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Northwest Pallet Supply Spots New Opportunities in Several Key Areas
Northwest Pallet: Chicago-based pallet company begins offering customers a range of value-added services, such as recycling services for cardboard, plastic and metal.
By April Terreri
Date Posted: 8/1/2008
CHICAGO – Until recently, Northwest Pallet Supply focused primarily on producing recycled and new pallets. But over the last few years, the company began offering its customers a range of value-added services such as heat-treating and recycling services for cardboard, plastic, and metals. It also developed a national brokerage operation. In just the six years since the Pallet Enterprise last featured the company, its revenue has increased by $10 million. Let’s look at what Northwest Pallet Supply is doing right to innovate and boost profits.
Total Recycling Services
“The pallet business is still very competitive, so we try to take advantage of any efficiencies we can to help bolster our bottom line,” explained Walter Pollack, 59, owner and president of the 25-year-old company.
Part of this continuous improvement includes requesting that suppliers and customers load trucks as full as possible. Walter reported that just recently the company implemented fuel surcharges to offset the cost of fuel. “We have also employed new technologies that have enabled us to realize a 20% increase in fuel efficiency.”
Nearly three years ago, Walter discovered a significant opportunity in recycling plastic, cardboard, and metals. “This is now an integral part of our business model, so we are expanding from just pallets into being more of a total recycler,” said Walter.
With only about 3% of the company’s total business being devoted to its total recycling service, it is still in its infancy stage. Walter said the segment is continually growing and shows good prospects for the future.
Total recycling is a niche that makes a lot of sense, as it plays off the natural synergies between Northwest Pallet and its suppliers. “When we collect pallets to bring them into our shop, our suppliers might have a bin or two of plastic,” explained Walter, a Chicago native educated in business management. “It really doesn’t pay for them to go to the effort to bale and save that material or the cardboard they accumulate. So we allow them to put it on our trucks as a service, which makes our relationships tighter. So, not only are they getting rid of their scrap pallets, but they can get rid of all the scrap items on their dock.” By doing this, Northwest Pallet Supply provides a value-added service which helps bolster customer and supplier relationships.
Northwest Pallet sits on about 20 acres. Its main 125,000 square-foot building houses all the company’s operations and a secondary 35,000 square-foot building is used for storage and inventory. It set up a special operation in about 5,000 square feet of space in the main building to handle this new recycling business segment. Northwest runs two automated bailers that operate 24 hours per day five days a week. One bailer handles cardboard all day long for three shifts and the other bailer handles the plastic materials. “As we accumulate trailer loads of plastic or cardboard, we sell them,” Walter said. The plastic materials include stretch wrap, which is baled, and broken plastic pallets that get stacked in trailers for resale.
Scrap metal such as old batteries, unusable metal desks, and cabinets, are sourced from suppliers’ and customers’ docks. Nails are retrieved from the company’s grinder as it grinds scrap wood to make mulch. “We just throw all of that material we accumulate into big dumpsters and sell it to our scrap guy,” Walter said.
Most of the company’s sawmill low-grade hardwood log material is sourced from southern Wisconsin. Walter reported that he accepts any length or diameter log. “We take advantage of a lower-quality log market, and buy the cheapest logs we can get.”
He reported that the supply is very strong, primarily as a result of all the recent storms that caused significant blow-downs. “It takes anywhere from six months to a year to clean up all the trees that come down during a storm and we’ve had a number of them recently so the wood is very available.”
Although prices have not dropped despite the supply, Walter said he doesn’t pay much to start with due to his unique sourcing strategy. “Say a tree removal company has to remove some trees; we do them a favor by picking up those trees. If they have to cut them to put them on our truck, we pay about $250 or $300 per truckload. So what we pay for a truckload of wood isn’t really dependent upon the lumber markets.”
The company’s wood supply will remain quite steady for years to come, said Walter. “We can store a year’s worth of wood in our log yard, and when a storm comes through we might get close to capacity in our log yard. If there isn’t a storm coming through for six months, we might have to start eating into that inventory. But over the period of a year there are always a few storms that allow us to bolster our supply again. The whole time I have been in the sawmill business, we have never run out of lumber.”
Another supply that will continue for the next five to 20 years is the flow of logs coming in from ash trees that are affected by the emerald ash borer. “They bring down green ash trees; these logs are coming through and adding significantly to our supply. We are a certified expeditor of emerald ash borer logs.” He noted that the conservation community is in on the front end, making sure that any trees that do come down get used to the highest end-use possible, rather than just being burned or chipped. Walter added that he also gets a supply of elm logs from trees in the area that are still being affected by Dutch elm disease.
