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Building a Business on People - That's Progress (Pallet Company)
One of the most important lessons Hugh Talty has learned is that employees are his most valuable resource.

By Tim Cox
Date Posted: 11/1/2000

CHELMSFORD, Mass. ó Hubert ("Hugh") Talty has been somewhat of a pioneer in the recycling segment of the pallet industry. He has been involved in the pallet industry for more than 20 years, with most of his efforts devoted to recycling. Along the way he has gained some sound business advice from other pallet recyclers who helped him grow his company, Progress Pallet Co. Inc.

Hugh also has figured out a few things on his own. One of the most important lessons he learned: his employees are his most important resource ó not buildings or trucks or trailers.

"I developed a formula," said Hugh. "Itís been successful for my business, and I have the same philosophy in my personal life. Back when I started Progress Pallet, I realized that the most important element wasnít the buildings and it wasnít the trucks. It was the people. So I structured my business around my people."

Hugh, who went to nearby Lowell Tech, now part of the University of Massachusetts, where he majored in textile management, launched a wood fence business in 1978. The company also manufactured specialty wood components, such as parts for swing sets.

"We had a lot of waste and didnít know what to do with it," Hugh recalled. He had a brochure made and printed for $65 promoting the companyís capability to manufacture pallets and other wood packaging, and mailed them out. A purchasing agent from a computer manufacturer called as a result of the mailing and ordered 1,000 pallets. "Next week he wanted another 1,000," said Hugh.

When the orders from the computer company came in, Hugh went to Lowell Tech and put up notices on bulletin boards to hire students on piece rate. Some of the students responded. "The college kids came in at night," said Hugh. "We had a jig and they built the pallets. They put them in the truck and swept up when they left. The guys that came in during the day never knew they were there." Besides creating another revenue stream, the pallet operation made use of the companyís waste.

The new enterprise also struck a chord in Hugh. "I kind of liked it," he said. "With my background I really wanted to be in manufacturing."

The companyís next milestone put Hugh into the pallet recycling arena. Hugh got a call from the company that makes and sells spaghetti and other pasta products under the Prince food label and was asked to repair the food companyís pallets. Prince began sending Hughís company three or four truck-loads daily.

Labor costs spiraled as the company added employees to keep pace. "The labor situation was unbelievable," said Hugh. "I didnít know how to control it."

It was at that point that Hugh received some key advice from someone else in the pallet industry, Eddie Pollock, who at the time owned Chicago Pallet. Eddie had built a $3 million business in one year and appeared on the cover of Inc. magazine in 1981.

Hugh recalled the advice he got from Eddie: "He said, ĎIím going to tell you one thing about pallets. Donít move them. Only move them when you have to. Thatís the secret to making money in this.í "

"That basically was Eddieís philosophy, and that has been the reason for my success and making good profits."

Hugh quickly realized that profit
margins in the recycled segment of the industry were better, and he began to guide the business increasingly into pallet repair and less into manufacturing of new pallets.

In the budding years of pallet recycling in the early 1980s, pallet recycling businesses were not necessarily well received by others in the pallet industry, Hugh recalled. "The National Wooden Pallet and Container Association (NWPCA) kind of frowned on pallet repair," he said, although the NWPCA since has established a Recyclers Council. When pallet recycling businessmen began attending NWPCA meetings and functions, they lacked some of the polish and prestige of their counterparts in new pallet manufacturing. Some of the recyclers "didnít wear shirts and ties," Hugh noted. "But we went to meetings and listened. I was doing very well, and I just kept my mouth shut."

Profit margins are better in recycling, according to Hugh, who eventually sold his interest in the fence business to launch Progress Pallet in 1986, because costs can be more easily identified and controlled. One of the most unprofitable aspects of new pallet manufacturing is buying raw material, a portion of which eventually cannot be used. "Look at how much waste costs you," he said.

