S p o n s o r e d by: Written for:

Summary of Subcommittee Findings and Recommendations On The Grocery Industry Pallet System

In 1989, the Pallet Subcommittee of the Joint Shipping Container Committee was formed to study the costs associated with-and alternatives tc-the current grocery pallet exchange system. Within the context of this study, the Subcommittee also agreed to analyze the viability of the standard "GMA pallet, and develop a set of standard pallet-design specifications toward which all manufacturers (using alternative materials as well as wood) might conform.

Initial sponsors of the Subcommittee's efforts included the Food Marketing Institute (FMI), the Grocery Manufacturers of America (GMA), and the National American Wholesale Grocers Association (NAWGA). Sponsorship has since been expanded to include the Produce Marketing Association (PMA), the American Twcking Association (ATA), the American Meat lnstitute (AMI), and the Private Label Manufacturers Association (PLMA). Cleveland Consulting Associates, an international consulting firm specializing in food industry logistics, was retained to advise the Subcommittee, conduct critical research, and report on the findings. In addition to CCA and members of the sponsoring associations. representatives from the 22 companies listed below were included on the Subcommittee. Each of these organizations played an important role in the development of research findings and subsequent recommendations.

Campbell Soup Company Craig Transportation Company Del Monte caods, U.S.A. Fleming companies, Inc. General ~ i l l s , Inc. Giant Food, Inc. Heinz U.S.A. Geo. A. Hormel &Company Kraft General Foods Land O'Lakes Lever Brothers

Marsh Supermarkets, Inc. Nabisco Foods Group The Pillsbury Company Procter & Gamble Company Safeway, Inc. Spartan Stores, Inc. The Stop & Shop Companies Super Food Services, Inc. SUPERVALU, INC. Sweet Life Foods Wetterau. I-:.

The Subcornmiltee's first report detaiw the annual costs inarmed by the grocery industry to manage the current pallet exchange system. Prim.@ m n g this s t w s key fii ings were an overall pallet system cost of nearty $2-billion, almost hall of which was detennined to be the result of produd damage, canier ineffiencies, productivity bsses, and time albcated to sort and repair pallets. This figure translates to a pallet- related cost of approximately 16 cents per case, or $1 0.1 1 for every loaded pallet moved completely through the distribution cycle. Figure 1 bebw summarizes the overall pallet system costs as identified by the Cornmiltee.

Flgure 1: Dry Grocery Pallet System Costs (In $millions)

Pallel Purchase 185.3 81.1 - 114.2 380.8 18.8

ProdunlViI~ Low in 60 .5 60.5 - 183.4 304.4 15.7 Or&rSeI~~lion a d Shlpmsnl Proparalion

Admlni8lrallon

35.7% 11.2% 2 3 . % 30.0% 10O.OX

The Subcommittee's second report focused on financial quantification of alternatives to the pallet exchange system. Four basic alternatives were identified: an industry cooperative pallet pool; a private pallet pool rental; a private per-trip pallet rental; and the incorporation of a one-waydisposable shipping platform. A detailed breakout of specific costs of each method to grocery manufacturers is shown Figure 2. Figure 3 details cost breakouts for distributors. A total system profile of these alternatives is shown in Figure 4.

Figure 2: Estlmated Impact On Manufacturers

Pallel purdase

Platlon m s e

CanisrmBfaclors Pallet trip renlal and deposil

Pallet issue ard bansfer Daily rent4

sortation

Pallet repair Transprtabn lo ard from depols

Re~iacement of bst palleLs Compny dminl~Ccm

Idusby admlrishah Pmdu&ty bss in order selection a d shipment preparabn Exchaw bss Workers'mmpensation

Damage

T o ~ m s l p r ~ ~ t hp

Required inveSLmenl (rnUbn5)

