kroger is looking at primary advantages of slipsheets. One is the reduced weight, which allows more product to be shipped by truck. The other issue is the low purchase cost of slipsheets compared to pallets.

As for pallet trends, Laurie likes the block pallet because of its ease of use on the dock. “Chep has gone to a block pallet. We have converted with them. I think it's a nicer pallet, but it's hard to get romantic over a pallet,” he observed, encapsulating one of the biggest marketing problems that pallet people face, putting some “sizzle” into the stack.

Specifications for bulk containers and pallets to ship plastic pellets is all over the map, according to Mike Scherm, director of logistics and customer service at Solvay Polymers, Inc. Mike is a member of the American Plastics Council transportation and logistics, which has discussed standardization of pallets and containers.

There are about 18 or more plastic manufacturers in the U.S., and they use over 25 different bulk box sizes and over 20 different styles of pallets. Yet there are fewer than a half- dozen major corrugated box suppliers. “No two of us are using the same box or combo of box and pallet,” said Mike. “That adds up to a tremendous cost in set-up.” Ironically, many of the sizes are very close to the same dimensions. Some are only 1/16-inch different. One box supplier was asked to estimate the additional cost of ongoing changeovers required by customers with different container requirements; estimates ranged as high as 20-30% of the package cost.

Like supply chain packaging and pallets in other industries, diverse sizes and solutions have emerged, and they challenge efforts to rationalize distribution. As in other industries, decision making is relatively fragmented. The position of the person who makes the supply chain packaging decisions varies from company to company. In some cases, the local plant chooses its box of choice. In others, decisions are made at corporate level by packaging designers, logistics personnel or purchasing agents.

While it is unlikely the plastics industry can reduce the number of containers to one size, it hopes to be able to reduce the number from the current level. Last year the American Plastics Council agreed to take over the container standardization initiative from the Society of Plastics Industries (SPI).

The most common pallet and bin footprint sizes for octagonal bins are 48×45″ and 50×45.” A diverse range of other sizes is also used, especially for conventional bins. Both softwood and hardwood pallets are specified by some resin manufacturers. Some manufacturers stick to new pallets while some take advantage of less expensive recycled pallets. Others, such as Solvay, use both new and recycled pallets, depending on the situation. Greater standardization should increase the availability of recycled pallets to shippers.

There are other significant hurdles to standardization. One has to do with the legal implications of creating a standard. “If we are going to approach standardization, we have to do it the right way,” Mike said. “There are legal guidelines to be followed. We have to go through the same process as other industries, such as food and automotive.” Standards will probably be voluntary in nature and evolutionary in terms of compliance.

Earlier discussions looked at standards for both octagonal corrugated containers as well as collapsible plastic containers. “Being in the plastic industry, I would eventually like to see the plastic industry in a plastic package,” Mike stated. For now, most resin manufacturers use conventional or octagonal fiberboard bins on wooden pallets. Solvay currently uses octagonal bins that provide increased payload and stack three-high even in high humidity.

“My vision is that we will drive cost out of the system by using the box and pallet downstream and reusing them,” said Mike.

Belinda Junkin, executive director of the Canadian Pallet Council (CPC), has had a career-long involvement with pallets from a grocery pallet user perspective. CPC membership, 1400 companies strong, is mostly made up of grocery and consumer goods manufacturers as well as retailer/distributor members. There are also participants from the pallet industry and transportation sector.

Prior to joining CPC in 1995, Belinda was the transportation manager at Quaker Oats Canada, located in Peterborough, ON.

Belinda worked at Quaker for 13 years and managed a fleet of 75,000 CPC pallets worth about $20 each. At 10 inventory turns per year, pallets were a $15 million per year responsibility – their replacement value if lost after a single trip. “Management recognized the value of pallets and paralleled the pallet management program with Quaker credit and customer service policies,” Belinda said. “We held all customers, carriers and warehouses accountable for each and every pallet that they received and shipped.”

Quaker trained agents to ensure that their policies and practices mirrored those of Quaker. “If agents are held accountable for a case of missing product – why are they not held accountable for a missing pallet?” The pallet often is worth more or the same as a case of product, she noted.

The greatest difference today in the Canadian grocery industry in terms of pallets has been the implementation of the Enhanced CPC program, which requires members to repair 25% or more of their CPC pallet inventory each year. Members who do not meet repair obligations are charged, and these funds are redistributed to members that exceed their repair requirement. “During the past 4 years, CPC has returned $1,290,975 back to the members who repaired in excess of their 25% requirement. This is fundamental to the principles of CPC – that we are a true co- operative or member-owned pallet pool.”

In recent years, CPC has increased inspections of pallet industry members to ensure that all CPC pallets are manufactured and repaired to meet or exceed specifications. Members that fail to meet quality requirements have been fined and several have been ousted from the CPC because of sub-standard activities.

