Some columns are targeted to one clear topic. Other columns include just about everything including the kitchen sink. This column resembles the latter because there is a lot to say.
This column covers a number of interesting trends that you might miss if you focus only on the daily grind at your company.
I want to highlight these shifts so that you will be ready to handle them.
1.) Contraction in the lumber market spells challenges for the future. Every week there is another news announcement about mills shutting down or curtailing operations. Older mills that are less efficient may never come back when the market rebounds. Sawmills that have a geographic disadvantage could face the permanent chopping block. Be alert for changes in your regional market. Have environmental regulations made it more difficult to log in your area? Are log resources tapped out in your area? How far do you have to pull logs from to supply your facility? These are all important indicators to watch. Even though you may feel like you are swimming in lumber offers now, when the economy rebounds, the reverse could become true. Many mills that have downscaled or completely gone out will not come back. Now is the time to be building your network and treating your suppliers right. Although you may not be able to stockpile supplies, being civil to lumber and core suppliers is free. It just takes a good attitude and a little bit of patience.
2.) Don’t be surprised if heat treating becomes a requirement for domestic wood packaging in the next year or two. The U.S. government is currently studying the economic and environmental impact of such a requirement, a necessary step before any national standard is imposed. Nobody knows for sure how long it will take for domestic treatment to become a reality. There are enforcement concerns as wells as the impact on the industry. And the Obama administration has more pressing concerns. But a national requirement is still on the government’s to-do list. If a domestic treating requirement is imposed, I would expect the level of certification cheating to increase. Companies that follow the rules will need to keep on the watch for others that try to skirt the rules.
3.) The lead story from the most recent issue of Modern Materials Handling highlights a new distribution center at Kroger that is highly automated. Humans only touch the loads twice, which underscores the focus on automation in warehouses for major retailers and consumer goods product manufacturers. Kroger’s new facility is building store-ready mixed pallets in an automated environment. Products are touched by operators only twice – once at the receiving dock and once at the shipping dock.
In the long run, this trend is likely to mean more stringent pallet quality standards. Some pallet customers may no longer accept companion stringers, damaged deckboards, protruding nails, etc. It is important to do more than just take orders over the phone. Get to know your major customers and their customers. Find out how automation is affecting their long-term pallet needs. You can read more on this revolutionary approach to grocery DC design at www.mmh.com.
The exact opposite is true in the short term. Customers are looking to cut costs even if it is only a few cents per pallet. Suppliers are cutting corners and doing whatever it takes to shave a few cents per pallet. This means that the overall quality of the white wood pallet pool continues to deteriorate at a time where competitors are investing millions on quality and infusing new pallets into their systems. It appears that the long-term and short-term goals are working against each other. But this is nothing new. The only real new twist is the degree to which companies are going to cut costs.
4.) The pallet wars continue to heat up between wood and plastic providers, especially CHEP against iGPS. If rumors are true, it looks like Kraft Foods may switch from CHEP to iGPS, the all-plastic pallet pooling company. I wrote about the CHEP vs. iGPS struggle in my last column (see May issue). Non-rental companies may get caught in the cross fire. My article on the Deca bromide and toxicity of some fire retardants for plastic pallets further underscores how this competitive battle is creating new concerns and turmoil in the market.
5.) Each new day brings increasing business complexity. The issues that are going to most impact your business over the next decade may not even be on your radar screen today. A perfect example is the current clean energy bill being debated in Congress. Many business owners are completely unaware of it. But it could shape the face of renewable energy and biomass utilization in this country over the next 20-30 years. More than just a buzz word, wood energy and biomass will be a critical market in the future as paper and other wood users scale back demand.
One big question mark is what type of wood biomass will qualify as renewable energy? Congress is debating these definitions now. The forest products industry needs to stand up for its future because preservationist groups are doing what they can to severely restrict wood usage for renewable energy products. Read the stories on pages 24 and 28 to find out more about this crucial piece of legislation.
6.) Business costs unrelated to the direct production of your products and services are likely to become bigger financial drains in the future. From health care and workers compensation insurance to energy and corporate taxes, you should not be surprised by major price spikes. This is all likely to happen at times when inflation could even further reduce your buying power. Companies need to be lean and mean. The harsh reality is that these forces are likely to force even some stable operators out of business. Or at the very least drastically change how they do business.
7.) Communication will become increasingly important. From working with customers to suppliers to even competitors, you will need to develop networks that can reduce costs, spread risks, etc. I see the potential for industry co-ops and other loose networks that can centralize some office functions, creating a larger buying entity to take advantage of economies of scale, and provide national/regional service to customers, etc. Be careful who you make as an enemy because you never know who could become a valuable partner in the future.
Currently, PALNET is the closest example of what I am talking about as far as an industry cooperative of independent companies. I believe there is room in the industry for a few more such loose networks that may end up competing against each other. There will be a limited number of these organizations that will be able to get traction. It all depends on the companies involved and their willingness to work together as well as their ability to compete against the likes of IFCO Systems, CHEP, etc.
Speaking of communication, my father in his most recent column made fun of Twitter and the social networking phenomenon. I understand where he is coming from because the number of communication options today is mind boggling. A big problem is that no one technology has a critical mass.
Wow, it’s amazing how your attitude can change after a staff meeting. Laura Seal, our circulation director, reserved the Twitter names and did the basic research to understand what Twitter is. Other voices in the staff said that maybe we should give it a try. After saying we weren’t going to do the social networking thing, our staff has decided to jump into the online social networking world. We have decided to provide a number of updates per week using Twitter. We will provide links to news stories and basic comments about issues of interest to pallet and low grade lumber companies.
Dr. Ed Brindley said, “I can’t believe I got on this thing thanks to the urging of my staff. What has the world come to when e-mail is now yesterday’s technology?”
Twitter is basically a free service that lets you track updates provided by Twitter users. The idea is to get quick, short bits that allow you to stay informed without having to wade through lots of text.
The Pallet Enterprise account is hosted by Dr. Ed Brindley although various staff members may also post comments from time to time. Our intention is to post enough comments to assist followers without being too intrusive. Feel free to forward links, comments, or ideas that we should distribute.
