Pro-Active Management Spurs Growth of Canadian SPF Cut Stock Business

CROSSFIELD, Alberta — Palliser Lumber Sales has emerged in recent years as one of Canada’s most important secondary lumber producers. Located on 40 acres about 30 minutes north of Calgary, the company pumps out about 40 truckloads of SPF pallet cut stock weekly.

            Palliser has annual sales of $80 million. Other lumber products include fencing, studs, dimension lumber, fingerjointed blocks and treated lumber. Palliser is known for its consistent production quality and on-time delivery and also provides managed inventory programs for customers.

            Palliser was launched initially as a wholesale lumber business in 1979 by Doug Currie, owner and chief executive officer. In 1991 an opportunity arose to produce lumber products for Totem Building Supplies, an Alberta-based building products retailer. Doug accepted the challenge.

            An avid recreational basketball player, Doug turned to a close friend and fellow hoops player, Bob Murphy, as one of his first significant hires. The company started out on the south side of Calgary in a little Quonset hut, Bob recalled.

            “We had a vision to create some value, and our version of that was from low-grade material,” said Bob, now vice president of Palliser.

            Doug and Bob had to start from the bottom and work up: find the right equipment, plan the flow of manufacturing operations, and build the business. “We focused on investing in people and technology as we grew,” Bob said.

            Working with people to help them solve problems was a realm in which Bob had plenty of experience. He spent 16 years working in a management role for the Alberta provincial government in the area of social services, helping people facing bankruptcy.

            While working for the government he came to meet and know Howie Kroon. A senior entrepreneurial focused business advisor with a major national firm, Howie networked with Bob on a number of business related initiatives. He later joined Bob at Palliser.

            Bob’s strengths were in managing people and problem solving, but he did not have any background in the lumber industry. Doug, on the other hand, was a marketing graduate of Southern Alberta Institute of Technology (SAIT) and a veteran in lumber sales. With Doug concentrating on marketing, sales, and buying raw material, and Bob managing the manufacturing operations, the relationship found a successful balance.

            By the time Palliser moved from Calgary to Crossfield in 1996, the company had grown from 6 people up to 36, and all of them moved with the company to the new location. The two former basketball teammates had helped form the nucleus of a team at Palliser.

            “Crossfield welcomed us with open arms,” recalled Bob. “It was a chance for a small private company to provide the community with some opportunities, and the reception was outstanding.”

Management Recognized

            Palliser’s first new building was constructed in 100 days under Doug’s determined oversight. “When Doug sets goals, he is extremely good,” said Bob. “He taught us all to be persistent when you have goals, and you will get there.” A year and a half later a second building was added, the two providing a combined total of about 70,000 square feet.

            “We continued to invest in people and technology as we grew,” said Bob. The company has grown to about 200 employees and now produces about 200 million board feet of lumber products annually. “We are quietly the biggest in Alberta and possibly the biggest in the country in terms of what we do,” said Bob.

            Palliser’s management practices have been recognized by the Canadian business community. The company has been honored as one of Canada’s 50 best privately managed companies for six years running.

            Bob believes that attention to people has been critical to Palliser’s evolvement into a prominent player in the secondary lumber industry. “We have years of experience in creating our own equipment and our own flow out there,” said Bob, “because you just can’t go to a catalogue and buy what you need.” Due to the labor intensive nature of secondary manufacturing, continual improvement in manufacturing operations has been critical to Palliser’s success. The company has relied heavily on its staff for planning and implementing plant improvements.

            The main plant has six work stations, including two high speed multiple trim saw lines for larger orders of pallet stock, one of them utilizing a Newman KM-16. Both include multiple notching machines. Another line is equipped with four Precision chop saws for custom cutting and odd lengths. The plant also contains a planer-rip line for stud production and a second rip line for shorts. One area is devoted to making fencing material with a new machine recently developed by Palliser’s maintenance staff, which has built or modified much of the equipment to meet the company’s requirements.

            Palliser prefers circular resaws over bandsaws, and the plant is equipped with Producto and Forestech circular resaws. Two full-time saw filers maintain the company’s saw blades.

            The company’s award-winning approach to business centers on a balance of essential components, according to Howie, now chief financial officer and chief operating officer. “When you look at the fundamentals of Palliser,” he said, “it’s the people, the quality, the safety, and the production. Those are the four factors.”  It is important to strike a balance between them, he added, in order to keep the business on a steady keel.

