NWPCA Leadership Conference Focus on Change

Ways to Improve Labor Communication & Management

Ask any pallet company what their toughest day to day problems are and labor will be one of the top areas of concern. In many regions of the country, the labor market remains tight, and keeping good people is harder than ever. Howe Wallace of IFCO Systems of North America, the largest pallet manufacturer and recycler in the country, talked about how IFCO keeps employees happy and productive by building an involvement culture.

According to Howe, there are two types of factors that contribute to an employee’s attitude about his job — satisfiers (such as recognition and involvement) and dissatisfiers (safety, pay, benefits, etc.). Contrary to what most people think, employees do not derive satisfaction from salary and benefits. At best, disatisfiers can only keep an employee from becoming disgruntle. Treating an employee with dignity, rewarding achievement, and soliciting involvement from workers on the line are the types of actions that contribute to a happy employee, one who likes to come to work every day.

“Every individual in your plant can sabotage what you are trying to do if they don’t have an overall feeling of favor and are working toward the same goals that you are trying to acheive,” said Howe.

Employees must not be treated as interchangeable parts. Treating them with dignity builds the foundation for effective communication, according to Howe.

IFCO encourages plant managers and shift supervisors to get to know employees by name, learn about their families and develop a personal interest in rewarding hard work. Since some plants have a large number of Hispanic workers, translation is provided via headsets whenever the company holds staff meetings or other company events.

Don’t make work a drudgery was one of the major points offered by Howe. Through quarterly reward parties, raffles and contests, IFCO strives to create an atmosphere where employees can have some fun. IFCO holds parties where top performers are recognized, employees are fed by office staff, and jokes and skits provide entertainment. At one event, a plant manager dressed up like King Arthur. Another time, managers sang Christmas carols. These events cost about $6 to $7 per person, which covers food and prizes.

Mining employees for ways to improve the company gives each individual a deeper sense of involvement and can generate new ideas or identify unknown problem areas. Upper management thought they had an open door policy, but few people were coming forward to offer solutions and ideas. To foster a more open environment, IFCO instituted a ‘Hamburgers for Ideas’ program where employees receive free fast food coupons for constructive ideas. This does not include gripes or complaints, only solutions and feedback for making improvements. Employees are rewarded with certificates on the spot, and management commits to respond an the idea within 48 hours. Make a list of ideas and keep totals. At the end of the quarter, publicly award a bonus to the employee with the most ideas.

Initially, new employee programs may not generate the desired level of response. Howe suggests giving any new program some time. “We had to stick with it for four to six weeks before anyone thought we were serious,” he said. If you make a big deal out of the initial successes, however, others will follow.

Retailing Trends Impact on Pallet Usage

Dr. Marshall White, director of the Virginia Tech pallet and container lab, spoke on the impacts of e-commerce and retail trends on the use of unit loads. According to his report, the future looks bright for strong pallet usage. The boom in e-commerce and mega-stores will likely increase pallets usage due to the structure of the supply chain for these retail formats. Other formats, such as warehouse club stores, limit the number of pallets needed because entire loads of product are shipped to stores instead of mixed loads. Overall sales for warehouse club stores have declined in recent years as younger consumers drive purchasing trends toward convenience. (For a detailed look at the report, please see the story on page 56 of this issue.)

In the effort to stop the spread of pests, countries have crafted a maze of restrictions on solid wood packaging material (SWPM) including pallets, dunnage, reels, etc. Emergency measures are being imposed in Europe starting Oct. 1. The United Nations is working on a global standard that may be in place as early as May of 2002. These standards will impact the entire pallet industry, sending a major shockwave through the market. (Read the complete story starting on page 84 to find out how to survive the rough waters ahead for international shipments.)

Many business owners in the industry consider their companies to be just wood pallet companies, and they ignore the vast opportunities to sell other products. From alternative material packaging to wood-burning furnaces, there exists a wide array of products that pallet companies may be in a good position to sell.

Lannes Williamson, president of Lannes Williamson Pallets, suggested to start by evaluating your market. Consider the market size, attitude, buying trends/demands, pricing, competition, etc.

“We already have a lot of our own fixed cost, and we have an opportunity to market products other than the conventional wood pallet at a substantial advantage over somebody who is not already set up in business,” said Lannes. His company sells crane mats to the construction industry and hardwood flooring.