However, one of the most difficult aspects of pallet recycling to control is labor. "Thereís a lot of physical activity going on that is not always accountable," said Hugh. Itís lost overhead. A lot of people donít know where that overhead goes," and they wonder why they arenít making good profits. They ask, "Why do I have all these people out here? Why are all these people supporting one repair person? They lose control of the flow
of the product, and they donít make people responsible for their actions. What happened out there today and whoís responsible?"

Progress Pallet is located very strategically west of Boston, noted Hugh, whose home is in nearby New Hampshire. "There are 5 million people in a 35-mile radius," he said. "In all of New England there are not 5 million more people." Within that radius is the city of Boston ó a little over 20 miles away ó and its metropolitan environs. Most of the companyís customers are within that range. "We only go about 35 miles, sometimes 75," said Hugh. The close proximity to customers helps Progress keep its operations "very centralized, very controlled." Transportation costs also are low. "Weíre out and back within one or two hours," Hugh noted.

Progress enjoys a diverse customer base, according to Hugh. "Pallets revolve around every industry," he noted, "so weíre not so vulnerable when the economy goes sour." Hugh has been dealing with some customers for 20 years.

The most solid customers, in terms of paying their bills, are low-tech industries, Hugh has found. "The best payers are the peanut butter and jelly guys, not the high-tech industry."

Progress, which does business only in GMA pallets, has about 20 employees who work on one shift. The company repairs about 1,800 to 2,400 recycled pallets daily and manufactures from 300-500 pallets from recycled lumber.

Pallet sorting and repair operations are designed to minimize handling. Incoming pallets are loaded onto conveyors and moved to repair stations. The only exceptions are pallets that are quickly identified as scrap destined for the grinder or pallets that will be dismantled to reclaim lumber.

The company has six repair stations. Incoming pallets move along a conveyor directly to a repair station, and the repair workers ó who only get paid for pallets they refurbish ó sort them. "We try to feed them 48x40s," said Hugh.

Progress grades used pallets by three categories, according to quality ó R-#1, R-#2, or R-#3. At repair stations, the workers grade the pallets and make needed repairs.

The repair stations are equipped with hand tools for removing lead or interior boards and Stanley Bostitch power nailing tools for fastening replacement parts.

Pallet repair workers earn a piece rate for each pallet they rebuild. They put their name or an identifying mark on each pallet. When they reach 300, the piece rate doubles, and the increase is retroactive to the pallets they have already rebuilt. For example, an employee who produced 350 pallets would earn the higher piece rate on all 350 pallets. Some men begin working at 6 a.m. and do enough volume to leave by 1 or 2 p.m. "Some of them will make $850 a week," said Hugh. "Thatís good pay for a laborer."

There is one conveyor for every two repair stations to move the odd-size pallets and scrap pallets to the grinder or tear-down line. "The trash is handled only one time," explained Hugh. The scrap is moved out and delivered directly to a new Rotochopper grinding machine the company added this year.

"Nothing hangs around," said Hugh. "At the end of the day, we have a trailer full of chips and the yard is nice and clean."

Progress has been using bandsaw dismantling machines for its tear-down line but Hugh is in the midst of overhauling that aspect of the companyís operations. "We want to move away from having two men on a bandsaw machine," he said.

A practice that Progress follows is trimming both ends of used deck boards or stringers to remove split or damaged material. "You have new wood on both ends, so you renail without any splits," said Hugh. "It adds strength."

Hugh uses the term "new life" pallets to refer to pallets made of recycled lumber. "Itís a great product," he said. "One, itís stronger than a new pallet because hardwood is like cement: the older it gets, the harder it gets. Theyíre lighter because itís dry. Theyíre environmentally correct, and it looks as good as a new pallet."

Progress is equipped with a Rayco Edge nailing machine to assemble pallets made of recycled lumber. The company builds about 300-400 pallets per day on the machine. "The Rayco does very well with recycled material," said Hugh. Progress purchased the machine new about six years ago. "Theyíre an excellent company to work with" as far as parts and service, Hugh added.

An important aspect of Progress Pallet is generating revenues from waste or excess pallets of customers. Progress charges customers for the service of removing unwanted pallets. Some can be resold or repaired and sold for a good profit. Pallets that are not worth rebuilding or dismantling to recover lumber are put into the grinder and processed into chips ó the company is producing 330 cubic yards daily. The company sells the chips to a number of different markets.

