This article is the third in a series of discussions with key industry leaders on important topics. The participants, who represent a variety of companies across the country, including pallet manufacturers, sawmills and recyclers, agreed to participate in a roundtable discussion via conference call in a session moderated by Pallet Enterprise Publisher Chaille Brindley. They discussed key questions facing the industry, changes taking place in raw material markets and evolving customer expectations.
The participants were: Jeff Edwards, president and CEO of Edwards Wood Products, one of the largest pallet manufacturers in the U.S; Asher Tourison, president of ACME Pallet, a major pallet producer in Michigan with an affiliated sawmill; Carolyn Beach Skinner, vice president of operations for Westside Pallet in California and former president of the Western Pallet Association; Joe McKinney, president of McVantage, which has sawmill and pallet operations in Alabama and Tennessee and is expanding into the South American country of Guyana; and Sam Donadio, president of Power Pallet, an innovative pallet recycling business in upstate New York.
We thank the participants for being part of this roundtable discussion and series of articles.
Pallet Enterprise: What are some of the important business metrics you watch regularly? What are those things that you think pallet people need to be paying attention to?
Joe McKinney: Metrics is one of my favorite topics, and I’m big on the financial side of things. I actually teach our employees that the balance sheet is blood pressure, the income statement is temperature, and the cash flow statement is heart rate. If you run out of cash, you’re dead.
We have at least a weekly checklist, and it is different in each of the businesses, and the critical numbers can change. In my pallet shops, we actually have a weekly income statement that uses actual sales, actual labor.
At the end of every month, we compare our dashboard numbers to our actuals. And if they ever get very far off in either direction, my people know there is a problem. I think you need a metric. Which ones are best may depend on where your company is in terms of its business stage and the type of business you run.
Carolyn Beach Skinner: Well, for me, I am constantly looking at the sales…daily, weekly, monthly, comparing it to the previous year.
Profit and loss statements are something I monitor too to compare the previous year. It’s pretty consistent. We’re busier in the summer, a little bit slower in the winter. Comparing it to last year gives me a good check point of where we are headed.
The accounts receivables – I’m having to look at that more and more lately. The reason is that customers have decided they don’t want to pay within 30 days anymore. That’s one of the changes we’ve seen. It’s getting a little slower for us to receive our checks, and I’ve heard from other pallet companies that they’re experiencing the same thing.
Asher Tourison: We just started cracking down on late payments a few years back. What we’ve done with a lot of our larger customers, we have them set up on 10 days less two. Everybody else is set up on 30 day terms.
Unless you have previous permission, you go past 60 days with us, and we have a little place in our office called the wall of shame. These people are not paying us, so no money, no skiddy. We really cracked down on that problem. It was getting to be a contagion.
Finally, we had to decide that we weren’t going to be a bank. We hardly have anything past 60 days now. There’s nobody at 90 unless they’re bankrupt. We’ve really cracked down on this issue. Some companies will use your cash for as long they can get away with it as a corporate policy. And if you have to walk from the business, then be willing to walk. Or charge them what it costs you and a little extra for the agony if you’re going to be a bank.
Sam Donadio: The metrics we use to drive the business at Power Pallet are: return on investment, productivity and employee efficiency, raw material cost, sales calls, and credits issued.
We have found the conventional financial reports, i.e. income statement and balance sheet, are historical measures, and although good for understanding where we have been, they are not predictive measures. Return on investment helps us to deploy capital most efficiently. Productivity and employee efficiency, measured daily, helps us to predict our profitability and allows us to respond rapidly to fluctuating demand. Raw material cost, also measured daily, helps us to keep pricing in line with supply. Sales calls have been an excellent measure of future growth. As intuitive as this sounds, the more sales calls we make the more our sales volume increases. Finally, credits issued tells us quickly if we have quality issues that are adversely impacting our customers.
Jeff Edwards: What I like is when they call you up, they’re past due and they say, ‘Oh, didn’t we tell you? Our terms are now 60 days.’ I’m thinking, ‘I thought we decided what the terms are for the products we sell.’ We have that same problem. We also have a lot of folks now wanting to go to this supply chain financing. Some customers want 90 day terms (or supply chain financing).
