Reardon Pallet Finds Opportunity in Converting Customers to Odd Sizes, Demonstrates Keys to Good Financing
Core Dilemma: Reardon Pallet uses core shortage to its benefit to attract new customers while putting odd-sized pallets to good use. Started by a former banker, the company demonstrates key steps to sound financing.
By Chaille Brindley
Date Posted: 8/1/2014
KANSAS CITY, Missouri – Tired of one off accounts that required lots of work and only offer limited reward, Dan Reardon Sr. left the banking industry in 1993 and started a pallet company in downtown Kansas City. Ever since then Reardon has continually reworked his business to take advantage of his finance expertise and commitment to customer service.
This approach to evolve or die has been one of the reasons for the company’s success over recent years. Reardon explained, “We have been able to keep our book of business and have had lots of opportunity to grab new accounts due to the core supply issue. Over the last year we have grown 15%, and the prospects look good for the future.”
Competitors just can’t find enough pallets to supply customers, and Reardon is sitting on a large supply of material that can be creatively used to fulfill demand. One way that Reardon has handled poor core supplies is to work with customers to move them to odd-sizes away from the standard 48x40 footprint.
Reardon stated, “We have a large stockpile of odd-sized pallets that we are using to sell remanufactured pallets to customers. Many customers are not aware of the money that can be saved from combos or remanufactured pallets.”
Reardon added, “In our marketplace, it has become very difficult to get cores and has become more expensive to buy them. Everybody is out there fighting for the same cores, and prices have just gone up and up and up.”
One pallet company in the Kansas City area is acquiring cores and shipping them out of town, which is further complicating the issue.
Finding Gold in the Yard
The key to Reardon’s recent success is sourcing quality, stable supplies of odd-sized pallets that can be repaired and remanufactured to meet customer demand.
Reardon commented, “We have been able to match up customers with odd-sized pallets that are cheaper and in the end work as well for the client. Customers thought they had to have a 48x40 size because that is what they had always used in the past. But they experience no real problem using a slightly different size.”
At first customers may not be eager to switch, but once they realize that they can get stable supplies and may even save some money, they are more willing to discuss making changes.
Jason Kane, who handles sales for Reardon Pallet, said, “A lot of people are so desperate to get pallets that they are more willing than in the past to try something new.”
Reardon will supply free samples to customers in order to get them to switch. Kane explained that once customers understand that a slightly different size will not impact how you load a trailer or the amount of product that can be shipped or cause excess product damage, they are more likely to switch and still be happy with the outcome. For example, customers may move to a 36 square or 40 square instead of a 48x40.
In order to transition customers to new sizes, you must affectively manage odd-sizes and know what you have on your yard. Earlier in the year, the pallet yard was somewhat in disarray at Reardon Pallet. But the company has worked hard to organize everything and get a better hold of the situation as well as turn those odd-sized pallets into new business.
Reardon said, “We are on a real push right now to realign the lots, flip everything, start fresh by rotating inventory into specific lots, and getting rid of material we don’t think we are going to use anytime soon.” The company has done this by hiring a few extra people, running longer hours and putting more effort into organizing the lot as well as effectively handling waste material from the beginning.
Pallets that are not going to be useful are shipped to a local grinding operation. Adding a grinder is one thing the company has on the drawing board for the future.
Strong Finances Require Consistent Accounting Practices
Having worked previously in the banking sector, Reardon values strong financial accounting and knows its value when it comes to securing loans and effectively running a business. He is naturally a numbers guy who has used that to his benefit in positioning his company for success.
For starters, the company has had a business plan in place since day one and has used that to create a stable understanding of his business with financial investors and lending institutions. Although the plan has been tweaked through the years, it has been a blueprint to guide the operations as well as a valuable tool to show third parties that the company is being run according to sound financial principles.
Reardon added, “Our financials are kept tidy and presented to lenders in a timely fashion that they can understand. We provide the banks more information than they need to help facilitate the process.”
Timely reports also mean that financial partners don’t have to come asking for appropriate documentation. They have it on hand when they need it, which helps ensure transparency and confidence. This includes annual financial reports, annual tax records and quarterly accounting statements as well as monthly receivable and inventory reports.