Presenl System

$1.28

Prlvate Pallet Pool

Rental

Prlvste Per Trln

parlei Rental

One-Way Recyclsble S h l ~ ~ l n a Plalform 53 Per $4 Per

Platlorm Plalform

Flgure 3: Estlmated Impact On Dlstrlbutors

Pal& purchase

mm* Can* me taclm Pdel I* mlal sd Pdsl iswe ard tlansler

ww M a n P&t repai T-ian lo ard Inm depols

R e p h c e m d bst pdlfls C o n p q h i M ~ n Irduslly 6 n . m Prdwi)liFI IQs in a& seledian and P W ~ Exchange bss workers' mrpsnsafm

Damnge

Required inveslmsnr (-1

Present System

$.€a

Private OneWay RBcydabls Industry Prlvete Psr Trlp Shlp~lno Platfonn

CoopemUve Pallet Pool Pallet $3 Per Per PalietPool Rental Rentel Platform Platform

Figure 4: Alternatives t o Present Pallet System: Total System Flnanclal Recap

CosVPellet Trip Mllllons Industry Investment ta

System Alternetlve Menulecturer Dlstrlbutor Totel Sevlngs Accomplish

Presanl System $7.06 $3.03 $10.05 Base Base

lnduslry Cwperative Pallet Pool 2.02 1.12 3.14 $1,333 S1.tW

Private Pallet Pool Renfal 4.58 .86 5.44 892 0

Private Per - Trip Pallet Rental 8.21 (2.22) 5.99 787 0

One-Way Disposable Shipping Platform

@ $3.W 3.21 .06 3.27 1,308 48

The following pages introduce specaic Subcommittee recomrnen3albns, as well as pallet design specifications an3 a vision of the "optimal pallet mamgement system" of tomorrow. Summarizations of key points originally introduced in previous reports are iwluded, as are observatans on the effect of a changing pallet system on the g m r y industry's key players: manufadurers, carriers, an3 di~ 'hr tors.

The Grccery Pallet System Today Page 6

A Visbn For Tomrrow's Grocery Pallet System 7

Impact on the Trucking Industry 8

Impact on Gmery Distributors 8

Impact on GI&;< Manufacturers and Shippers 9

Pallet Design and Performance Insights 10

Gmery Industry Pallet Performawe Specifications 11

Gmery Industry Shipping Platform Performam Specifications 12

The Grocery Pallet System Today

The current pallet exchange system has led to a severe deterioration in the

quality of pallets in the system, and has been determined to cost the industry nearly $2 billion annually to operate. The Pallet Subcommittee estimates that the present system costs $1 billion more per year than available alternatives.

The traditional 48-inch x 40-inch "GMA pallet remains an integral part of

America's grocery distribution system today, and is involved in one way or another in the movement of over 90% of all dry groceries.

The current GMA design dates back to the early 1970s and does not meet

today's distribution requirements.

The current pallet design contributes to excessive product damage, particularly to very heavy unit loads. Detailed tests have indicated that the principal design flaws that lead to damage are: 1) the cutouts on the 48-inch side stringer that compresses products when pallets are stacked, 2) the lack of bottom coverage leads to uneven distribution of weight, and 3) inadequate top coverage does not provide adequate support when stacked.

The exchange system forces grocery truckers to incur significant extra costs

obtaining acceptable pallets prior to picking up grocery loads. It also necessitates the unwanted exchange of pallets after a delivery has been made.

Current wooden pallets are heavy, awkward to handle manually, and can lead to

worker injury and workers' compensation claims.

Because the typical pallet used today is of such poor quality, pallets have a . .

useful for life of only one year, thus contributing millions of pallets to the nation's waste stream.

The current pallet design does not provide true four-way-entry capability and therefore, many attributes of today's trucking and material handling equipment cannot be efficiently utilized.

,.

A Vision For Tomorrow's Grocery Pallet System

Grocery manufacturers and shippers should have access to a range of pallet and platform shipping devices, all of which should conform as closely as possible to the design specifications adopted by the pallet subcommittee.

