Labor—A Major Problem for Pallet Companies
Survey Provides Some Insights
By Ed Brindley
Date Posted: 2/1/2002
Ask any pallet manufacturer or recycler to list problem areas. Virtually every one of them will include recruiting and keeping good people in their list. Often it will be #1, probably averaging as high as virtually any other concern.
If misery loves company, then we are in good company. The January 4 Kiplinger Letter, recognized for its insights, highlighted labor as one of the top ten trends that will shape business trends this year. It stated, "Unemployment rate will rise to 6.5% around midyear, hover near there for rest of the year. But companies won*t get much relief from frustrations of finding workers. Employers ranging from factories and hospitals to schools and law firms will beg for skilled workers, potentially dragging down economic growth."
It is true that pallet people are having trouble finding skilled people for the top skilled positions. But it is also true that the relatively unskilled labor pool tapped for many pallet plant positions continues to offer very few attractive solutions to our people needs. As our survey results will show, the pallet industry has turned to the Hispanic population for relief in this critical area. I forecast that this trend will continue for the foreseeable future.
I placed survey forms in both the Pallet Enterprise and Pallet Profile Weekly. More responses came from Profile readers, which helps explain why we obtained more surveys from manufacturers than from recyclers. The results do not represent a random sample, but they do reflect the experiences of some 92 pallet company owners, including many who are leaders, recognized in their market areas. My experience has been that this kind of voluntary survey does a good job of representing the overall mainstream pallet industry. I hope that readers will find the information to be of value and want to particularly thank those who took the time to respond.
Respondent Locations and Product Characteristics
Responses represented the industry pretty well geographically. The Northeast had 13, the Southeastern U.S. had 38, 31 came from the Great Lakes and Midwestern states, the Western states had eight surveys, and two came from Canada. The 92 companies have 122 plants. Most (77) are single facility locations, reflecting the continued dominance of entrepreneurs in our industry. Most of the rest (12) have either two or three plants, with the remaining three being larger companies with up to seven locations.
While pallet manufacturers and recyclers tend to be relatively small companies, the average plant is growing in size. My perception of company size has changed over the years. Twenty-five years ago, I would have considered a plant that manufactured 10,000 palletsa week and had $3-5 million in sales to be a fairly large pallet plant. Today it is more typical in size.
Seventy-four respondents manufacture pallets (Table 1) with an average dollar value of $5.15million. The median or middle sales figure is $3 million. The larger companies skew the average upward, but there appears to be little doubt that a typical plant produces more than it once did. Table 1 shows the distribution of production dollars. Note that 9 companies produce $10 million or more. Most of them are in the $10-15 million range, but at the top end figures such as $30 million and even higher were reported. Fifty respondents recycle pallets (Table 2) with an average dollar value of $2.63 million and a median sales figure of $1.1 million recycled pallets. These recycled numbers are lower than some reported in several recycling surveys done in the 90s, particularly when factoring in expected growth in recycling business volumes. This is explained by the fact that the recycling surveys were conducted among recyclers, many of whom manufacture pallets only as a sideline, but represent some of the larger recycling operations. Respondents to this survey tended more to be manufacturers who have gotten into recycling as a secondary part of their business. Respondents fell into four groups: 44 both manufacture and recycle, 30 only manufacture, six only recycle, and 12 did not provide dollar figures for either.
The average number of full-time employees per company (Table 3) is 40.7 production people, 4.85 managers/supervisors, and 3.13 office/clerical workers. Part-time people are the exception. Only 18 respondents reported an average 2.8 part-time production workers, and ten people reported an average 1.3 part-time clerical employees. Nobody reported any part-time managers/supervisors.
Heavy employee turnover can make it difficult to dedicate adequate training time. Many production operations allow cross-training to reduce boredom and keep employees involved. Note (Table 4) that over 75% of the companies cross-train and either exchange duties occasionally (51%) or frequently (26%). Only 13% cross-train but have employees perform the same task each day, and 10% do not cross-train.
All respondents (Table 5) have some kind of employee training program, even though some are simple. Over two-thirds report having short training programs (46.7% by management and 20% by co-workers). Only 8.9% indicate that their training is long-term by co-workers. Over a third indicate that employees gradually learn on the job. My suspicion is that most of these have very limited formal training, if any at all.
The two most common recruiting methods (Table 6) are word of mouth or company reputation and voluntary referral by other employees. These two methods are inexpensive, and they may have proven to be the most effective for production people from the unskilled labor pool. Newspaper classifieds are the third most common recruiting tool. Recruiting agencies and bonuses for referrals were virtually tied as being the next most important. Written posters or fliers and radio advertisements were tied near the bottom as recruiting tools.
Ethnic and Language Issues
Caucasians (Table 7) constitute almost two-thirds of the production employee population, with Hispanics representing about 25% and blacks less than 10%. The number of Hispanic people was not surprising because that was one of the major issues in the unskilled labor pool for pallet plants and sawmills throughout the 90s. Note, however, that over 70% ( 37 out of 50) of respondents singled out Hispanic as the preferred ethnic group. People report that they have a good work ethic and tend to make excellent employees. They will also often bring in other friends and family members to work if they are satisfied with their working conditions.
About half of the respondents indicated that their ethnic employees speak enough English so that language is not a big problem. Over a third have hired bilingual managers and supervisors to work with ethnic people when there is a need. Close to 20% report that hey have learned enough of the second language themselves to suffice. Signs, forms, and manuals in a second language are available in over 40% of the companies.
