A Word from the General Manager - June 2014

June 1, 2014

Brian Isard

Last month we published our Strategic Planning Member Feedback conducted at our AGM and one of the common themes we heard was that members struggle to recruit and keep workers who want to do the sort of heavy work involved in our industry. Association members reported two concerns about their future workforce, workers no longer want to do this type of heavy work for the salary we can afford to pay and we will be forced to increase our pay rates to attract and keep good workers. Looking forward over the next 3-5 years recruitment and retention of a reliable and skilled workforce will continue to be a challenge in our industry.

Recently I had the opportunity to meet members in the pallet recycling industry who shared their concerns of high turnover and problems with employee retention. I also spoke to members who would like to automate parts of their operations but were unsure if business conditions were right to make equipment investments. Over the next few issues of this newsletter we will explore some strategies to deal with labor costs by looking at what machinery suppliers have to offer and some suggestions that might help in the decision making process.

Having planned, purchased, and installed several mechanized lines over my career to improve pallet inspection and repair productivity, one thing I have learned is that when buying equipment, “price is not cost.”

The last several years have been difficult ones for companies supplying our equipment needs but conditions are changing. While the price of steel has remained stable, hydraulics and electronics component costs have climbed by as much as 10%  as the demand for new equipment has improved so one can expect that equipment prices are not what they were a year or two ago. 

Often when we consider equipment purchases, we start with a simple question, “Will this new equipment increase my production capacity or output quality?” There are some other questions that you might want ask to help make better decisions on selecting what processes you need to automate and which equipment supplier to start working with.

Current Equipment Performance

  • When evaluating when to switch out equipment the general rule for minimizing the long-run cost of equipment is to make a change when the annualized total cost of owning and operating the machine begins to increase. However, as equipment gets older and wear and tear begins to take its toll on conveying and hydraulic systems where the repair costs tend to be quite variable from year to year, ranging from only routine maintenance items to a complete overhaul. Reviewing well maintained maintenance records and feedback from your maintenance personnel are crucial in being able to anticipate when large repair costs will be needed. This is a key consideration in deciding when to replace a piece of equipment. 
  • Tracking downtime on current equipment and making sure we understand the cause of the downtime (equipment fatigue, inadequate maintenance, replacement parts availability or operator damage/error) are important determinants in which equipment to replace.
  • Are there any constraints on production capacity that may lead to imbalanced product flow or bottlenecks in our current work processes?
  • Are there processes in our operation where we are wasting labor resources where installing equipment will reduce worker fatigue and improve reliability?
  • Are there work processes that have changed which have resulted in idle equipment and are no longer providing a good return on the capital invested or the space used to accommodate it? For example, a change in the mix of customer’s pallet sizes being supplied results in a piece of equipment no longer being used. New equipment with better capabilities may offer a better return on the space being used inside the plant.

Safety 

  • Will my current processes and equipment continue to meet regulatory safety standards or will we have to upgrade to improve an unsafe work situation?
  • How do we get a correct interpretation of the safety or environmental regulations so that we know that the equipment I am buying will meet the local regulations? Who can we depend on to give us this advice?
  • What are the local regulatory standards for purchasing new equipment? In Canada, many provinces reference the Canadian Standards Association (CSA) Z432-04 standard to specify how new equipment installations are to be safe guarded. CSA is a “world class” standard but often is higher than what the equipment supplier is using. Equipment particularly from the US (e.g. heat treatment kilns) often requires significant upgrades before they can be used in Canada. 
  • Is the equipment supplier offering “turnkey” delivery and installation or will we have to pay for the equipment to be safe guarded and certified to local standards?

New Equipment Processing Technology 

  • In light of the forecasted cost of raw materials will we need better equipment to process timber or repurpose reclaimed boards?
  • With ever changing demands to improve quality, lower price or shorten lead times will we need new equipment to better meet the customer's specifications for quality or consistency?
  • Would a new equipment installation require other changes to be made to the rest of the line in the plant in terms of line speeds, forklift activity, equipment cycle times?
  • Does the equipment supplier have optimization tools that allow us to calculate product throughput and analyze product flow? 
  • Can our maintenance team handle the technology used on the new equipment?
  • Even though our equipment may be in good condition and productive, will our equipment still represent a disadvantage if our competitors are using newer technology that produces better output at lower cost?

Financing 

  • In calculating the ROI to relate a return (the income statement benefit) to the amount invested we need to understand financing programs and tax incentives that can finance the purchase of equipment.

Note: All members should be aware that in the Federal Budget this year the temporary accelerated capital cost allowance for new investment in machinery and equipment was extended for two years. It was scheduled to expire at the end of 2013, with the 50 per cent straight line depreciation rate now extended for two years to include investment in eligible manufacturing or processing machinery and equipment in 2014 and 2015. For a list of government financing options visit the CWPCA Guide to Financing on our association website. 

Most equipment suppliers have the analytical tools to help you decide on layout, productivity and financing but some good research beforehand will help make the supplier selection and equipment acquisition process run smoother and deliver the results that you are looking for. 

11-1884 Merivale Road, Ottawa, ON, K2G 1E6
T. 613.521.6468 or 1.877.224.3555 F. 613.521.1835 or 866.375.1835
info@canadianpallets.com
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