No single pallet has thus far been devised that meets all of the Pallet Subcommittee's design requirements at an acceptable cost. These design requirements are:

1) T N ~ four-way entry capability

2) A size of 48 x 40 inches

3) A weight of less than 50 pounds

4) Sufficient top and bottom deck coverage to prevent product damage

5) Construction with reusable, renewable, andlor recyclable material, perhaps even from the post-consumer waste stream

6) Necessary sanitation, moisture resistance, ventilation, and drainage to handle certain product categories, such as meat and produce.

Third party service companies could offer nationwide access to a pool of properly designed pallets, could have responsibility for collecting and redeploying pallets where they are needed, and could keep the pallet pool at a high level of quality.

A variety of vendors will offer special-use pallets and one-way disposable plalforms for product and distribution systems that favor that approach.

Pallets and platforms will be designed to minimize logistics and distribution costs on a system basis. Manufacturers, logistics service providers, and distributors will be properly motivated to share in the cost and savings of the . .

optimal pallet solution.

So that non-rackable pallet designs can be cost-effectively utilized throughout the system,grocery distributors should study the viability of retrofitting existing racks or building new racks with support structures.

The Pallet Subcommittee, through member testing and with the help of vendors and Professor Mark White at the Virginia Polytechnic Institute, has learned that the specific design and construction of pallets have a great impact on pallet performance. Purchasers of pallets and individuals responsible for pallet repair should acquaint themselves with technical work done by Dr. White and others with respect to proper joint construction, fastener design and other construction techniques involved in pallets.

Impact On The Trucking Industry

It has been determined that the current pallet exchange system creates

significant inefficiencies in the trucking of grocefy products. Prior to picking up a grocefy load, trucking companies are required to obtain the necessafy number of pallets, which often results in significant loss of time, as well as unproductive miles. Likewise, drivers are required to exchange loaded pallets for empty pallets after delivefy, and because of manual pallet-handling injuries, workers compensation claims are significant.

Any new pallet system should relieve the trucker of responsibility for gathering

and exchanging pallets. Truckers and shippers will realize significant savings through elimination of unproductive tasks.

Pallet designs should provide four-way entfy so the maximum width now permitted in semi trailers can be utilized by loading two pallets abreast on the 48-inch side. Because approximately halt the manufacturer-originated shipments cube out the trailer before reaching a weight limit, true four-way efitfy offers a significant opportunity to reduce per-unit transportation costs. Likewise, outbound shipments from distribution centers to stores could be loaded to yield greater payload.

Trucking companies need personnel to track and recover pallets with today's

exchange system. Eliminating pallet exchange would enable truckers to reduce operating costs and investments in pallets.

Impact On Grocery Distributors

Grocefy distributors should be encouraged to experiment with manufacturers

in testing innovative pallet-management solutions to reduce the total supply chain cost for grocefy products.

Several distributors are experimenting with nestable pallets and shipping

platforms. These products can be accumulated at the store, sent back to the distribution center in efficient quantities, and reused ibrshipments between DCs and retail outlets.

A significant cost of today's pallets is to provide rackability in unsupporled

warehouse racking. Grocefy distributors should be prepared to retrofit existing racks or build new racks with support structures so that if and when non- rackabie pallet designs become available, they could be used throughout the System at potentially great savings.

Impact On Grocery Manufacturers and Shippers

Manufacturers and shippers should explore pallet or platform options to best define their requirements to specific products and distribution channels

Pallet Subcommittee research has revealed that grocery manufacturers have a wide range of product and distribution requirements. Even though today's pallet is designed to carry 2,800 pounds, approximately 30% of the unit loads weigh less than 1,000 pounds, and 66% of unit loads weigh under 2,000 pounds.

Manufacturers with heavy andlor damage-prone products should find that the full-perimeter-bottom, true lour-way-entry pallet will yield a great reduction in product damage and pallet-related costs.