The growth in Hispanic workers in our industry was supported by the fact that a quarter of the production workers represented in the survey (Table 8) read Spanish, with over 18% reading only Spanish and over 6% reading both English and Spanish. Less than 4% of production employees cannot read. It appears that English/Spanish bilingual signs and manuals are sufficient for our overall industry when a supplement to English is needed.
Just under half (47%) of production workers did not finish high school, which is not a particularly surprising statistic. Very few ever attended college (3%), with almost none finishing college (1%). If nothing else, this could be an interesting statistic to use with your children and grandchildren to encourage them to stay in school and adequately prepare for their future.
Age and Employee Longevity
When asked what age group performs the best in production positions (Table 9), about a third indicate people in their 20s. This is not surprising because these people tend to be strong and have endurance. Older people are less likely to be willing to do the hard work the pallet industry requires. Workers in their 30s performed the best according to 46% of respondents. They are still young enough but may possess more wisdom and mature decision making abilities. About one in eight stated that age makes no difference.
We often hear about staffing problems in pallet plants. On the other hand, some pallet companies indicate that they have a stable labor force anchored by solid people. Note that the average years of service reported is higher than the grapevine might have suggested (over 6 years for production, 8-1/2 years for clerical, and 12 years for management).
We often hear that money is not the motivator it is made out to be. But higher pay (Table 10) was the number one reason respondents lose employees. Firing someone who is not dependable and employees who leave for less strenous jobs were very close as numbers two and three. Dismissal for laziness was the fourth major reason for losing people. Moving away (#5) cannot be avoided. Psychologists may make a big issue of people being attracted to challenging jobs over pay, but that was well down the list here.
Many respondents (26 companies) do not see a seasonal pattern to their employee needs or availability of people. The spring and summer seasons were reported as the most likely times to need people and have trouble finding them.
Employee Performance and Rewards
Tracking production with manual counting methods and tracking quality by some kind of visual inspection but without keeping records (Table 11) are the most common ways of monitoring employee performance. Tracking using physical counters and quality records are the other two commonly used methods. More expensive and thorough systems that include video cameras, bar coding, and computers are less common but are used by a small percentage of respondents. Very few (4.4%) said they use no employee monitoring methods. Methods of paying and the need for control just about necessitate some kind of monitoring system.
Again money speaks the loudest (65.5%) as the most common reward for employee production performance. Company functions (54%), such as picnics or a night at a ball game, have proven to be popular. Positive attitude is recognized and rewarded by over a quarter of respondents; everybody knows that positive attitude tends to produce positive results. And about 15% of the respondents recognize production with awards or gifts instead of or in addition to monetary recognition.
Holidays and Vacations
The most common number of paid holidays (Table 12) is six, with seven and eight being second and third in frequency. About 10% have more than eight paid holidays. A somewhat surprising number (almost 15%) have three or fewer paid holidays. The average number of paid holidays was about six. Sixteen percent of the companies reporting have a company shutdown period, uch as Christmas, July Fourth, or maybe deer hunting season. Those who do shut down average 4.5 days off at that time, with five days being by far the most common.
Most employers provide one week of vacation after an employee*s first year but second and third vacation weeks follow a more varied schedule. About half offer a second week after either two or three years, with over 40% offering the second week after five years. A third week comes after five years for about a fifth of respondents, but about half offer the third week after either nine or 10 years.
Close to one in four companies (Table 13) do not offer health insurance. Health insurance is expensive, but retaining good people in a tight labor market might be difficult without it. Many young people may be able to slip by without it if they avoid serious injuries, but developing a stable employee base that stays with you might be difficult without health insurance. It is not surprising that over two-thirds do not offer dental, and very few employers pay for dental. Employees typically either pay for or share in family health coverage, while employers usually either pay for or share in employee coverage. The number of companies that pay for disability insurance was higher than expected, but about half do not offer this option. Over half offer some form of life insurance coverage, and over 60% offer a retirement option of some kind.
Table 14 presents the average wages reported. Naturally, the beginning general laborer rate ($7.08) is the lowest and the most likely to be impacted by minimum wage decisions. Most hourly production employees make somewhere between $7.50 and about $9.00. Sawyers make a little more, which is not surprising when one considers the importance of the decisions they have to make on the bottom line.
Just about every respondent reported hourly rates, not piece rates, for most production job functions. The only functions that have proven to work well on piece rates relate directly to pallet manufacturing, repairing, and dismantling. Either the system or production requirement or the machine often set the pace for many jobs. Nailing, repairing, and dismantling apparently have more flexibility, which provides the incentive to consider piece rate systems.
The only salaried production jobs in a pallet plant are for management level people, either foremen or plant managers. The typical annual salary for these positions tends to run from the upper 20s to the mid 40s.
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Table 1 - Pallet Manufacturer Responses
Table 2 - Pallet Recycler Responses
Table 3 - Number of Employees
Table 4 - Cross Training Practices
Table 5 - Training Programs for Production Employees
Table 6 - Employee Recruiting Methods
Table 7 - Ethnic Composition of Employees
Table 8 - Employee Literacy
Table 9 - Employee Performance & Longevity
Table 10 - Employee Loss/Seasonal Variation
Table 11 - Employee Production & Rewards
Table 12 - Holiday/Vacations
Table 13 - Insurance Benefits Coverage
Table 14 - Wages