Keep in mind that retail businesses differ greatly from wholesale. Ask important questions such as: will existing staff be able to handle the additional sales burden? Will existing facilities work? How will the product be distributed? Who will be responsible for installation and/or maintenance? How will the books be set up for the new enterprise? How will resources be allocated to keep accurate accounting records?

Don’t let all of these questions keep you from realizing untapped sales.

How much is your company worth? Well, it depends on who is asking. If the IRS wants to know for taxes, it can be one amount — as low as legally possible. If a potential buyers wants to know, the value may change. Sam McAdow of Buckeye Recyclers Group discussed the secrets to valuing your company for succession or sale.

When it comes to succession, the only way to reduce the amount Uncle Sam gets is to plan. When the owner of a company dies without an estate plan, the IRS decides how much the company is worth and splits it among the heirs. Of course, the IRS values the company in its favor, not yours. “By proper planning, you can reduce the value of your company by somewhere between 35-50% of its true value for succession evaluation purposes,” said Sam. Shares can be gifted to heirs while you maintain control. Stock can be classified as either voting or non-voting shares. For example, a founder of a pallet company could recapitalize the stock, creating 1,000 shares where 90% is non-voting and the remainder controls the voting power. The founder would then give half to his spouse; there is no limit in how much money spouses can give each other tax-free.

Hire a professional to evaluate the company. The objective is to evaluate the business as low as legally possible to reduce the amount in taxes your heirs will have to pay. Non-voting stock can be discounted because it has less value than voting shares. Also, stock distributed in small amounts can be devalued because it is minority ownership. After the stock has been devalued, it can be distributed to the heirs. Each heir can receive up to $10,000 in stock tax-free per year, and you can keep the voting shares to retain control.

If you are planning on selling your company, you want to put your best foot forward. Companies are valued for sale based on the earnings before taxes, interest, depreciation and amoritization. Reconstruct your income statement by adding all expenses, including perks (second homes, executive bonuses, expense account, etc.). Consider your business situation, such as the market consistency, the importance of the owner to the company, the importance of any one customer to the overall revenue stream, etc. If any customer makes up more than 20% of a company’s revenue, expect for that to impact the sale value. According to Sam, most pallet companies are going for 2.5 to 3 times earnings before taxes or 4-5 times earnings after taxes. But the value can vary based on the company’s financial performance.

Tracking — The New Frontier in Pallet Management

Several people at the conference mentioned the ever-increasing importance of providing pallet management services, especially tracking for their customers. Tracking systems can vary from a basic Excel or Access database to a custom-designed database costing hundreds of thousands of dollars to develop. Randy Brown of Ongweoweh Corp. spoke on the opportunities in pallet tracking.

Ongweoweh, a pallet broker and management company in Ithaca, New York, started tracking pallets for Eastman Kodak a couple of years ago. Ongweoweh surveyed Kodak customers and discovered that 35-40% of Kodak’s pallets could be retrieved. But some of Kodak’s customers, especially large mega-retailers, were not willing to return pallets.

Kodak’s customers were willing to assist in storing small quantities of pallets, but once loads extended over 60 to 100 pallets, the rest were stored outside, leaving them out in the open for others to take. Ongweoweh realized that speed would make the difference between success and failure for the retrieval program. “You need to make the request and transaction happen quickly,” said Randy. Ongweoweh contracts with truck carriers to pick up pallets loads within 48 hours of the retrieval request. If companies know the pallets will be picked up quickly, they are more likely to participate in a retrieval program.

Pallets can be tracked as individual units using bar codes or radio frequency identification (RFID) tags or in batch mode. Most of the tracking taking place right now employs the batch approach due to the reduced costs. RFID tags and bar codes add extra cost and additional scanning steps. Expect for individual unit load tracking to catch on more as the cost drops and data gathering technology becomes more automated.

This year Ongweoweh expects to retrieve over 650,000 pallets for customers. For one customer, Ongweoweh retrieved and repaired pallets for a little more than $5 on average, which saved the customer more than half the cost of a new pallet. Randy suggested starting small with regional, niche pallet sizes. 48×40″ pallets are hard to retrieve because they have residual value,” said Randy. Ongweoweh consults with customers to find out what information they want to track. There is a wide variety of software programs that will help a pallet company launch into tracking. The Pallet Enterprise will carry a series of articles on tracking in future issues.