            Aside from Bob and Howie, the management team also includes Pat Carley, the controller, whom Howie lured from the accounting firm where they both were previously employed.

            Palliser is very strong financially. For example, the company has written off only about $20,000 in bad debt since 1991 – a small amount considering the company’s sales volume.

            “With Howie and Pat, we are really, really strong on the financial side,” Doug commented.  “That has to be the focus of any company that wishes to survive.”

The Next Order

            The sales team is managed by Aldis Balcers, a veteran lumber sales professional, and he is supported in pallet lumber sales by Jason (Jay) Poloway and Doug’s son, Bryce.

            The sales department prides itself on always being accessible. “The office is always staffed,” Aldis said, “so if a customer calls, there is a sales person to answer the call or at least to call back within a few minutes.”

            “Our main focus is quality at a reasonable price,” said Jay, a 13-year Palliser employee who has worked his way up through the ranks. After a stint stacking lumber, Jay became a certified grader and then held a number of positions in quality control and shipping and receiving. He joined the sales staff five years ago.  “Probably 95 percent of our business is repeat business,” said Jay. “That’s where the quality stands out — if you are getting that repeat business.”

            Consistency in lumber quality is a key along with on-time delivery. “We have products in any price range, but if you buy a certain product, you know what you are going to yield,” Bryce said.

            Like Jay, Bryce also has worked his way up through the ranks. He worked in sales for another company for several years in order to gain experience before returning to Palliser a few years ago.

            When making a sale, Palliser commits to delivery within a given week and maintains close to 100% on-time delivery, according to Bryce. “Our production is always on the ground on time,” he said. “If there is a problem, it is with truck availability.”

            “Just-in-time delivery has become more and more the norm in the industry over the last several years,” Jay added. “Customers don’t want inventory on the ground, so they are using the last pallet. They want the next load on the ground. That’s part of the industry at this time.”

            Palliser is strategically located close to Calgary and key transportation arteries, which makes it an attractive backhaul opportunity for truckers looking to return to the U.S.

            Most customers are understanding when trucking availability limitations and cost versus delivery time trade-offs are explained. “We know that at certain times of the year you just can’t get into Arizona because that corridor just dries up for you on the trucking side,” Jay explained. Trucking rates into the Los Angeles area are up over $300 the last six months due to truck shortages and fuel surcharges.

            While Palliser sells across the U.S., it runs into competition from Southern Yellow Pine and hardwood in various regions. Transportation costs figure into a customer’s buying decision as well as loyalty to a particular type of material.

            “The Chicago area is very finicky,” Jay noted. “You go 100 miles one way and it is a SYP market. You go 100 miles another way and it is a hardwood market. Then there’s spruce.  Companies that use SYP tend to stick with it.”

            At the end of the day, Jay noted, Palliser’s goal is not to get the customer’s order – it’s to get the next one after it.

Empowering Employees

            Palliser provides training for employees and also rewards employees for superior performance. “Our uniqueness is that we are pro-active,” Howie observed, “the theory being that if you treat your people better, and we do some interesting and unique things, then you get better productivity and better retention.”

            During interviews for this article, members of the Palliser management team were unified as they discussed the company vision, quality control, employee empowerment, and other aspects of management.

            The Palliser management team puts a strong emphasis on empowering rank and file employees to make decisions. “The unique culture that Doug started — and that Bob and I have been able to continue — is that we want people to make their own call,” said Howie. “We don’t want people to make the wrong decision six times, but we want them making the call.”

            “If you have a company where only one person is making all the decisions, as the company grows a greater and greater bottleneck occurs,” said Howie. “I think we have really worked hard to push some of that decision making downward. In the end, the ability to make decisions is a motivator.”

            Being empowered to make decisions keeps employees motivated; they want to work because their job is engaging. The company also awards bonuses as an incentive to help retain employees.

            “If you have the authority to make decisions, even if it is only in your own little fiefdom, that helps to keep some of our employees,” said Howie. “In that sense, we are poised for the next tier. We’re not perfect, but we are starting to see more and more decision making by employees. It makes it more fun for the management team because we can go out and explore more opportunities and not worry about operations.”

             “The hard thing is to stay out of the way as people develop,” said Doug, 56. “It is very, very difficult” to watch a worker who makes a wrong decision and not to intervene. “But if you jump in and stop them, they’ll get gun shy.”