Manufacturers with more bulky and lightweight products may find creative new solutions provided by manufacturers of one-way recyclable shipping platforms or other devices under development.

Manufacturers that have engineered palletless systems should explore the use of new pallet technologies for selected transporlation moves in order to reduce total system cost and damage.

Meat processors and other fresh product shippers will benefit from development work done by innovative pallet manufacturers to provide needed sanitation and moisture resistant perlormance.

Pallet Design And Performance Insights

To date, no single pallet has been devised that meets all of the Pallet

Subcommittee's design requirements at an acceptable cost. Great strides have been made, however, and the level of on-going development suggests that soon the industiy will enjoy the benefits of an optimal design at an acceptable cost.

Because of the following desirable attributes, wood will likely continue as the predominant material for pallet construction in the shod term: 1) it is a renewable resource. 2) it is easy to fabricate and repair, 3) it is relaiively inexpensive and abundant and, 4) when properly constructed, it provides considerable strength relative to weight and cost perlormance. At the same time, wood has some considerable drawbacks: 1) a properly ConstN~ted wood pallet is currently over the desired 50-pound weight limit, 2) wood provides a difficult challenge for manufacturers and distributors requiring additional sanitation, such as the meat and produce industries. 3) pallet usage consumes significant amounts of wood and creates a downstream environmental problem if pallets are dumped in landfills.

Plastics of various types, while attractive for durability and ease of sanitation,

have several shorlcomings as a pallet material. Plastic resin or recycled plastic is inherently expensive and a plastic pallet const~ct ion will be significantly higher in cost than an equivalent wood unit. Plastic pallet designs are most applicable in closed-loop systems or where a third parly pallet pool operator can control the use of the pallet and realize the benefit of longevity that plastic pallets provide. Current plastic pallets deform under heavy load and unless reinforced with steel or wood, do not provide acceptable racking strength. Therefore, a plastic pallet capable of racking perlormance is even more costly.

Cor~ga ted material has been used for many years as a slip sheet under a unit load. Prototype corrugated pallets and platforms have been developed and show promise of being able to handle lighter loads effectively. To date. corrugated pallets do not perlorm well on conveying equipment, are not rackable without supporl, and generally are too costly to be viable as a one-way shipping device. In inslances where recoveiy of a pal1et.i~ not feasible, corrugated may Find an imporlant community of users.

Pallets designed 13 moot the Pallet Subcommittee's specifications are

currently much high% in cost lhan today's typical GMA pallet. Some companies may find il unrealislic to purchase these expensive pallets, and, for the present, may lhu; find it pr$ferablo to employ third-party pallet management services.

It is possible that for certain companies, an optimal pallet design could include a

mix of materials; lor example, plastic, and corrugated.

Grocery Industry Pallet Performance Specifications

1) Exact 48-inch x 40-inch dimensions. Square in each direction.

2) True four-way entry. Capable of accommodating existing pallet jacks from all four sides (as opposed to current style with cutouts and stringers).

3) Minimum-width pallet jack openings of 12 inches and minimum height of 3- 314 inch clearance when under load. Width of each center support must be less than six inches to accommodate pallet jacks.

4) Smooth, non-skid, top-bearing surface should have at least 85% coverage. However, 100% is preferred. Non-skid surface should be flat, or have no indentations or protrusions that could cause product damage.

5) Bottom-bearing surface of no less than 60% coverage with properly placed cut-outs (12-inches square) for pallet jack wheels from four sides. Surface should be flat or have no indentations or protrusions that could cause product damage.

6) All bottom entry edges should be chamfered to 114-inch for easy entry and exit.

7) Overall height of platform should not exceed six inches.

8) Rackable from both the 48-inch and 40-inch dimensions. Allowable deflection in drive-in and drive-through racks no more than 112 inch.

