After finding itself on some precarious financial footing in recent years, IFCO Systems has emerged on solid ground.
“Our original vision when we started PalEx, and which remains to this day, is to be a national, single source provider,” said Dan Helmick, IFCO’s vice president of operations for the Eastern region.
Dan has experience in the pallet and container industry. He started out in agricultural bin sales with Ridge Pallet in 1981 and has seen the company transformed from Ridge to PalEx to IFCO. Late last year, 87% of IFCO’s stock was purchased by APAX Partners, a private equity firm.
A trend among pallet-using businesses that the founding partners of PalEx identified years ago is still underway, Dan observed. “Customers continue to centralize,” he said. Other than IFCO, he noted, brokers are the only companies that offer national pallet supply programs. IFCO has 48 pallet manufacturing and recycling facilities nationwide.
“Being a national company brings a comfort level in having multiple plants,” Dan explained. “Some customers like the national program. Some have tried it and reverted to local procurement, but usually the local IFCO plants have been successful in retaining that business.”
The greatest concentration of IFCO operations is in the Southeast, Southwest, and
Management of IFCO’s operations is organized by region. In addition to Dan managing operations in the East, Jim Murphy plays a similar role for
While IFCO has a national network of its own facilities, in some regions customers may need support that requires service from other pallet companies. “We do business with pallet people in areas where we need coverage,” Dan said.
“Although we have company owned and operated facilities, we broker every day,” added Mike Hachtman, vice president of sales. “We will always have the need to partner with quality pallet providers in various parts of the country.”
With most of its operations in the Southeast,
“We think they are real partners for us,” Dave Russell, president of IFCO Systems North America, said of IFCO’s business relations with other pallet suppliers. “We have a very solid foundation and infrastructure. But there are markets we are not in and don’t want to be in, but our customers are. Through the company’s information technology, service to the customer is seamless — whether IFCO or a partner is delivering the direct service to the customer.”
Even though IFCO’s business model is different from a small or independent pallet company, the company sees itself as part of the overall white pallet industry. “We want to have good relations with the industry even though we run our business with a slightly different twist,” said Dan, who served on the research committee of the National Wooden Pallet and Container Association for 10 years.
Another trend among pallet-using businesses that Dan sees along with the move towards centralization is the increasing interest in outsourcing – including the outsourcing of pallet sorting and repair. “We see them do that more and more,” he said. For example, in
IFCO continues to grow organically (increased sales generated from existing plants) as well as by adding new facilities, such as the one in
Workers repairing pallets are paid by a piece rate; those sorting pallets and forklift drivers are paid hourly. Good supervision and communicating expectations to staff are more important in achieving strong pallet production than the pay system (piece rate or hourly), said Dan. IFCO focuses strongly on grade recovery and target volumes.
IFCO’s multiple plants provide operational advantages, which Dan described in a tour of the Homeland plant. For example, inventory can be moved from one facility to another as needed. The company can also share managing personnel resources. “We have the ability to bring managers across the country to share ideas and customer information,” said Dan. “This is very powerful and is an important advantage for us.” IFCO also has the benefit of bulk purchasing of supplies and some centralized administrative costs and functions, such as insurance.
Marketing and sales efforts at both the national and local level allow IFCO to reach customers at different strata. IFCO can generate sales at the corporate level while also working with customers at the dock level. The strategy can work both top-down as well as bottom-up. The ability to win contracts at the national level generates business locally for plants while existing plant-level relationships can be developed into national-level programs.
IFCO has weathered some tough times on the road to profitability. “There were integration issues,” Dan explained. IFCO divested a number of plants that did not fit into its business plan. Like other businesses, it was impacted by the recession. Cash got tight at a time when IFCO was in the midst of a lot of restructuring, including the development of a national sales team and information technology systems.
Those hurdles are behind the company, according to Dan. “We are in a position where we are now financially very strong,” he said.
“The IFCO difference is the sum of the parts,” said Mike. “We are really a pallet services group, not just a pallet recycling company. We offer some things that are a little different.” Mike pointed to single source procurement, the Pal-Trax™ software, and IFCO’s large national network of facilities as things that helped differentiate IFCO from its competition.
IFCO has its roots in PalEx, which was formed in 1997 by Frasier Industries, Ridge Pallet and Interstate Pallet in
IFCO is positioned to partner with pallet-using businesses whose operations reflect trends such as consolidation, centralization, outsourcing, single-source supplying and the need for information-related services, said Dave, because logistics has evolved. Logistics has changed from a transportation focus to procurement and beyond. “People are looking at every aspect of the supply chain, including packaging and pallets,” he said.
