Growing Companies Face Challenges of Managing Multiple Plant Locations

                      John Swenby is on his cell phone by 6 a.m., and by the time he arrives at work he has already talked to plant managers in three states. He jokes that the biggest hurdle he faces in running a pallet company with multiple locations is dealing with whatever problem comes up in the Iowa plant while he’s visiting the plant in Illinois.

                      Juggling time and distance are among the hurdles of operating a company with multiple locations. John, president of Paltech Enterprises, oversees his company’s operations in Iowa, Illinois and Wisconsin. He averages 5,000 minutes – that’s more than 80 hours — per month on his cell phone, and he has put about 245,000 miles on his 1999 car.

                      Like other entrepreneurs who open a second plant, Andrew Davies of Iroquois Enterprises has also had to adjust. “The biggest headache was just the amount of extra work that came aboard,” he said of his company’s acquisition of Thomco Pallet & Box about five years ago. “All of a sudden I was dealing with a plant two and a half hours away. Even though you may have computerized reporting, you still have to be there a certain amount of time to see how everything runs.”

                      Andrew found himself ‘chained’ to his desk and car. “Before, I was in the plant and had my hand on the pulse of employee morale and productivity,” he said, “but that changed.”

                      When companies expand by adding new plant locations, the owners or managers quickly come to realize that a ‘more of the same’ management approach might not be ideal if they already are putting in long days. A successful plan for managed growth typically requires careful delegation, sound corporate policies and controls, good management and training, and, ultimately, trusting in the subordinates at the new locations and the processes that have been established there.

                      In spite of the challenges of expansion, multiple locations are becoming increasingly common, especially for recyclers such as Paltech in the Midwest, Pallet Services Inc. in the Pacific Northwest, and The Pallet Factory in Tennessee and Kentucky, to name some.   There are a number of reasons for this, ranging from a desire to grow to a strategy of locating close to customers.

                      New pallet manufacturers, such as Iroquois, have also ventured to expand by adding locations. For Andrew the decision to expand was as simple as growing the business to support a larger number of second generation owners.

                      “We were looking to expand,” Andrew recalled. “We were essentially the new blood that had come into the company. Like a lot of companies, we had gone from one owner to a couple of owners. Dad leaves and three sons come in. Now there are three families to feed. We decided we had to grow dramatically or grow by acquisition, and we found the latter to be easier in a number of ways. We weren’t growing at someone else’s expense.”

                      For Paltech Enterprises, the decision to expand was based on a specific strategy to grow the business. “I’ve got two partners,” John explained. “That’s their whole focus. They like to do the research to buy another company.” When Paltech hears that someone is looking to sell a business, John’s partners investigate the opportunity.

                      For other regional pallet recycling companies, such as Pallet Services in Mt. Vernon, Wash., expansion may be driven by the need to provide greater service to existing customers.    Pallet Services president Darren Bronco chose to position plants and inventory close to customers in order to be able to respond quickly to them. Pallet Services operates eight locations in the Pacific Northwest. Darren compared his company’s multiple sites to the multiple locations of the McDonald’s restaurant chain. “It’s all about value added service,” he said.

Policies, Controls

                      After new sites have been launched or acquired, however, a different management approach may be required than for stand-alone operations. A company with one site may prosper if it has a hands-on owner with a lot of personal drive and few formal controls. That is not the case with multiple plants, however. Distance – and travel — can take a significant toll on the traditional hands-on manager. Companies with multiple locations require standardized reporting for sales and production, for example, in order for effective remote management.

                      “We have accumulated a huge amount of history,” said John. His company carefully gathers information about inbound pallets and employee production; the information is collected from the various locations and sent via e-mail to the main office. “I have a report we’ve established that tracks daily sales and labor costs, and these have become like their Bibles,” said John. While each location has its differences, a thorough system of standard reporting allows management to quickly identify potential problems and deal with them.

