Industry Roundtable 2018 – Part I; Rising Raw Material Prices & Automation Are Hot Topics; Labor Remains Top Issue
Leadership Roundtable: A group of industry leaders discuss key issues from the tough lumber market to changing customer demands to the possibilities in advanced automation and robotics.
By Tim Cox and Chaille Brindley
Date Posted: 6/3/2018
Continuing the practice of bringing together top industry minds to discuss major trends, the 2018 Leadership Roundtable Discussion covers some major trends from the rising raw material costs to automation to employee recruitment to marketing in a digital age and much more. This article series explores major issues and trends with an eye to the future.
The discussion was moderated by Chaille Brindley, publisher of Pallet Enterprise, and it addresses key concerns.
Special thanks goes to those who participated in the roundtable this year. Each participant is an accomplished industry leader who has something important to say. The panel includes:
Fred Vrugteveen, general manager of Niagara Pallet. Niagara Pallet in Ontario, Canada, is a leading manufacturer, seller and recycler of pallets and shipping material.
Kyle Otting, CEO, 48Forty Solutions. Formerly CHEP Recycled Pallet Solutions, 48Forty Solutions is the largest pallet management services company in North America. Kyle previously held leadership positions with CHEP and IFCO.
Manuel Tavarez, president, and Michael Tavarez, operations manager for Harvey Pallets. Based in Blue Island, Illinois, Harvey Pallets offers complete pallet management services and unit-load solutions. A manufacturer and recycler of pallets and containers, the company also operates a sawmill in Missouri.
Mia Allen, vice president of Rose Pallet. With vendors across the country, Rose Pallet brokers a complete line of pallet services and products, including lumber and new and recycled pallets.
Wayne C. Randall, president of United Pallet Services. United Pallet Services provides new custom pallets, recycled pallets and pallet logistics services in northern California.
Pallet Enterprise: Given the challenges in the lumber market, what can a smart pallet company do to be better positioned for the future?
Fred Vrugteveen: I blame the lumber shortage on the Americans (Laughing as he spoke)...The irony of the U.S. tariff is that we have not seen consumption by the U.S. market back off. We have high U.S. demand for lumber and a high U.S. dollar currency exchange, which has led to lack of availability of lumber.
To deal with the changing supply situation, we’re actively recycling more pallet parts and reducing the volume of material we shred. In the past, we shredded 1,000 pallets a day. We’re trying to recycle more of that lumber and reduce the figure to 250.
Mia Allen: As a broker, we don’t really have a choice but to roll with the punches on the lumber situation. We have approached a few suppliers about buying ahead and buying in bulk if that would be helpful, but it’s not feasible for most of our suppliers. It’s definitely been a challenge. We are communicating with our customers about why prices are increasing and asking for more lead time on pallet orders. It’s been challenging, but so far, we’re getting through it.
Manuel Tavarez: Supply is a problem, but we have been able to keep up with demand. One cause is there has been a reduction in the number of loggers. It’s definitely been a challenge. In Missouri, where our sawmill is located, there was a lot of rain in April, and loggers had to stop working, so inventories have been very low.
We made the right move in buying a sawmill. We have more control over our lumber supply. Transportation is an issue, though. If you don’t have the transportation, you still don’t have the lumber.
Wayne C. Randall: Our challenge is the price of lumber has gone so high that customers are forcing us to lower the grade of their pallet. We try to use alternative materials, like combination pallets. It’s been a challenge because out here on the West Coast our prices for lumber have doubled compared to a year ago. In terms of supply, I have not had any problems getting lumber. It’s just passing along the price increase.
Kyle Otting: While we’re primarily a recycler, we still have inflationary pressures with transportation and the secondary impacts in the recycled market when new pallet pricing becomes quite volatile.
A few years ago, we instituted a sales and operations planning process. We take all of a customer’s historical data and use it to forecast and predict demand 30, 60, and 90 days ahead. It’s not perfect, but it’s a very good tool to predict inventory challenges and how to position inventory. It gives us a 30-to-90-day window to plan, so we’re not caught up with last-minute decisions, which we all know can be quite costly.
Pallet Enterprise: For those of you who supply recycled pallets, what is the core supply like in terms of availability and the quality of the pool? Have you experienced more demand for recycled pallets since prices for new lumber have been going up?
