Cash from waste

Life has been deeply unfair to the canny manufacturers who took advantage of rising commodity prices to turn their waste into revenue. Just as they were getting into their stride, the economic crisis turned off the tap. It's a measure of how far world prices for paper, cardboard, plastic, steel, aluminium and other commodities have collapsed that four-fifths of China's once-insatiable recycling units have closed. But Cerys Ponting, a research associate at Cardiff University's centre for business relationships, accountability, sustainability and society (OBrassO), says the effect of the credit crunch on industrial waste management has been double-edged: "It's pushed the environmental agenda to the back a bit. On the other hand, taking care of waste management can save you money." One man's junk is still another man's raw material, she says: "Even plastic cuttings can be sold on." Her example is Wolverhampton-based Omnia, a plastics recycler that's breaking the mould. Omnia managing director Jason Barker acknowledges that manufacturers have a problem now that sorting and segregating costs exceed plastic waste's sale value: "However, the market only ever paid for clean, pure material and this is only a small proportion of the plastic waste generated." A mere 7% of the UK's annual five million tonnes of plastic waste is recycled: "The rest goes to landfill at ever increasing cost." He adds: OOur system allows us to completely mix plastic of almost every type, as it is, thus eliminating separation costs completely.O Omnia turns the waste into a wood-like material for products from fence posts to childrenOs playgrounds: OWe do charge a gate fee, but it is considerably less than landfill and thus can save companies a lot of money.O Brass research associate Jeroen Dijkshoorn confirms that the landfill tax escalator puts œ8 a tonne year on year on the price. OCurrently the tax stands at œ32.O Gate fees are on top. Whatever the economic weather, waste management isnOt optional. Under the Environmental Protection (Duty of Care) Regulations 1991 (and subsequent amendment, 2003) companies have a duty of care to understand and account for their wasteOs types and quantities. Last year the Environment Agency fined 284 companies an average œ10,000 each for breaches of legislation. Its chairman Lord Chris Smith says businesses with good environmental track records would see their charges reduced, but those that do not manage their environmental impacts properly could see their charges treble. Managing customersO waste can help sales. An example is the sale of variable speed drives to replace old, energy-hungry electric motors. Industrial drives manufacturer ABB and its partners take customersO old drives off customersO hands. ABB partner APDS of Avonmouth gives its customers bins for their old electronic drives and empties the bins for them. Collections in the first half of 2008 were almost half as much again as in 2007. APDS sales office manager Robert Bryant says the number of collections has remained steady. But in general, says UK government agency Envirowise, which gives free waste management advice to industry, waste disposal has the greatest impact on the environment and is the least cost-effective way of managing waste. The agency urges Omoving up the waste hierarchyO D tracking waste to its source rather than disposing what comes out of the pipe: OYou could save money, raw materials, water, energy, improve your image and reduce your impact on the environment.O The first step is for managers to walk round their sites to identify where wastes are generated and produce a waste map. It helps, Envirowise says, to appoint a waste champion to identify waste streams, collect data and prepare a strategy for managing and reporting on wastes. Buffer levels Helen Alder, procurement specialist at the Chartered Institute of Purchasing and Supply (CIPS), goes further back. She stresses that much waste arises from mismanagement of the supply chain. She cites the Forrester effect, which describes how demand becomes lumpy when there are little clots of buffer stock all along the manufacturing and purchasing chain. By smoothing out demand D using smaller, more frequent deliveries and, above all, sharing information right down the supply chain D a lot of the buffer stock goes away. And the paperwork diminishes by giving the supplier one call-off order once a year instead of monthly purchase orders. MRP systems often use conservative, worst-case assumptions that make the over-procurement worse. They order from suppliers too far ahead of when the goods are needed, so the supplier looks at the delivery date and holds the order back until a week before delivery. When it comes out of the drawer, the supplier finds he doesnOt have the capacity to fill it. To deal with such cases they learn to keep buffer stocks, and so do their suppliers. Alder used to work for a distributor whose scheduling and procurement system sent out purchase orders once a month for the OAAO products that account for 80% of spend. Volumes varied, but the annual totals for the highest-volume items were fairly consistent from one month to the next. OWe smoothed out the requirements on three trial products,O says Alder. The company took deliveries weekly instead of monthly, and worked closely with its suppliers to make sure they did the