                      For Pallet Services, individual plants send key information on a daily basis via fax to the main office in Mount Vernon, where the data is entered into the company’s computers and information system.

                      “We get a print-out of each yard — what their labor is, what their inbound is, what their outbound is, what they are making in terms of profit and loss,” Darren explained. Individual plant managers can download the reports as required to their laptop computers.

                      One way to deal with the complexity of many branches is to set them up to operate similarly. “What we’ve found over the years is that if we use standardized procedures, it makes everything go very well,” said Michael Doyle, president of The Pallet Factory. The company is based in Memphis, Tenn., but has four facilities in Tennessee and Kentucky.

                      The Pallet Factory employs standard operating procedures wherever possible for such areas as human resources, dealing with vendors and customers, credit, and operations, such as performing pallet repairs. The Pallet Factory uses manuals and training as well as strong management to ensure that employees follow standard practices.

                      Michael also emphasized the importance of retaining employees to achieve standardization in practices and procedures. “The longer we can keep them, the better we can train them,” he said. Experienced personnel are more likely to deliver consistent performance.

                      In order to help retain employees, The Pallet Factory offers such employee benefits as health insurance, a 401k savings plan, and a system of quarterly and annual bonuses. “The bonus system is based on profit, so they all work really hard,” said Michael.

                      Annual bonuses are paid in December, when the extra money is most appreciated for holiday spending. “Everybody feels better when they get to share the wealth,” Michael said. “When you are making money, you need to give money back.”

Hiring Managers

                      All the owners who were interviewed agreed that hiring the right plant managers can significantly reduce the pressures associated with operating a company with multiple plants.

                      However, the first decision ultimately is whether or not to hire someone else. “As an entrepreneur, your biggest challenge is to delegate properly,” Andrew said. “There are always certain things you have to do yourself, but at the end of the day you hire the right people so that you can delegate. You can say, ‘Hire somebody new, but that’s another body on payroll.’ We’ve all probably done the same thing. You try to take it all on yourself, but after a time you realize that you can’t do it all.”

                      “I think the better we are at delegating, the better off we are,” Andrew added. “It highlights the importance of hiring the right people.”

                      Ironically, for Andrew and many owners who run their own plants, the aspect of management they feel most comfortable with, operations, is the area they must delegate to the site managers. “The stuff that is easiest to give back, or the stuff you should give back, is the stuff you enjoy doing the most,” Andrew observed. “I’m becoming less and less of an operations guy and increasingly taking on the duties of a chief financial officer.”

                      For an entrepreneur, Andrew noted, hiring a manager presents unique challenges. “There can be an ego thing,” he noted. If the candidate is too confident or cocky, it may lead to potential conflict. Another candidate may be too ambitious. “What if I hire him and he opens up down the street?” Andrew asked. “And in the pallet business, that happens a lot. Essentially you give someone all your knowledge, you train them for five years, and then they are your competition.   Certainly, I am cognizant of this when I’m hiring.”

                      In spite of the challenges and concerns of delegating authority, it is a natural consequence of corporate growth. Nonetheless, it is easier said than done. Growing from a small company to a multiple site corporation requires the owner to let go of daily operations.

                      “At first I didn’t truly let go,” Darren recalled. “I quasi let go.” Pallet Services eventually instituted the reporting process it successfully uses now. Each plant manager is responsible for his site’s operations and reports to Darren.

                      When it comes to hiring plant managers, two important considerations for John are an individual’s proficiency in Spanish and his personal drive. Another key attribute he looks for in candidates is analytical thinking skills. “They tend to approach things in a logical way,” John said of his managers. “They have very stable personalities. They don’t become riled.”

                      Paltech did not have to search outside its ranks to find the right people. It promoted its management team up through the ranks of the companies it acquired. “The interesting thing is that we’ve acquired three companies, and the key people we have were key people for the previous companies,” said John, although their earlier positions had less responsibility. “I was lucky enough that they came with the operations.”