IFCO provides Web-based technology tools to help customers keep track of pallet functions. The tools include online invoicing information, the PalTrax™ pallet tracking program and IFCOTrax™ RPC tracking program. The databases of the various programs may be sorted by different categories, such as customer name, date, invoice range and other options.
The ease of using electronic and Web-based information systems benefits both customers and IFCO. For example, the company incurs administrative costs in copying and faxing invoices to customers. Mike said that one major IFCO customer recently studied its purchasing costs and found that each check it wrote cost $14 and each purchase order cost $40. By consolidating vendors and using online purchasing tools, customers hope to cut administrative costs related to purchasing pallets and other necessary products.
Customers can be billed, obtain contact information for IFCO regional plants, change a billing address, and soon will be able to make payments – all through Web-based technology. Customers also can go online to determine how many cores have been retrieved from a distribution center and how much (in dollars) it will be credited.
The online tools can provide customers a greater level of understanding and help them pinpoint problems and successes to develop best practices. They also provide efficiencies for IFCO, which can export data easily into Microsoft Excel for further manipulation. “The online tools are increasingly important to our customers,” said Mike.
One of the advantages of a large, national company is the availability of information technology staff. “You have to map our data and their data so that it arrives in a manner they are used to seeing it,” Mike said. IFCO’s software also has to ‘match up’ with third-party and proprietary software.
Customers often do not ask for an online ordering service because they assume it is not available. “Often you’ll hear a customer say they order everything electronically except for pallets,” Mike said. “When you ask them why that is, they usually weren’t aware that we have that capability.” Mike added, “Today probably half of our purchase orders are released to us electronically either through e-mail or the Web.”
IFCO has a stable of well-known national accounts. Besides K-Mart, Target and McLane Foodservice, it also is a supplier to Sara Lee. The first three have distribution operations while the latter is a major manufacturer. IFCO also supplies pallets to a major agricultural cooperative that has more than 30 manufacturing facilities and retrieves pallets from the co-op’s stores. Other well-known customer names include Bi-Lo, Walgreen’s and Food Lion.
“Each one of our customers has a slightly different supply chain,” Mike said. “There are some similarities but also some differences. We help them find the best approach.”
As logistics planning becomes more complex, Mike believes IFCO is positioned to offer optimal pallet management solutions to customers. “More and more it is about total supply chain management, and pallets are a part of that supply chain,” he said.
For example, IFCO provides pallets to suppliers of Dell, the major computer manufacturer. After arriving under load with supplies at Dell, the pallets are re-used. Dell loads them with out-going computer products and sends them to a shipping expeditor, where IFCO retrieves the empty pallets. IFCO provides a 48×40 pallet and a custom size for Dell’s consumer products.
Dell has only two hours of inventory on hand at any one time. Because it gets paid for computer products before they are assembled and keeps such low inventories, Dell is in an enviable cash flow situation. Its average receivable account is minus two days, according to Mike. “They have to have those supply chain details worked out really well,” he said. “And the pallet is one piece of that.”
The penetration of CHEP rental pallets in the grocery industry seems to be holding at about 50%, according to Mike. “Clearly there are a number of products that don’t fit the CHEP model,” he said. Goods with fast ‘turn’ times may be suited for rental pallets, but products with slower turnover — such as frozen foods — may not. Products with multiple consolidation points and substantial dwell time also are less suited for a pallet rental program. Mike noted, however, that CHEP has modified its services for non-grocery and slow-moving products.
“None the less, white wood is alive and well,” Mike said. IFCO processed 45 million recycled pallets last year. “And several thousand recyclers out there make a living,” he observed.
IFCO competes against smaller, independent pallet businesses. Smaller competitors are not burdened by high overhead costs for such things as information technology, comprehensive employee benefit plans and ‘umbrella’ liability insurance. Some of these costs are negated, however, by efficiencies of size. “The other thing we can offer to the customer is service,” said Mike. “For example, we can submit one invoice to the customer every month instead of invoices to 21 plants each month.”
While IFCO offers predominantly 48×40 pallets, the business of custom sizes continues to grow. The company does only a small volume of EURO pallets.
Customer inquiries about global phytosanitary requirements have increased, although heat-treated pallets are only a small portion of IFCO’s business at this point. IFCO is certified through Timber Products Inspection to supply heat-treated pallets, however, and has an in-house phytosanitary expert, Ken Patrick.