The sawmill is located about 50 miles northwest of Chicago in Alden and produces about 125,000 board feet of pallet stock a week for its new pallet operation. The sawmill operates two gang saws – one Cornell and one Sherman – as well as two Baker Products horizontal band saw lines: a six-head line and a three-head line. A Froedge Machine & Supply Co. dedusting system eliminates sawdust, which can freeze in Illinois winters.
Logs are debarked and then broken down on a Corley head-rig. The large slabs move to Sherman and Corley edgers where they are processed into four-sided cants. A Corley chop saw cuts them to length and the material passes to the gang saws or the band saws for resawing. Stringers are cut on the gang saws and deck boards are cut on the band saw lines.
Since our last visit, Walter installed a Vermeer tub grinder to handle scrap wood. “This thing grinds an unbelievable amount of wood that we sell for landscape mulch.” A fleet of 10 trucks supports the sawmill operations in hauling logs and delivering pallets and mulch. Mulch revenues account for about 10% of the company’s business.
Pallet Shop, PRS System
The new pallet shop runs two Viking Champion nailing machines and a Viking Duomatic nailing system that operate 24/5, producing 18,000 new pallets a week, the majority of which are 48 by 40 GMAs.
About 10% of their pallets are heat-treated. Walter reported that about three years ago customer requests increased for this service, so he responded to these needs by building two heat treaters, each of which holds a trailer load of 600 pallets. About 20% of the company’s revenues come from this new extra services department, which includes heat treating, sortation, and storage.
The recycling operation sources the majority of its supply of used pallets from local distribution centers. “About 75% of what we bring in is done as a result of our direct relationships with our suppliers,” Walter said. “Another 25% percent is done on a sub-contracting basis with our national brokers.” This segment accounts for about 47% of the company’s revenues.
Since our last visit, the company installed a Pallet Repair System sortation line with an automatic sorter that sorts six different categories of pallets. Everything that comes into the shop is pre-sorted by size and quality. The majority of pallets move on to be repaired, and about 15% of the pallets get disassembled into used lumber that is used to repair the remaining 85% of used pallets. The company produces about 100,000 pallets a week with about 18,000 of them new.
The company’s new Rotochopper is its third new one. “We just keep upgrading every three years; we just recently bought the latest model,” Walter reported. “We are very happy with it because it does everything I can imagine any recycler would want it to do. It grinds the used pallets and broken pallet parts to a consistency that is very marketable as landscape mulch.”
Walter added that the decision to buy a chopper, a front loader, and a number of walking-floor trailers to deliver mulch requires an operation to be producing a significant amount of scrap. He said, “The availability of scrap can be a big problem for small-to-medium-sized pallet recyclers. Larger operations can take advantage of selling mulch for landscaping applications.” The mulch business is dependent on being in a geographical area large enough to have the demand to justify the equipment cost. Located in the greater Chicago metropolitan area, Northwest Pallet has a vast market to serve. It sells about 150,000 cubic yards of mulch every year.
Knocking on Opportunity’s Door
Seeing the advantage of innovation, Northwest Pallet doesn’t have the time to wait for opportunity to come knocking at its door. Keenly scouring the landscape of its business, the company is able to spot hidden opportunities and proactively put solution into actions that solve customer needs. This is how Northwest Pallet developed its total recycling services and its national brokerage partnerships. Walter said, “My credo is ‘times of change are times of opportunity.’ ”
Walter credits the company’s strong operational strength to continued growth. “We have been doing this for 31 years now and developed and implemented efficiencies over the years that give us an added advantage over our competitors.”
Successful growth isn’t possible without dedicated employees. Northwest Pallet employs 35 people at its sawmill and another 180 at the recycling and pallet operations.
All employees receive an hourly salary and are well trained in safety procedures. “We have a safety manager here, which is imperative,” Walter said. “We work with OSHA to make sure our workplace is very safe for our employees.” As part of their orientation, new employees are required to view a safety feature outlining the company’s safety procedures. Employees must wear safety shoes and eye and ear protection where appropriate.
Walter reported that over the last five years the company switched from using traditional insurance markets to becoming self-insured. “We found that by self-insuring safety becomes a big part of making sure we keep those costs as low as possible.” Northwest Pallet pooled its risk with 12 other companies. “With traditional insurance markets, you pay the insurance premiums but you don’t get anything back at the end of the year if you have done well. We have the distinct incentive to do well from a loss standpoint so that money stays in our pockets rather than going to pay out losses.”