Hugh raved about his Rotochopper machine. "Itís just a fabulous machine," he said. "An absolutely fabulous machine."

Hugh was in a good position to capitalize on the depressed real estate market in the early to mid-1990s. The 495 beltway attracted high technology businesses to Massachusetts; many of them settled near the highway. Some, however, did not survive the recession that ensued in 1989-90. When they failed or closed operations, it was the proverbial buyerís market for the real estate. Wang computer company was housed in an $88 million building that sold at auction for a mere $500,000, noted Hugh, who bought three buildings near the junction of 495 and Route 3 during that market. One building contains Progress Pallet, and Hugh leases the others.

Progress Pallet is housed in a high-tech type building in area of other high-tech structures with a brick office in the front and a warehouse in back. The building is screened by shrubbery. The warehouse yard is all hard surface and enclosed with a security fence. "Iím like the Felix Unger of the pallet industry," quipped Hugh, referring to the neat, fastidious character in the comedy "The Odd Couple." He added, "You come here and you donít see any mess."

Another aspect of the business that Hugh has paid particular attention to is trucking. He made a point of buying top quality trailers. The trailer vans are neat, clean, and have good signage, and they represent the company well as moving advertising. "Theyíre really smart-looking trailers," said Hugh, and the company has never been fined or penalized for highway infractions related to trailer vans.

Perhaps more importantly, "Theyíre a giant warehouse on wheels," explained Hugh. Progress has had as many as 100 trailer vans and currently has a fleet of 80. Not only are trailer vans left at customer locations to be filled with excess pallets, they also are used to store finished pallets in inventory. A hundred trailers potentially could hold about 32,000 pallets, Hugh estimated. "Imagine trying to put those in your warehouse or yard." Storing pallets in trailer vans keeps them clean and dry and saves on delivery time.

Hugh has taken advantage of government programs that offer low-interest loans to finance investments in plants and equipment. He has participated in programs of the federal Small Business Administration and the Commonwealth of Massachusetts. "The government can work for you or against you," he said.

"One of my greatest assets is my son," Hugh Talty Jr., 34, sales manager at Progress Pallet. "Heís a brilliant young man whoís going to do very well with this company. I like him even better than my Rotochopper!" he said, punctuating the remark with staccato laughter. Hugh Jr. has been working with his father for four years after previously working as a sales manager for a high-tech business.

Progress at one time provided pallet repair services, but Hugh chose to focus the companyís efforts on supplying recycled pallets ó buying used pallets, rebuilding them, and selling them. Progress also is registered with the NWPCA as a supplier in the associationís SPEQ program.

Progress was invited last year to participate in dock sweeps of a Wal-Mart distribution center. However, Hugh learned it was not a good business decision for Progress and advises other recyclers against allowing their business to rely heavily on large accounts. Progress wound up with a lot of scrap pallets. In addition, the company temporarily had to drop many good customers while it serviced Wal-Mart.

"Depending today on some giant super-store to supply you with all your pallets ó forget it. Youíre going to be out of business. Youíre going to lose. Theyíll control your business, and there are too many sources to focus on one. It would be like having only one customer to sell to." Progress is better off having a large number of sources from which to obtain pallet cores. "They keep us every day in a volume of pallets that allows us to keep our customers happy."

Hugh keeps in telephone contact with several other pallet recyclers around the country and even overseas to stay abreast of trends and developments. He cited several other recyclers whose advice he has benefitted from: Robert Cramer of Tailor-Made Products in Oregon, Charles Walcutt of Valleywood Industries in Baltimore, and Ed Mendelsohn of San Diego Pallet. Locally, he also enjoys a good relationship with J&S Palletís Joe Silva and Atlas Palletís Earl Handrigan.

The supply of used pallet cores has improved somewhat, according to Hugh. "Itís not great, but itís better. I think there is still a core problem, but we seem to be in a safe margin right now."