                      Iroquois, on the other hand, searched outside the company to fill the manager position at a new plant it acquired. In order to help control overhead, Andrew sought a new manager with a strong maintenance background who could oversee both production and equipment maintenance.

Centralizing Functions

                      Companies usually try to reduce overhead costs where possible by centralizing such tasks as buying insurance, materials or other goods and services where there is volume-related savings. Hiring, plant operations and maintenance often remain de-centralized activities. Beyond that, there was no clear pattern among the owners who were interviewed.

                      In sales, for example, some companies take a centralized approach while others combine local and corporate sales. Pallet Services employs two corporate sales representatives, which is rather unique for a company its size, Darren observed. Previously each site manager had sales and operations responsibility, but Darren decided on a centralized approach to sales and customer service. For Iroquois and Paltech, a combination of corporate and site-driven sales is the preferred approach.

                      Iroquois buys lumber on a site specific basis; one plant makes predominantly softwood pallets while the other plant focuses on hardwood pallets.

                      Paltech centralizes the purchase of some supplies and insurance and also bookkeeping. “We look at what volume things we can do to help impact the company,” said John. Sales and purchasing information is collected and maintained at each plant, but overall accounting is centralized.

                      Paltech empowers the plant managers to make decisions about key personnel although their recommendations go through John for final approval. He plays the devil’s advocate so there is a give-and-take discussion of the pros and cons. “Through history they know what I’m going to throw back at them,” he said. Managers at the various plants will often call each other to share information, too.

                      Whether functions are done locally or at the corporate level, business controls are essential.

                      “We have found that we also have a lot better control by centralizing purchase orders and sales,” Michael said. “To me, bills of lading are dollars, and I want to check each one of them.   I want to make sure I can account for all of them, even voided ones.”

Remote Facilities

                      Because recycled pallets can be easily sold and pallet companies buy cores from street vendors, precautions have to be taken to prevent employee theft. This is especially true of remote locations.

                      “Outskirt yards are very difficult to deal with,” Darren warned. His four sites between Mt. Vernon and Tacoma are easy to control because they are so close, he pointed out. However, when a plant or yard is 400 miles away, the challenge is much greater. “You can’t be there all the time,” he noted.

                      “If you have lax controls at a location, especially on the recycling side, you can create conditions for a dishonest atmosphere,” Michael said. Both Pallet Services and The Pallet Factory have experienced employee theft, but now they each have comprehensive controls in place to prevent pallets ‘leaking’ from inventory.

                      “You’ve got to lock down your yards,” Darren agreed. “You’ve got to have really heavy reporting.” Both Darren and Michael track inbound and outbound pallets as well as other key measures to make sure all pallets are accounted for. Both companies make scheduled and unscheduled audits of remote yards.

                      “The cash gets to these guys after awhile,” Darren added, noting that street vendors may try to bribe employees with drugs, alcohol or cash. “After awhile even the strongest guy can break down,” he said. “We rotate our employees in our picker areas so we can get a feel. We also monitor pickers for volume, so if any one of them is spiking, especially if it is the same checker, we crack down on it. There are certain things you can do if things are headed in that direction.”

Never Say Never

                      The good news for the time-strapped and road-weary owner or manager of a company with multiple sites is that things eventually seem to get better. “By the time we got through the multiple operations, we’ve refined it,” John said. “By the time we got from the first to the second to the third, it’s gotten a little bit easier. We’ve formalized more and tweaked input on how people do it.” He is proud of the fact that each plant has contributed to the company’s evolutionary process.

                      For Andrew, the answer to the long drive between the plants was to move to a city half-way between them. He still has over an hour’s drive to either plant, but relocating helped reduce his commute. Delegating authority also helped. “I’ve hired some excellent people, and that has made my life easier,” Andrew said.

                      When it comes to new acquisitions, John keeps an open mind. “If the right opportunity came along, we would look at it,” he said. “You never say never.”