same. The distributor smoothed out demand, re-educated suppliers and did value stream mapping to take out non-value-adding activity: OWe went through the processes, step by step, to weed out or minimise the wasteful steps. It was a tedious job but the results were astonishing,O says Alder. Getting rid of waste meant stock levels and storage costs reduced: OEverything reduces... and it worked so much better.O Transport costs could rise because of more frequent deliveries, but the distributor set up a per-pallet-rate Omilk roundO service that suppliers could join much more cheaply than sending their own vans out half full. Extending these principles to the remaining AA items could have saved the distributor œ60m, says Alder. But it decided it couldnOt invest the time it would take to reorganise the supply chain disruption beyond adding another seven AA items. Dynamic thinking James Burwood of the Goldratt consultancy, part of the Levee group, thinks thereOs more to it than averaging weekly consumption and leaving it to the supplier to deliver 20 items a week: OIt's not much of a system,O says Burwood, Obecause it relies on something being in someoneOs head.O But he concedes It's better than allowing the IT system to run the business. He also agrees that It's a good idea to attack stocks for high-volume items first. But he insists you need buffers regulated by Odynamic buffer managementO, which sets a buffer level and uses a traffic light system to identify all stocks, including those Oon the wayO, that are adequate (green), low (red) or about right (amber). OAs things are consumed, then week by week, or daily, or even twice daily, you feed that information to your suppliers, and they can make sure that theyOve got enough stock at their base.O Buyers must avoid being lured into taking high discounts for stock they wonOt use or will become obsolete. If you buy 1,000 items and donOt use half of them, says Burwood, someone has to cover that cost, so the consumer is going to kick the supplier for lower prices. That extra volume you thought youOd sold will come back to haunt you. The problem is a Ocost per partO mentality, says Burwood. Managers buy more parts or raw material than they need because theyOre measured on gross margin per item: OIf I buy a million of these cups, and I get them half a penny cheaper D havenOt I done well?O No, says Burwood, because that calculation omits the costs of storage and obsolescence. One of GoldrattOs clients makes copper bus bars to order for the electrical and electronics industry. When copper prices were rising they bought the metal at the going rate, but they could get a higher price for their waste. So they bought a lot of copper. Now, says Burwood, It's uneconomic either to sell the waste or to reprocess it for their own use. And the copper they bought at the top of the market they now have to sell at todayOs much lower prices. That, says Burwood, Ois the price of getting it wrongO. Volume discounts, and by implication, Oeconomic order quantitiesO, waste capacity too, argues Burwood. If all this sounds complicated, he says, it isnOt: OThere is a way to know what is the right amount to hold,O he says. OThe logic is very simple, and for a lot of people it can be done on an Excel spreadsheet.O The answer is to stock by replenishment. You work out your actual consumption and how long it takes to resupply. OIf it takes 10 weeks to resupply because IOm buying it from the other side of the world, and I know that in those 10 weeks IOm only going to use 10 widgets per week, the right amount to hold is 100 widgets. In the first week you use 10 widgets and your stock goes down to 90, you order another 10.O The only risk in such a calculation is how accurately youOve identified the order lead time, how reliable the supplier is, and the consumption rate. ThatOs why working with suppliers is important. Shaving costs Envirowise production specialist Mike Savage says the supplier relationship can help you in other ways. SavageOs example is the furniture trade: OIf youOre ordering plywood, for example, negotiate to order it to the right size instead of having to cut off all the ends and disposing of all the offcuts. It's so simple.O It also saves money because youOre ordering less raw material. Savage says the answer to falling waste prices is not to create waste in the first place. When times are tough, selling your offcuts doesnOt make you a market leader. What might make a difference, though the benefits take time to appear, is to design your products so that they donOt consume so much labour, time or raw materials. Waste-saving product redesign is another part of the Envirowise brief, says Savage. Fulleon makes fire alarm components including break-glass buttons. On Envirowise advice, it replaced tens of different components in one assembly with two pieces of plastic that clipped together. The labour and material savings were worth over œ90,000 a year and the devices are easier to dispose of at end of life. And as youOre walking about, pay attention to detail. With free advice from Envirowise, automotive parts maker Denso made a œ5,000 reduction in hazardous waste disposal costs in its first year by switching from disposable tissues to washable cotton wipes. Now thatOs a real difference in cash flow. But if cash flow isnOt troubling you at the moment, take no notice.