9) Compatible with pallet conveyors, pallet dispensers, skate-wheel pallet-flow racks, and automatic storage and retrieval systems.

10) NO protruding fasteners. . -

11) Must be made of material that does not contaminate the product it carries.

12) Must meet or exceed current pallet resistance to fire.

13) Must be recyclable. Preferably made from recycled material.

14) Desired weight under 50 pounds.

15) Load capacities of 2,800 pounds. Capable of bearing 2,800-pound loads safely in stacks five loads high.

16) Repairs should be economically feasible.

17) Weather resistant.

18) Moisture resistant.

19) Capable of safely moving product, damage free, through the entire distribution channel with multiple cycles (from manufacturer through distributor to retail).

Grocery lndustry Shipping Platform Performance Specifications

Studies by the Subcommittee's consultant verify that for the shipping platform to be a viable economic alternative to the standard pallet, it should be available in the $3.00 to $4.00 price range. Based on use of pallets in the systems today, it is conceivable that the market for shipping platforms-if such platforms are deemed to be an acceptable alternative-could approach $100,000,000. Subcommitee- generated specifications for a Grocery lndustry Shipping Platform include:

1) Exact 48-inch x40-inch dimensions. Square in each direction.

2) True four-way entry. Capable of accommodating existing pallet jacks from all four sides.

3) Minimum-width pallet jack openings of 12 inches and minimum height of 3- 314 inch clearance when under load. Width of each center support must be less than six inches to accommodate pallet jacks.

4) Smooth, nonskid, top-bearing surface should have at least 85% coverage. However, 100% is preferred. Non-skid surface should be flat, or have no indentations or protrusions that could cause product damage.

5) Bottom-bearing surface of no less than 60% coverage with properly placed cut-outs (12-inches square) for pallet jack wheels from four sides. Surface should be flat or have no indentations or protrusions that could cause product damage.

6) All bottom entry edges should be chamfered to 114-inch for easy entrylexit.

7) Overall height of platform should not exceed six inches.

8) Preferably rackable from both the 48-inch and 40-inch dimensions

9) Compatible with pallet conveyors, pallet dispensers, skate-wheel pallet-flow racks, and automatic storage and retrieval systems.

10) No protruding fasteners.

11) Must be made of material that does not contaminate the product it carries.

12) Must meet or exceed current pallet resistance to 1ir.e..

13) Must be recyclable. Preferably made from recycled material.

14) Desired weight under 35 pounds.

15) Load capacities: identifiable in 1,400-lb. (yellow) and 2,800-lb. (green) units. Must be able to bear its unit load weight safely in stacks five loads high.

16) Moisture resistant.

17) Capable of safely moving product, damage free, through the entire distribution channel with multiple cycles (from manufacturer through distributor to retail).

11 ASSOCIATION CONTACTS

Food Marketing Institute 800 Connecticilt i\Ve., N.W.

Suite 500 \,\'ashinglon, DC 20006-270 I

(202) 452-8444 M s . J ~ l d y Kozacik

Grocery h.lanufacturers of America, Inc. I0 I0 \Yisconsill ,-\\.enc~e NW

Scritc 800 Lvashington, UC 20007

(202) 337-9400 Ms. Perry lzri

National-American Wholesale Grocers' Association 20 I Park LVastlirlgron Coc~rt

Falls Cliurcli, \/A 22046 (703) 532-9400 Mr. John Bloom

American Meat Institute 1700 North Moore Streel

Suite 1600 i\rlinglon, Vr\ 22209

(703) 84 1-2400 klr. Jens Knutscrl

Produce marketing Association 1500 Caslio ivlill Road .--

Newark. DE 197 14-6036 (302) 738-7 I00

Ms. Kathy Mcans

Private Label Manufacturers Association 369 ~~cxil'lfitobi Avenue

5tl1 Iz1oor New York. NY I00 1 7

(2 12) 972-3 13 1 Mr. K e n Clariielcl