IFCO offers two customer loyalty programs. Miles for Pallets is a one mile reward for every pallet bought or sold. Refer-A-Friend offers gift certificates to customers who refer other businesses to IFCO; the gift certificates, fittingly, are for products and services from retailers who are also IFCO customers.
IFCO also offers a pallet deposit and retrieval program called InXchange™. It is a pallet banking program that allows customers to buy pallets where needed or deposit surplus pallets through more than 120 sites across the U.S. Pallet purchases and credits are available online to customers.
For more information about IFCO Systems, visit the Web site at www.ifco-us.com.
IFCO Concentrates on National Opportunities
With a successful restructuring that has lifted IFCO out of a significant debt position, the company is now moving forward with a new sense of focus and optimism.
“We’ve been through some very challenging times over the last couple of years,” said Dave Russell, president of IFCO Systems North America, “particularly since IFCO merged with PalEx and we tried to be all things to all people within the pallet and container world. We invested a lot of capital and bumped up against a pretty difficult market. We ran into some financial hardships, and I have to say that over the two years we’ve gone through a pretty significant transformation.”
Dave came to IFCO in 2000 from the transportation industry. He previously was vice president and general manager of Ryder TRS Inc., one of the largest national truck and moving services businesses with the second largest truck rental pool in the world.
IFCO’s leadership decided two years ago that it wanted the company to be in the pallet services and returnable plastic container businesses. The company subsequently divested non-core operations, such as its drum reconditioning business.
“The drum business didn’t fit,” Dave explained. “It is a completely different segment, a completely different process. It is more capital intensive than what is required for pallet services. Pallet manufacturing is also more capital intensive and is tied to the volatility of the lumber industry. And we wanted to be more service oriented verus straight manufacturing.”
“We’ve grown as a company and tried to position ourselves as a provider of custom pallet services and national programs,” added Dave. “You find places where you can add some value as opposed to simply providing a pallet.”
“We got through the final stages of the restructuring, and the first part of 2003 was a difficult economic environment in the
Basically, IFCO’s bond holders ended up with 90% of the stock in exchange for writing off the company’s debt. IFCO did a reverse split where many of its existing shareholders lost most of their value. Creditors then sold the stock to APAX Partners, a British private equity firm. IFCO emerged with new ownership and very little debt. Dave said, “It put behind us all the financial challenges, and now the company is as strong as it has ever been.” APAX owns an 87% interest in IFCO.
As a result of reducing debt and the efforts to refocus the business, IFCO’s financial performance has improved, and the outlook is promising. “All of our financial ratios have improved,” Dave said. “We have improved liquidity and cash, and we are positioned to grow the business and revenue.”
Some recyclers have been critical of IFCO pointing to its ability to right off massive amount of debt as a key to its ability to be competitive in the market and drive down prices. While this may have helped IFCO in the past, it will not be a strategy the company can use
in the future.
As the largest recycler in the country, IFCO has its share of supporters and critics. It has a reputation for being extremely cost competitive in some areas of the country. Mike Hachtman, IFCO’s vice president of sales said, “IFCO represents only 10% of the total pallet recycling industry…our ability to move prices in any market is exaggerated.”
Asked about IFCO’s role in purchasing white pallets from CHEP, Dave replied, “We’ve participated in purchasing white pallets from Wal-Mart through Propak. We have a relationship with CHEP, as any recycler might. We work with CHEP in the area of supply (white wood acquisition) as well as in asset recovery (blue pallet return).
Mike said, “Wal-Mart remains the largest single source of pallets for the market.” As CHEP has restructured its sales of white wood pallets, Mike said that IFCO has lost very little of the total core volume from CHEP customers. Losses in one part of the country have been offset by gains in other locations.
Mike pointed out that white pallet cores coming through Wal-Mart makeup less than 25% of IFCO’s total core supply. “Our core supply is rather diverse when you look across the entire country,” he said.
A concern for IFCO has been the pressures of being a public company in a business largely dominated by independent entrepreneurs. “The public (ownership) model is working for us,” Dave concluded. About 50% of IFCO revenue is generated from renting reusable plastic containers or RPCs. “We developed a great model in
“We are concentrating on national opportunities,” Dave reiterated. “We think there is a gap in the market that needs a national pallet provider, and that’s where we’re at. We want to be a professional leader that people can depend on.”
