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Markets in Transition: Lost in Translation
There was a new Italian pallet study on 3rd Party Logistics providers released in mid-June. It is written in Italian, but with the power of Google Translate, it was revealed to me.
By Rick LeBlanc
Date Posted: 8/1/2008
Whether it is in the pre-dawn squalor of a wet and crowded produce terminal loading dock or the polished black walnut of the boardroom, the wondrous importance of the pallet rarely benefits from an adequate translation. Just like the late Rodney Dangerfield, the pallet never seems to command much respect. I was reminded of this in a couple of ways over the last few weeks.
First off, there was a new Italian pallet study on 3rd Party Logistics providers released in mid-June. It is written in Italian, but with the power of Google Translate, it was revealed to me in that charming, semi-coherent manner that free translation software offers. Case in point is the description of EPAL pallet exchange:
In Italy the most common management pallet is the exchange at par pallets EPAL: interchange provides for the refund instant a number of pallets equivalent quantity and quality to pallets received.
In other words, the most common pallet management approach in Italy is a one-for-one exchange of like quality EPAL pallets at the time of delivery.
The study itself is the second Pallet study in as many years by the Centre for Research Carlo Cattaneo, sponsored by Assologistica, a national logistics association in Italy. The subject is the impact of the EPAL pallet exchange system for mainstream 3PL providers, including the likes of DHL, Kuenne and Nagel, and others.
The results are predictable to a North American audience. The 3PL providers don’t like exchange very much. At many locations, they have trouble getting pallets back. This is true for a number of reasons, including black market activity as well as the lack of storage capacity at many smaller outlets (and Italian grocery retailing is still quite fragmented and predominates to smaller formats in comparison to the U.S. market.)
In some circumstances, exchange works quite well, particularly where exchange is deferred until full load quantities of sorted pallets are picked up at a distribution center to return to the product manufacturer.
But non-recovered pallet rates are quite high – as much as 10% for one of the seven cases presented. The study determined a cost per trip for 3PL providers ranging from $1.19US to $1.86US per trip. (This is in addition to pallet costs felt by other supply chain participants such as product manufacturer, carrier, and distributor.) Keeping in mind that typically a 3PL provider is going to receive a pallet under load and then ship it out, the pallet cost comes predominantly from fulfilling pallet return obligations to its client, the product manufacturer.
The study says that the 3PL providers do not have a very privileged position in the supply chain, which makes them vulnerable to the inefficiencies of the pallet exchange system. It caught my eye that of the data presented from seven 3PL operations, the one with the lowest cost per trip was the one that spent the most money on pallet administration. Over half of $1.19 spent per trip ($0.64) was attributable to administrative efforts. This operator more than made up for the expenditure by accumulating extra pallets to sell instead of having to purchase pallets to cover shortfalls in retrieval. Here is my point - why is it still so counter-intuitive to pallet users that investment in pallet management will pay for itself?
The second story I want to tell quickly has to do with a C-store delivery program in the United States. The distributor noted that it didn’t seem to be getting its pallets and assorted reusable containers back from the various outside trucking firms it was using to make the deliveries. This negative trend prompted the distributor to launch a tracking program to ensure it would get the assets back.
The new system provided notice to the drivers on the dock. The sales group that ran the program was assigned to forward the information to the C-store customers and the management at the trucking companies to make sure everybody knew about the asset movements.
Pallet tracking software was introduced. At the end of the first month, reports were run, and the result was downright scary. Very few of the pallets were coming back. It was projected that the pallet and container loss for the modest program would reach well into six figures per year.
The ledgers were faxed or emailed to the carriers by the DC pallet controller. Carriers were encouraged to make the returns so as to avoid deductions from their checks. The controller’s phone started ringing as every carrier account manager phoned to say that no one had told them, but now they were aware of the problem. Carriers committed to try to comply as best they could, as long as the C-stores could safeguard the assets for return. Apparently none of the C-stores knew about the problem either.
The sales group, predictably seemed distracted by all this talk, and began to calculate if they could tweak up the margin enough to not bother with this tracking nonsense at all. No respect, like I say. Or as my friend Mr. Google translates in Italian, “…non rispetto.”