As far as metrics, we look at wood cost. We’re always looking at weekly trends on the wood costs. We have a report that shows what timber tracts we’re buying for future harvesting so we’ll know what the price per ton of that wood will be when it comes in.
We’re pretty big on tracking return on investment on capital projects and making sure that if we spend money on something, we’re getting a good return on our investment.
Pallet Enterprise: What mistakes have you learned from in your business? Have you made a decision that in hindsight you might have done differently?
Sam Donadio: The biggest single mistake I have made was relocating our business to our current location. I significantly underestimated the expense, complexity and time it would take to move a business form a location that we had been in for thirty years to our current location. If I had it to do over again I would have spent more time planning the logistics of the move. I could have minimized down time and a lot of anxiety
Asher Tourison: We moved to a new facility 20 years ago. It was hell. It was a brand new facility, but we way under-budgeted what it would cost to move our equipment. Stuff breaks, especially when you move it. What we found out was it cost us a lot more to move than we had budgeted. I never want to go through that again.
We’ve all made mistakes. You still have to be willing to take certain chances. Nothing ever turns out like you think it will.
From my experience, the vast majority of (my mistakes) have been with people, not equipment. Personnel issues far outweigh mechanical issues.
Pallet Enterprise: What are you doing to counter the challenges today in finding good labor and workers? How do you reward excellence among your employees? How do you find those people and promote them?
Carolyn Beach Skinner: I do have pretty long-term employees who have been with us awhile. A lot of my employees have relatives who are looking for work. That’s kind of how we find employees when we need them. And we do try to let them know that we appreciate everything they do. They work hard, and we know that. We just do simple things, like we’ll have a pizza day. A couple days a year I’ll give them a half-day off with pay. We give raises. We’re not just at minimum wage. We just try to let them know that we do appreciate them. We do a big party every year with prizes. That’s how we try to keep our employees, and they’re pretty loyal.
Sam Donadio: If you survey business owners in this country and asked them what their biggest issue is, I think the answer is going to be labor. We’re all fighting this battle.
We engage our employees a lot more. We don’t just bring them in and train them and just throw them out in the shop. We’re spending more time with them before we hire them, taking them out there and showing them exactly what they’ll be doing. We give them other opportunities (to do other jobs). We’re trying to do what we can to promote these guys from within. We also give the employees incentives. We do the lunches. We do picnics. We do all that stuff with our guys. And when they do well, we reward them with production bonuses. We do whatever we can to retain good employees.
It’s still not enough. After doing this for 41 years and fighting this battle, we’re the first pallet company in the United States to get a robot. We did it because we want to put a stake in the ground and say, ‘This is the direction that this company wants to go, and I’m tired of fighting this battle with employees.’
These are the problems that we have. Why didn’t we get this load out? Why isn’t production doing their job? People didn’t show up for work. My goal is actually to automate as much as we can. The robot is doing well. We’re going down a robotics road. We’re looking to do more with robots. The robot is making three or four different pallet sizes for us. It’s working out fairly well. A robot can do a pallet a minute. It’s not replacing a (nailing machine), but we wanted to innovate this part of the industry.
Asher Tourison: One thing we’ve seen is a huge increase in what we have to build by hand (custom pallets or skids). We set it up on a piece rate system. Our piece rate guys make a good living wage. We also do the company picnic in the summer time. Our sawmill divisions, they like to go to the ballpark. So, I rent a suite a couple of times a summer. I’ve always given these guys, during both good times and bad times, something for Christmas.
We have always offered health insurance even before Obamacare. We offer a 401(k) including matching funds. If you put in 5% of your pay, you get 9% (including a company match). I’ve got people working for me that have six figures in their accounts.
You know what? I got tired of turnover. I can’t stand it. I found out years ago that minimum wage help is the most expensive help you can get.
My facilities are…in a nice area. We mow the grass. The parking lot is black top. If you have a really nice place to work, that’s a big issue. I don’t want my guys walking in mud. If you have a real nice facility, it helps you attract and keep good help. I’m pretty proud to say that our turnover is rather small.
