Editor’s Note: The following story is taken from a presentation that Chaille Brindley gave at this year’s Western Pallet Association meeting. If you want to be ready for the future, you need to develop answers to these key challenges: mergers and acquisition activity, labor shortages and workplace culture, supply chain, cash flow, and innovation.
While it isn’t the end of the world, it may seem like that for many pallet companies facing unprecedented challenges and industry changes.
Last month, the Enterprise covered some of the top trends and challenges facing the industry today through the lens of preparing for the “end of the world” as we know it. The first article covered shifting consumer trends, industry consolidation, labor shortages and workplace culture. This article will review the equally daunting tasks of managing your supply chain and cash flow while fostering a spirit of innovation that will take calculated risks.
Securing Your Supply Chain Requires Optimization and Forethought
The pandemic caught many people off guard. As Europe and Asia was devastated by the virus, U.S. companies expected demand to drop significantly and worked to reduce excess inventory by throttling back production. Then when the building supplies and construction demand spiked last summer, many product suppliers were ill prepared for the skyrocketing demand. This trend significantly affected the lumber market and had some impact on the pallet sector. Although most pallet companies didn’t shut down, they have been limited by worker shortages as well as raw material constraints.
The rush to lean the supply chain globally in almost every field has led to companies developing Just-In-Time (JIT) delivery requirements for many products and key components. JIT sounds great under normal conditions. But when the unexpected hits, JIT can become a nightmare leading to price spikes and shortages. All companies need to rethink the move to offshore production of key components or reduce safety stocks just for short-term profits.
One way you are seeing this take place today in the pallet industry is the refusal of many pallet manufacturers and recyclers to take on new accounts. With limited lumber, nail and core supply as well as labor and trucking capacity concerns, smart companies are limiting new business even if they have excess capacity. In many cases, they are working to build inventory to prepare for the fall when retailers gear up for the Christmas shopping season. Unfortunately, most pallet companies are reporting limited inventory as customers gobble up almost everything they can. Pallet users are ordering well in advance and buying extra safety stock. This could lead to lower orders in the future, but demand appears to be robust for now. Easy money and eager shoppers have consumers buying more than usual. This could drop in the summer as more people are vaccinated and go on vacation. But pallet demand remains high throughout most areas of the country.
One way that companies are working to secure their supply chain is by adding a sawing operation to their pallet plant. Sometimes you can buy an existing sawmill or partner to invest in a nearby facility. While owning a sawmill or resaw operation may not be cheap, it can provide you a lot more options than simply buying cut stock on the open market. Given labor shortages, some companies are opting just for cut stock so that all their workers can focus on pallet production. It really depends on your long-term strategy, raw material situation and labor supply. Before you jump into any major change, you will want to research timber resources, logging operators and lumber capacity for your area.
I am reminded of the case of Harvey Pallets. A number of years ago, this Chicagoland recycler started a sawmill and logging operation in Missouri to offset lumber needs from the open market. While most recyclers probably won’t go to this extreme, it does show the lengths that some companies are going to for a more secure supply chain.
Another unique approach is the Urban Sawmill detailed in the cover story for this issue of the Pallet Enterprise. Greg Bowen of Bo’s Pallets claims that this innovative trim and sort line from Alliance Automation has turned his operation from desperately needing material to becoming a reseller of excess boards in less than a year. See the story on page 14.
When you are looking at your supply chain, you have to think about more than just lumber or used pallets. You have to consider everything from nails to fuel to trucks and trailers to machinery. Costs to buy new and used trailers is going through the roof, which puts any company with extra trailers in a very good spot right now.
You need to develop a supply chain plan that looks at key components of your operation from diversifying supply to developing safety stock to providing escape clauses in customer contracts that could hamstring your operation.
Data Management Leads to Better Operations and Customer Service
Maybe the most important part of securing your supply chain is getting a better handle on your data. Improved data management can help you make smarter decisions when it comes to yield from different log suppliers to determining which core accounts provide better quality pallets. Analytics can guide you as you forecast future raw material needs or work to identify production bottlenecks or ways that your company can work smarter, not harder.
