Following 100-Pallet Formula Key to Success in Recycling

This is the basic scenario for starting a small pallet recycling shop. It calls for hiring two people to work with you, the owner.

The following equipment is required to start a small pallet recycling business:

C pallet dismantling machine

C trim saw

C air compressor, power nailing tools and nails

C work tables or benches to assemble pallets

C forklift

C some way to load and unload trucks (loading dock, hand jack, etc.)

Starting a small pallet recycling business is based on a few assumptions. First, you need access to at least 3,000 pallets per week. Another assumption is that of these 3,000 pallets, about 2,000 will be repairable GMA pallets. Of the other 1,000 cores, 600 will be dismantled and the deck boards cut down to 40 inches; 400 will be under 40 inches, making them useless for now.

One employee spends all his time repairing pallets. The other worker has two areas of responsibility: he produces pallet components by operating a dismantling machine and trim saw, and his secondary task is to build pallets. The owner drives the truck two or three days a week, making deliveries, and makes the sales calls, handles the office work, and helps out where needed.

There is a rule of supply and demand in pallet recycling: your supply of deck boards must meet the demand of your builders. This is the key to successful pallet recycling.

To understand how to ensure that your supply of deck boards meets the demand, you need to understand a few basic numbers.

Your demand is determined as follows:

C One person at a work bench will repair an average of 200 pallets per day.

C Each pallet that is repaired will require an average of two and a half boards.

C Therefore, each person repairing pallets will need 500 boards each day

Your supply is determined as follows:

C One man operating a dismantling machine and trim saw will disassemble and cut to size an average of 1,750 boards per day.

The key is this principle of supply and demand. One worker is going to spend all his time repairing pallets. It is critical to keep the second worker doing the right things at the right time. The first priority of this second worker must be to produce enough boards for the employee who repairs pallets full-time. The worker running the dismantler and trim saw can produce enough deck boards in three days to supply the full-time pallet repair worker for a week — and also supply himself with enough boards to repair pallets the other two days per week.

In this scenario the recycling business will produce about 1,400 pallets per week — or about 100 pallets per day per overall employee, including the owner. It is not 100 pallets per repair worker; it is 100 pallets per employee. Maintaining this production volume — 100 pallets per day per employee — is very important as you grow. If you invest in additional equipment and automate the repair operations, you need to achieve a higher volume.

When and how do you grow and expand? In the scenario described so far, the recycling company will accumulate about 850 excess pallets per week. About 600 of these will be repairable 48×40 pallets, and the remaining 250 will be dismantled to recover deck boards. I recommend that you accumulate 6,000-8,000 repairable pallets before you hire your next worker.

It is important to rotate your stock of incoming pallet cores systematically. This means putting incoming pallets in the yard and taking the oldest stock from the yard to the repair benches. If you do not rotate your stock, the repairable pallets will weather, turning gray and ugly, and you will not be able to get as good a price for them.

When you have accumulated 6,000-8,000 repairable pallets, you hire another worker to repair pallets. When you hire this second person to repair pallets full-time, the worker running the dismantler and trim saw will no longer be able to spend those two days per week repairing pallets; he will have to use all his time to make deck boards in order to keep both repair workers supplied.

Now your recycling business is producing about 400 pallets per day, or 2,000 per week. With four employees, including the owner, production volume still works out to about 100 pallets per overall employee. Note that this essential number – 100 pallets per employee – did not change even though you hired another full-time worker.

Keep it simple and follow this formula: have only one employee for every 100 pallets you repair and sell per day. If you stick with this formula, your pallet recycling business will be on the road to success. Never vary from this production formula.

One of the first questions I always ask the owner of a pallet recycling shop is: how many pallets do you repair and sell per person per day? I have yet to get an answer. The owner tends to wait until the end of the month for the accountant to tell him if he made or lost money that month.

Do you want to wait for your accountant to tell you if you made any money?

(Editor’s Note: Clarence Leising worked in management positions for pallet recycling companies in the Northeast for 25 years and currently is a recycling specialist and consultant for Eagle Metal Products. He may be contacted at (800) 521-3245.)