            “These guys have it together, so I’m no longer needed,” Doug added, “which is the toughest thing for senior management to do — for senior management to marginalize itself out of the picture, to not even be there. That means that you no longer have those warm, fuzzy traps of personal gratification. These guys are now better than I ever was, and that’s the goal.”

            Empowering employees to make decisions is a strategy that not only motivates them but also makes Palliser more valuable and succession-ready. “It is far more attractive to a banker or a buyer, to an employee group, if you have a wide management structure that has responsibility in different areas,” Howie explained.

Softwood Market

            Like other companies, Palliser never imagined how important the ongoing softwood lumber dispute between the U.S. and Canada would be to its business. “Unfortunately we spend an inordinate amount of time managing the situation,” said Bob. He and Howie have been active in trade organizations, helping to shape the industry’s response to the dispute.

            “It is a challenge every day to keep that particular opportunity free flowing,” Doug said of the company’s markets in the U.S. “You absolutely have to play by the rules, and the rules are uncertain because they change all the time.”

            Palliser absorbed much of the added costs of the U.S. tariffs on Canadian softwood lumber, Doug explained, in order to keep costs down for customers. “For five or 10 loads, we just ate it, looking at the big picture,” he said. “A lot of smaller companies can’t afford to do that. If you are talking $3,000 or $4,000 per truckload over 10 loads, all of a sudden you are talking some real coin.”

            Under the previous quota system, a lot of lumber stayed in Canada, which helped fuel the growth of secondary producers, Doug noted. However, with the U.S. duties the past three years, Canada’s secondary industry has been the big loser.

            Eventually, once Canada and the U.S. forge a new softwood lumber agreement, the rise of ‘mega’ sawmills likely will contribute to an oversupply, Doug believes. A new mill already is online in Houston, B.C., and there will be more as another round of rationalization takes hold, he noted.

            “When these ‘mega’ mills that are kicking out 650 million feet start kicking out at that rate every year, what are they going to do with the wood when they get into a soft market?” Doug asked. “It is going to be clean out my yard and put it anywhere. It is going to be a very interesting next few years.”

Quality and Training

            Palliser puts a strong emphasis on training. For example, out of 200 employees, the mill has 70 certified lumber graders, which helps ensure consistent lumber quality. The company even has its own in-house grading training program, sanctioned by the Alberta Forest Products Association, with two certified trainers, including Bill McGregor, who oversees quality control with the help of two other employees. The trainers must be re-certified yearly.

            The in-housing grading school has been operating four years, and the past three years Palliser employees have won the Alberta-wide high grade lumber grading competition. “It is all about management support,” Bill explained. “They allow us to do a lot of things that the management of other mills don’t. And that’s because their focus has always been on training.”

            Bill was part of a team that developed a training manual that addresses health and safety issues as well as quality control. “Our focus was to make sure the employee is working safely, and that he’s doing it the same as the rest of the mill,” he said. “The whole idea behind the manual was to standardize our training and to make sure everyone had the same vision of the product.”

            Palliser also pays close attention to quality control of incoming raw material. Bundles of lumber are inspected as they are broken down, and thorough quality checks are made when Palliser buys a new type of material. Quality control personnel examine a forklift load of lumber from each supplying mill monthly to ensure it is on grade and will make expected yield.

            Communication with the production staff is an essential part of the quality control process. If a certain type of lumber does not meet projected recovery, for example, different stock may have to be used in order to meet production schedules.

            At the end of the production line, strict quality control focuses on finished product. “We’ll do daily checks,” Bill said. “We want to make sure that when the customer buys a product that they are going to get the same grade every time.”

            “Our focus on quality has not translated into us getting more money for our product than anyone else,” said Doug. “But in slow markets the chances are — everything else being equal — that people will choose Palliser because of our quality.”

            “In spite of all the extra training, quality and extra value we think we leave in the wood, and the key word is ‘think,’ you don’t really get much extra or any extra dollars. But that’s the nature of the customers we’re selling to. They’re pretty tough buyers.”

            Palliser has a good record on employee health and safety. Accidents and injuries are below industry averages, and Palliser regularly receives rebates on workmen’s compensation payments.

            By caring for its employees, empowering them to make decisions, and providing some unique perks, Palliser has experienced good labor retention. It also has shaped a creative and productive workforce, ultimately improving its ability to succeed in a highly competitive and uncertain market place.