Jeff Edwards: We’re doing a lot of the same things. We do safety luncheons if safety goals are met. I agree with the statement about a neat, clean operation.
We’re providing better benefits than we ever have for our folks. We’ve upped our safety bonus programs. We increased our match on our 401(k). It’s difficult to find people that are eager to work.
Sam Donadio: The bottom line is we need to take the grunt work out of our plants. The reason is that it’s getting harder and harder to find people to do the grunt work. The generation coming up isn’t the answer to be honest with you.
We went to leased trucks because either that or I have to build a million and a half dollar garage and struggle to find mechanics to work in it. That’s why we went to leased trucks — for that reason.
Pallet Enterprise: What are the toughest government regulations you are having to deal with — local, state or federal? What are those things that are causing problems?
Asher Tourison: My concern is the $15 minimum wage thing could be a contagion. And it could spread across the country like wildfire. I don’t pay anybody minimum wage. But if a significant minimum wage increase goes through it will put pressure to increase wages significantly across the board. People who have been working for me for years will see beginners earning only a few dollars less than they earn per hour. What will it do to the psyche of the rest of your employees? Fifteen dollars per hour plus all the benefits that are mandate. You’re paying somebody $800 per week just to start.
Sam Donadio: The toughest government regulation we are dealing with is the minimum wage increase. We anticipate that the increase in minimum wage will drive wages up across the board in most blue collar industries. This will squeeze our profits and, as all pallet producers know, the pallet industry is not a high profit business. In turn, increased wages will force an increase in pricing. We could experience a vicious wage- price spiral. Wage increases will drive price increases which in turn cause wage increases.
Additionally, worker compensation seems to be increasing rapidly. We think this is, in part, because of a lot of fraudulent claims. We are also concerned that the Family Leave Act will be difficult for mid-size labor intensive businesses to absorb.
Jeff Edwards: Regulations for controlling emissions from these wood waste boilers has become a problem. Our two boilers are in compliance, but if they change the rules, I’m not sure if they would be. If we have to spend $1-2 million on boilers here, that’s money we can’t spend growing our business and hiring more people.
All these regulations are building up and building up and just choking the breath out of folks who want to try to grow their businesses and employ more people.
Pallet Enterprise: How do you think the pallet industry and the low grade lumber industry will change over the next five to 10 years?
Carolyn Beach Skinner: There are always going to be different challenges we’re going to have to face. However, we’ve seen gradual increases in business ever since we started in 1975. I’m kind of optimistic. I think it’s just going to continue on that path, and we’ll be able to meet the challenges that we face.
Sam Donadio: It is hard to predict how the pallet industry and the hardwood lumber industry will evolve over the next five to 10 years. We live in a commodity market and so we are subject to the vagaries of the market demand.
The hardwood pallet is the foundation of the world class logistics we enjoy in America and throughout most of the world. It is always difficult to replace existing technology. The hardwood pallet has proven to be recyclable, economical and a dependable source as a shipping platform for manufacturers, distributors, and the logistics industry.
Wood is a renewable resource and can be harvested like an agricultural crop. We have seen plastics introduced without much success in terms of market share. I do think the standard GMA will be utilized more as a one-way pallet.
Asher Tourison: I’m just going to say more automation. More machinery.
Jeff Edwards: What we’re seeing right now is all these products that are taking the place of the solid hardwood flooring. That is throwing a lot more hardwood lumber into the pallet market. I think there’s going to continue to be a lot of challenges. But I think for the folks that are efficient, people that concentrate on their business and do the best job they can do, look for ways to be more innovative and creative in their business, I think they’re going to survive. People are gravitating toward larger operations.
Joe McKinney: As you get to be a bigger company, you’re going to need to know your financials better. You’re going to need to be more professional in the way you run the financial side of your business. I also think the automation side is a big trend.
I think wood is here to stay. Our product does grow on trees, and that is a good thing. I’m optimistic about wood. When you can get the people to think properly, it’s the lowest cost provider. It’s the most economically viable material and good for the environment. When it comes to pallets, wood is the best there is.