Dr. Robert Bush, director of the Virginia Tech Center for Forest Products & Marketing Management, reported on research on trends in the use of wood material for pallets and containers. Most of the wood use growth in the last couple of years has been in recycled lumber not new. Pallet companies are looking to reclaim and use as much material as possible. Softwood lumber has grown a bit, driven mainly by increases in the use of southern yellow pine (SYP). One reason may be the growth of CHEP pallets, which is made predominantly of SYP. Of the total softwood pallet lumber market, SYP grew from 41% in 1995 to 48% in 1999.

The study also indicated that the South is the largest using region of both softwood and hardwood lumber for pallets. Mulch continues to be the predominate use of ground wood fiber. According to the report, 54% of the ground fiber was used for either colored or non-colored much. The full report will be available online in a couple of months at the center’s Web site, http://www.woodscience.vt.edu/cfpmm/index.htm.

“In general, we make progress in logistics when we substitute information for inventory and work content,” said Dr. Edward Frazelle of Logistics Resources International, an internationally recognized consulting firm serving the logistics field. Improving forecast accuracy up and down the supply chain and reducing lead times are two areas where smart containers and tracking technology will make an impact in the future. Information, not machinery, is the key to leaner, meaner supply chains Edward said. Across the board, pallet users want to increase service levels but reduce the amount of inventory at the same time. Companies will need to get a better hold on information, and packaging can play a crucial role in the process said Edward.

What do pallet customers want? They are looking to reduce lead times in the supply chain. Packaging must not be a barrier to product transport. Thus, the pallet industry will need to deal with the pest protection issue to keep users happy. Pallet customers want to reduce the purchase order cost by streamlining paperwork and incorporating Internet technology.

Edward said, “Normally in logistics, the world class performers have about two times the productivity as the middle class performers… which takes about five percent of the cost structure out.” Getting the right containers is worth at least 1% of sales for most organizations, he said.

Keeping the system simple can make all the difference in the world. Every time someone touches a product, the likelihood of making a mistake or damaging it increases. Handling takes up labor and time resources. According to Edward, pallet users are looking to skip steps in the supply chain. He said a recent study showed, “There are big dollars and savings opportunities in simplifying logistics, reducing the number of SKUs, reducing and standardizing on a set of containers.” More automation is not necessarily going to yield greater performance. Improved performance can have more to do with simplification and optimization.

Who is your competition? According to business guru Dr. Thomas Connellan, another conference speaker, any company that a customer may compare you to is a competitor even if they have nothing to do with pallets. For example, a person might compare the experience of dealing with the customer service departments of a phone company and Amazon.com.

Thomas, an expert on Disney’s business strategy, identified how the devil can be in the details. Disney wants to manage a customer’s first and last impression, the two things they are likely to remember. Transportation troubles can put a sour note on an otherwise wonderful vacation. Disney goes to almost unheard of lengths to limit parking problems. Park visitors are reminded three times what section they parked in, and parking is tracked by time. Even if you have no idea where you parked as long as you know when you arrived, Disney staff can steer you in the right direction. Disney’s staff patrols lots, looking for problems such as vehicles with lights left on; Disney staff will leave a note informing the visitor how they can obtain assistance.

“Loyal customers are not the result of a hapless accident,” said Thomas. Did you know that every Mickey Mouse autograph is the same? Employees playing the part of Mickey are taught to write the signature in the same way because Disney wants to maintain the illusion that there is only one Mickey. Imagine how upset two kids would be if they compared Mickey autographs and found they look different. The kids would be disappointed as parents are forced to explain the difference. Managing details has helped Disney establish an international reputation for quality and customer service. Although you may not have the Disney budget, you can still provide superior customer service. Thomas suggested training front line employees to handle customer service problems. Studies show that each time a customer is handed off to somebody else to deal with a problem, the level of customer satisfaction drops 10-15%. Develop a systematic approach. Test the quality of customer interaction at your company by having a friend call in to request product information. Set the tone from the top. If the corporate management shows it means business, everybody else will follow.

Thomas said, “If you want to be a player in today’s marketplace, you must be FedEx fast and Mickey friendly.”

Overall, the NWPCA leadership conference provided an opportunity for members to network and learn from each other. Sessions offered a ton of quality ideas. And of course, families enjoyed the beautiful weather and the Disney theme parks. The next major industry meeting will be the NWPCA Pallet Summit to be held Oct. 25-27 in Indianapolis. We look forward to seeing you there!