Wayne C. Randall: We’re having no problem getting cores. It’s the quality coming in. It’s getting worse by the year. The number of #1 or Grade A pallets has dropped off dramatically. Even to get a good quality #2 or Grade B is quite difficult….Some pallet companies are destroying the 48x40 market in terms of quality.
Mia Allen: The quality of #1 and #2 pallets is pretty horrendous. I go out to some customers and see the kind of recycled pallets they are getting in. I’m seeing it getting worse and worse as the years go on.
Kyle Otting: We’re seeing some areas of the country where access to cores is good, and, obviously, areas where things are tight. From a quality perspective, we’re faced with the same challenges.
We’re seeing a lot more custom size pallets, and overall grade has declined...We’re looking to combat that with more robust programs to replace a defective stringer and upgrade the pallet to an A grade pallet.
Fred Vrugteveen: We don’t see quality or supply concerns as much. As far as the lumber supply, if you pay your lumber suppliers in a timely fashion, the more available the lumber is.
Pallet Enterprise: Are you interested in automation and robotics? Why or why not? Where do you see the potential for it in your plant?
Manuel Tavarez: I’ve invested a lot in automation. Getting good labor is a problem. We are getting ready to open a large facility and will have a few robots. It’s going to be a challenge because it will be our first experience with robotic equipment.
Wayne C. Randall: We’re leaning toward automation. The minimum wage is going up to $15 per hour, so now we can justify the capital expenditure. When the minimum wage was $8 or $9 per hour, we couldn’t justify it. So, we are looking into it. We’re looking to eliminate some jobs because we struggle to pass on these higher labor costs to customers.
Kyle Otting: It’s really more about innovation. We are asking, “How do we make our operations leaner, safer, and more efficient?” We really began the journey four years ago. We started standardizing our facility layout, our repair tables, started using skate conveyors in all our operations.
Far too often, when you talk about automation and robots, people try to do too much, too fast. If your culture is not ready for it, it will not be successful. We’re doing the little steps first to make our operations more efficient, safer and reduce costs. We started with the small things to make an impact quickly and see tangible results.
Fred Vrugteveen: Our minimum wage is $11 per hour. We’ve put a more intensive recruiting process in place along with training. We’ve gotten better results — better employees who stay longer. We’re trying to make their jobs easier so they can produce more, more pallets per person per shift.
Pallet Enterprise: Is there a particular area where you think advanced automation may be more appropriate for the pallet industry? For example, using robots to feed lumber into nailing machines. For recyclers, perhaps in pallet dismantling or sorting operations.
Fred Vrugteveen: We’re trying to keep it real simple. Technology to scan the size of the pallet and determine where it goes. The technology already exists. The industry needs to implement it. As long as you can pay cheap labor, there is no incentive to use automation and robots. Where labor costs are higher, there is an incentive.
Manuel Tavarez: We have three sorting lines. Each one has six to 10 stackers. They’ve worked great. But the big challenge is, when you bring the pallets to the repair station, every single pallet needs a repair. The workers don’t want to repair as many. I still use them, though.
Pallet Enterprise: If you could change two things about your operations right now, what would they be and why?
Michael Tavarez: One of the biggest things in our design scheme is decision making by employees on the floor. A focal point is educating them about the financial impact of their decisions and what we need to keep the company running. You’d be surprised how many decisions are made every day that can save a company thousands of dollars from the material used to how workers process a pallet.
Our managers and floor workers respond when they understand this. They start making more favorable decisions. It motivates them. They realize the benefits to the company and to their performance.
Kyle Otting: I could not agree with Michael more. Within our company, our number one challenge is getting data, and getting data very quickly so we can get it into the hands of our supervisors and managers. This information helps them make decisions quickly. If we can provide our employees with data in real time about productivity levels, pallet yield, and so on, they can make real-time decisions and significantly impact change. It might not seem like a penny here and a penny there is a lot, but those pennies add up pretty quickly.
Manuel Tavarez: I would like to see more automation in our sawmill. We have a system where we place the orders, and the people in the sawmill can see it online. But they need to understand more in order to keep costs down. I think I will definitely look into it more at the mill to improve efficiency.
Editor’s Note: This is the first article in a series based on a discussion held with industry leaders in early May 2018.
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