Improved communications with customers will drive sales as well as customer loyalty and happiness. Many pallet and smaller lumber companies still run their operations with outdated software and spreadsheets. That would be understandable if there weren’t any good solutions tailored to the pallet industry. But there are a number of enterprise resource planning (ERP) software solutions that enable pallet and lumber companies to better manage data, employees and customers. The top three programs in the industry are PalMate by Automated Machine Systems, Pallet Track by Innovative Data Systems, and Pallet Connect, a Web-based pallet application. See the sidebar 1 for more information on these solutions.
Increasingly, customers want to order pallets online, track deliveries electronically and view inventory and account data on a computer or smartphone. Pallet users want more data and more electronic options for account management. That’s where these programs allow even small or mid-sized companies to act and look like the major companies in the industry. It all comes down to how well you manage your data, import and track key metrics and provide customer access to this information. If you are still in the Stone Age when it comes to your information, you really need to look at some of the ERP options on the market today.
Bar codes and scanners can be combined with the ERP software to offer production tracking for employees in recycling operations. These processes also help recyclers identify the quality of material coming off each trailer from pallet suppliers. I envision that this process may be automated even more in the future with vision systems that handle the inspection and sortation control of pallet loads. What if you could have a camera in your dock that analyses each stack as it comes off the truck? This could be used to provide consistent, third-party audited reports about pallet counts and grading.
Some new pallet producers with lumber operations have added optimization scanners to better measure yield from each supplier. This enables a company to more accurately determine the true cost associated with processing supply.
Beyond ways to measure data, smart pallet companies are identifying the key performance indicators (KPIs) that they will use to measure the health and success of their businesses. Most companies already have these. But evaluating the effectiveness of those KPIs to determine the outcomes you want most is part of the data management equation. Just because some KPIs worked well in the past doesn’t mean they will be as useful in the future. You should revisit these every year or so to see what you need to change. Is there any KPI that needs to become more important in your decision-making? Are some KPIs no longer relevant? Do they need to be analyzed in different ways?
Lastly, data doesn’t really lie. But it doesn’t always tell you the truth either. If you measure the wrong thing, you can easily reach the wrong conclusions.
Cash Is King – Cash Flow Affects Everything
As pallet and lumber prices get more expensive, many companies are taking a closer look at their cash flow. Generous payment terms are being replaced with new arrangements that involve net 30 or 45 days or payment on delivery in some cases. Brokerage has become more common in recent years, and brokers tend to pay faster than many typical pallet users. Over the past 5-10 years, longer terms have led to more business going to brokers. But this trend could go away as desperate buyers bypass brokers and look anywhere they can for pallets.
Regardless of your arrangement, companies are reducing the amount of credit or debt they allow customers to hold before cutting them off. One reason is that skyrocketing prices mean that each load costs a lot more money. The simple reality is that it is easier than ever to fire bad customers and replace them with good ones. Unfortunately, in the recent past before the pandemic, some pallet buyers acted like their pallet supplier was a bank.
But the tide has turned with the major pallet shortage facing the United States. If you want pallets, you will likely have to pay on time. And if you are a pallet company you owe it to yourself and your good-paying customers to remain solvent. You set the payment terms and make sure they are something you can finance and live with.
Even smaller pallet companies are working with banks and lenders to secure better financing if necessary. Something that is common with lumber suppliers is insuring receivables. This is a trend that could start to gain ground with pallets and containers. Of course, if you take these measures, you will have to incorporate those costs in your price quotes.
Another aspect of cash flow is planning for price increases and inflation. If the country continues along a strong inflationary tract, you will need flexibility to measure those changes and pass along those higher costs. That’s where understanding your true costs for everything becomes key. Once again, this is a place where the right ERP can be worth every penny you spend.
Taking the Right Risks – Creating a Culture that Isn’t Afraid to Innovate
The last major challenge is YOU. Have you ever thought that the biggest obstacles to your future success may just be you? Humans tend to do the same thing over and over again, even when it isn’t working. In general, most people are hesitant to change or take risks. Fear has a way of keeping us on the sidelines when we need to act. Given all the challenges facing our industry, the proactive, intentional leaders are the ones that will eventually get their companies in the best position to succeed.