CPC recently reached its first legal precedent in the area of trademark infringement. A CPC member company's membership was cancelled for producing sub-standard repairs and failing to pay trademark royalty fees due to the council. CPC commenced litigation against the company. The case was settled, acknowledging CPC trademark rights.

“This is an extremely important precedent, which we can now use with other infringers in the pallet industry,” Belinda said. “The direction from the CPC board of directors is that this type of activity will not be tolerated. If a company continues to use or repair CPC pallets outside the system, CPC will take all remedies available to stop this action.”

One key success for CPC has been the elimination of double stringers, which was perceived a quality issue. “Users believed that a pallet with a double stringer was inferior to a single stringer, when in fact the double stringer increased the performance of the pallet,” Belinda said. With more pallets being placed in retail stores and used in product displays, aesthetics has became increasingly important.

This year the CPC began requiring endplates on all new CPC pallets. Its next challenge is to determine a method to end-plate the existing CPC pallet inventory. It may be time to review the enhanced program. “The objective of Enhanced was to ensure all members repair `their share' of the CPC pallet pool,” Belinda said. “This was believed to be a short-term program. We must revisit and re-design, acknowledging that a percentage of the CPC membership fails to meet this requirement on an annual basis. The objective was to gain compliance. The reality is that this is an ongoing issue and as such needs to be reviewed.”

The CPC will launch a formal education program in early 2002. This program targeted at pallet administrators will teach the basics of pallet management, introduce the CPC pallet control software and provide an overview of the CPC. This initial program is designed to help companies that are struggling to find people with training and expertise in administer pallet programs. It is also a good basic review for those who already are experienced.

One of the challenges for CPC is that it greatly relies on the membership to police and monitor the CPC pallet and program.

Distributor/Retailer commitment to cease CPC pallets shipped to them by non-members addresses the trademark infringement issue. By forcing these shippers to become members in order to exchange, distributors can help make the program stronger. Great strides in this area have been made during the past year, Belinda said, with many distributors supplying CPC with lists of non-members using CPC pallets.

By far the greatest challenge is the imbalances caused by retailer/distributors who are slow to return pallets. “This results in increasing pallet costs for the shipper as they must purchase or rent additional pallets to supplement their pallet inventory,” said Belinda. During the past year, CPC has worked with several shippers to collect pallets from retailers. There has been a lack of communication between the two parties for a long time. The issue escalates to a point where the dollar value or cost becomes too great to overlook and then senior management intervenes.

“It is unfortunate that this must escalate to this level,” Belinda said. “Other shippers deliver to the same retailer and do not have the same issues. The difference is that the others closely monitor and manage their pallet imbalances, reconciling pallet imbalances monthly and immediately addressing any differences. Face to face meetings and relationships are developed, and these pay huge dividends, aiding in the collection and resolution of pallets.”

Belinda does not see half-pallets growing in market share much beyond their present niche. “The half-pallet still tends to be associated with display ready product,” she said. Likewise, she does not hear concerns from members about pallet weight now that the double stringer has been eliminated. Many CPC members have moved to plastic for downstream product movement, which has helped free up CPC pallets returned to suppliers and eliminated many manual-handling situations downstream.

Some high profile members, such as Nestle and Kraft, have been lost due to the shift of pallet decision making to the U.S., and there is the danger of others. Although CHEP is perceived to be global, there are different specifications between Canada and the U.S. as well as a cross-border fee, Belinda noted.

One distressing problem for CPC is the emergence of distributor/retailer letters that give “preferred” or “exclusive” status to non-CPC pallets. Policies restricting the CPC program could damage competitiveness in pallet supply, and grocery pallet users would ultimately pay the price. However, grocery suppliers are not necessarily responsive to distributor requests. Kraft converted to CHEP in spite of strong endorsement of CPC from Kraft's Canadian distributor/retailer customers. On the other side of the coin, Belinda observed, Metro-Richilieu, one major Canadian distributor/retailer, has not had good response to its request for suppliers to convert from CPC to CHEP. Even in the U.S., Belinda noted, there has been significant evidence of poor response of suppliers to changes in distributor pallet policy.

While CPC has long emphasized its low cost position, Belinda believes that times have changed. “We haven't lost a member yet because of cost,” she said. “Cost isn't the driving decision maker. Our focus has been on cost, and it's not about cost anymore.” For many users, however, pallets are a hassle, and they want them outsourced. Third party services will therefore likely increase in importance for CPC members.

“The challenge is whether suppliers and distributors are going to stand behind CPC and support it in order to keep competition alive,” Belinda said. “It is because of that competition that suppliers get the (low) CHEP prices that they do, and that the distributors get the CHEP services that they do at no cost. As a whole they have to step back and say `Of what value is competition?'” Ultimately, Belinda noted, members will vote with their pallets. The CPC hopes they will be aware of the stakes when they cast their ballot.