Reardon said, “If you borrow on standard line of credit against your receivables and/or your inventory, most banks will put that on a formula basis. For example, they might lend you $.70 on the dollar for receivables or $.50 on the dollar for your inventory. They want some validation that those things actually exist. So they will probably want a monthly record of your receivables aging and a monthly valuation on your inventory. Our reporting requirements are on a monthly basis.”
One financial challenge that the company has been able to deflect is the call for longer payment terms. Some large corporations are trying to push out payment terms, which increases the cost of doing business for its suppliers. This exposes them to higher financial risk, increases their capital costs and negatively impacts cash flow.
Dan Reardon Jr., the vice president of operations for the company, commented, “We have received letters from long-term customers where the corporate office seeks to change payment terms without involving our local contacts. This is part of some corporate mandate to extend cash flow. We will work with them to extend credit if required but we charge more to do that service. We have never lost a customer due to the issue, or had a customer that refused to pay more if the longer payment terms was something it had to have to continue to do business.”
Dan Jr. said his company will work to figure out the true cost of floating customers longer and pass along those charges.
The company also avoids bad debt by screening all new customers. Dan Jr. said that all new customers are required to fill out a credit application and submit to a credit check. The initial orders are sold on a cash-on-delivery basis. This might mean passing up on some accounts. But it has also kept them from getting scammed or hamstrung with lots of uncollectible debt.
Dan Sr. explained, “The other problem with extending terms like that is if you have a problem account, you are not going to know it for a long time. You have sold them a lot more product in that extended time frame and you are a lot more exposed to uncollectable costs.”
Smart Combination of Automation and Manual Production
Reardon Pallet relies on both its manual labor and some automated technology to do the job right. It uses a Viking Champion for some new pallet orders and produces other by hand. The company relies on Mid Continent for its nailing needs.
Dan Sr. affirmed, “The quality of the nail is great, and the support from Mid Continent has been a big plus. Because its manufacturing facility is so close, we can get what we need quickly.”
Recycled pallets are removed from trailers and sorted at the individual repair stations. Dan Jr. stated, “We tried presorting before and couldn’t quite break even on cost. We believe our approach saves money and allows the forklift driver to focus on his duty.” Pallets are repaired by hand and quality checks are done by foremen on forklifts who verify pallets before moving them to storage. Each builder puts a unique color on his repaired pallet to identify who did the repair. This is an easy way to trace quality problems back to the source.
Also, pallet builders are responsible for obliterating heat treatment (HT) stamps. At the end of the process, a final quality check is done as stacks are loaded into trailers for delivery. This includes checking to make sure that HT stamps are obliterated. Reardon Pallet works with Timber Products Inspection to handle its heat treatment program.
The company added a Kiln-direct heat chamber a few years ago. Dan Sr. said, “The Kiln-direct chamber is reliable and works well. It has allowed us to faster serve customers that want HT pallets, which is a plus for our delivery speed.”
Reardon Pallet uses a single head Trace saw, one Smart dismantler (two-man), Pallet Repair Systems trim saw, two notchers, two radial arm saws, a panel saw and a handful of miter saws. Currently, about 60-65% of its production is recycled or remanufactured pallets versus 35-40% all new. The company employs 32 people and operates three trucks.
One way it has been able to make speed a key advantage is having product stored in advance for customers. Dan Sr., said, “In many cases we stock product in advance. We have inventory of product for customers that is prebuilt, which takes a lot less pressure off us and them.”
As a successful banker, Dan Sr. could have jumped into almost any enterprise. Why did he choose pallets? The key was he wanted a business with lots of repeat business where it was a stable part of the economy. After looking for a good pallet business to buy, he decided to start one from scratch. At first, he focused just on the 48x40 market because he didn’t know there was anything else out there. Today, his company has changed so it does a lot more than just 48x40s.
Dan Jr. cautioned, “The big challenge now is to stay in front of the market, and as core availability has become a problem, have had to shift some customers to new pallets or different sizes.”
Although it is a smaller company, processing about 600,000 pallets per year, the story of Reardon Pallet still offers some important lessons for those who want to handle the core crunch or improve the financial side of their operation.
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Reardon Pallet finds treasure in odd-sized pallets.