When everyone else does one thing, you may need to do the opposite. The companies that are best prepared for the future are those that are willing to take risks, even though it likely means they will fail some of the time. These companies will try to find better ways to source raw material. They will innovate with new product offerings and services. They will streamline processes and eliminate steps that others think are required. Are you willing to innovate? A key indicator is how your company deals with failure. Do you reward those who take risks and grow from failure? Brene Brown, author and leadership guru, once wrote, “There is no innovation and creativity without failure. Period.”
Many companies are so careful that their workers won’t try new things. Their culture is designed to squash innovation not reward it. Everyone thinks the same because it is safe and predictable. American writer and reporter, Walter Lippmann, once said, “When all think alike, then no one is thinking.”
During this unprecedented pallet shortage, companies need to innovate. If you don’t try new things, what you did in the past may not work. The famous actor, cowboy and humorist, Will Rogers, once quipped, “Even if you are on the right track, you’ll get run over if you just sit there.”
Most companies will wait too late to innovate. There will always be those who tell you why you can’t do it. There is a Chinese proverb that declares, “The person who says it cannot be done, should not interrupt the person doing it.”
So, how can you change? How can you develop an innovative culture? It starts with recognizing where you are now. The owner and top leaders must take responsibility and set the example. You have to be willing to resource experiments with funding and staff. And you have to admit your failures and learn from them while rewarding those who find solutions despite repeated failures.
Are you ready for the future? If you consider these major challenges and tackle them head on, you may be surprised at what you can build and how your company can become so much better than you ever thought was possible.
ERP Systems for Pallet and Lumber Companies
Pallet-Track® Mill Manager
Mill Manager is a complete ERP System developed over a 23-year period that manages every aspect of your operation from Logs to Sawdust and everything in-between. Your customers can order pallets online or request pick-ups. Your drivers can deliver paperlessly from their phone or tablet. E-Signature time stamps the delivery and even stores the GPS location of where the signature was processed. View drivers on a map whenever you’re wondering where they are.
Innovative Data Systems recently introduced e-Punch. An online Time and Attendance System that allows drivers and other employees to punch in based on a geofence GPS location.
Innovative Data Systems offers a suite of programs under the Pallet-Track® name brand including highly specialized systems designed to meet the individual needs of its customers. The company offers a specialty program for pallet recyclers that tracks employee production and supplier breakdowns for each load.
For more information about Pallet-Track or to set set up a web-based demonstration, call 631-244-0069 or visit visit www.pallettrack.com.
PalMate
PalMate ERP is a full-featured software solution for managing all aspects of pallet manufacturing, recycling or lumber operations. Developed by Automated Machine Systems, the software can be integrated with various data capture and control hardware. PalMate is being used on five continents and continues to evolve with the changing needs of businesses.
Key features include: full inventory management, efficient order entering tailored for pallet sales and purchasing, production scheduling, tracking and reporting, logistics and trailer tracking with electronically signed BOLs, employee tracking, integrating with various accounting programs, like QuickBooks, and other core business functions.
For more information or to set up a web-based software demonstration, call 866-468-6382 or visit www.thepalmategroup.com.
Pallet Connect
Pallet Connect is a cloud-based ERP system designed to run on any connected device through an app (mobile) or any web browser. All features are included standard and pricing is scaled to accommodate small, medium and enterprise operations.
Key features include: customized logins (for customers, warehouse, sales etc), scaleable pricing, bank-level security and technical setup. Additional features include simplified reports for billing and scheduling, full customer relationship management functionality, inventory management, warehouse overview screens, and pallet quoting tool. Also, Pallet Connect optimizes dispatching with driver schedules, trailer tracking and confirmation signatures upon delivery.
Integration back into QuickBooks, Sage and most accounting software. Videos and demos are available at www.palletconnect.com, or call 844.220.1110 for more information.