The relatively tight supply of cores has some sources of used pallets culling out the best pallets and trying to unload other, less desirable pallets, Hugh noted. "They want to sell you a truck-load of pallets that has been culled. Theyíve pulled out everything good."

Some companies that are new to pallet recycling are only interested in pulling out the best pallets to resell and are not in business to repair pallets. "Theyíre trying to dump their junk on legitimate pallet recyclers," said Hugh. "Youíd be crazy to buy that stuff at the prices they want."

Hugh warned pallet recyclers to be wary of buying used pallets from newcomers and other, less established sources. He trusted someone who supplied pallet cores to Progress and wound up losing a six-figure sum over several months because the good pallets had been culled. "You have to be very careful in that world," Hugh cautioned.

In his leisure time Hugh is active with his family and a couple of past-times, rock climbing and playing in a baseball league. He also helps to coach the little league team of his youngest son, age 10. In addition to Hugh Jr. and his youngest son, Hugh also has sons ages 18 and 27 and a 32-year-old daughter.

As Hugh realized the importance of his employees, he organized his business in such a way that allows his pallet repair personnel to earn a middle class income. As a result, his company has enjoyed good employee retention. Many employees have been with the company for 10 years or more.

Hugh pays pallet repair workers the same rate as he did when he started. But men who earned $24,000 annually in the early 1980s now are making about $40,000. The difference is volume. "I automated each year to increase their production and their income," said Hugh. As he built and grew his business, his employees prospered, married, started families and bought homes.

The cost of living in the Northeast is higher than the South, Hugh noted, particularly in metropolitan Massachusetts. A two-bedroom apartment in the region rents for about $1,200 per month, according to Hugh. "It is expensive to live up in this area," he conceded, and workers need to earn a good living in order to be able to afford it. Labor is notably cheaper in other states, such as the South, he said.

"I donít allow employees to work on weekends," said Hugh. "I find thatís a very good policy because that keeps a balance in a personís life. They have enough time for their family, their life, and their job. When they donít, I donít get a good employee."

Servicing Wal-Mart required working holidays and weekends. "That did a lot of damage to my most important resource," said Hugh, "which is my help."

The work week is filled, however. "We go crazy for five days," said Hugh. A normal pace at Progress is between eight and 10 hours per day.

There is a two-way commitment between employer and employee, Hugh noted. As an example, he talked about a time when forecasters were calling for a winter storm the next day. "The weather man was jumping up and down. I got into work at 6 a.m. and Iím calling my guys at home but not getting any answers." The reason was because they were already on the way to work. They had left early to get to work before road conditions got bad. Later that day, Hugh made sure to arrange for a snow plow to move enough snow out of the parking lot so that the men could leave easily and get to the road. "I learned that day that you donít stop for anything," said Hugh. "You pay people well, and they depend on the money. They have homes and other responsibilities. Theyíre here to make money. Theyíre not here to fool around."

His approach to human resources extends to treating employees "properly, treating them with respect," said Hugh. "I would call them Mr. so-and-so instead of, ĎHey, Bobby.í And you get the same thing back."

He sets the same kind of standard for the workplace. Smoking is not allowed, nor profanity. Those kind of values positively impact the workplace culture and employees, Hugh believes. The company attracts employees who share similar values. Workers who donít share them donít fit in and will move on.

Hugh said his approach to personnel is reflected in a sermon he heard one Sunday in church. The sermon was taken from a Scripture that teaches no one part of the body ó and no one part of the church ó is more important than another. "There is no one employee here who is more important than anybody else," said Hugh. "Itís like a rowing team. If one person lets go and doesnít do their job, everybody suffers."

"I have a facilities manager who never stops," he added. "He works just as hard as the repair guys."

The success Progress Pallet has enjoyed has been more the result of steady growth and the accumulated wisdom of a lot of business decisions, many of them small in nature. "I donít know if there are any giant steps that Iíve taken," said Hugh. "Iíve basically taken many, many baby steps in the right direction. When I tried to make big leaps...they turned out to be very disappointing."

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