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CHAPTER 2 SUPPLY ISSUES There are two major ways that suppliers can improve the price they receive for their material - increase the quantity of material they deliver and improve the quality of the material. This chapter will examine issues related to supplying material to a processor. 2.1 Quantity Issues In general, the larger the quantity of recyclables that you can provide, the higher the price that the market will pay. What will vary from company to company is how much material they need to give you a better price. How can a generator of recyclables increase the quantity of material available for recycling? First, make sure that everyone in the organization is participating in the program. This requires good publicity and advertising - not only at the start of the program, but with reminders over time. You must remind current participants of the importance of recycling and tell new participants how to participate. Second, consider combining tonnages with other organizations. Can two or more local communities combine recycling tonnages to go to market? Will your neighbor in the business park work together with you to recycle? The other issue with quantity is whether you are willing to enter into a “put or pay” agreement with the market. A "put or pay" agreement says that you will guarantee delivery of a certain amount of material (per month or per year) or pay the price for delivering the minimum quantity. Processors and end markets may be willing to pay a higher price for the assurance of a reliable supply of material. Processors and end markets have supply commitments that they must make to their customers. They need to know the quantity that they will receive from suppliers. Generators, however, should carefully consider whether such a "put or pay" is worth the additional revenue. In developing such a commitment, generators should include a guaranteed tonnage level that they know they can meet relatively easily (for example, a level that they have exceeded each month for several years), not a level that they achieve only on occasion. 2.2 Quality As we discussed in Chapter 1, generators must view recyclable materials as raw materials for a manufacturing process, not as a waste that they must remove from landfills and other disposal facilities. Generators must understand the requirements of processor and end market and provide materials that meet these requirements. This may require an analysis of the existing collection program (see Chapter 7). Additionally, the quality of the material will determine the price it produces. Here are two methods of determining the quality of the material. First, trade organizations such as the Paper Stock Institute, the American Plastics Council and other organizations have developed standard specifications to define the types of material that you may include and the contamination levels for each material. Individual manufacturers, however, may have different specifications for their own facilities. Each manufacturer has different tolerances for their equipment and process that will dictate their individual specifications. It is important to meet the specification of the processor or end market. There can be severe financial penalties if you do not meet the specifications. Processors may "downgrade" delivered material to a product with a lower price. As an example, if white ledger (office paper) has too much contamination, the processor could downgrade the load to mixed paper, which could cost $40-50 per ton or more. Processors downgrade loads to cover the additional cost of processing material. If the quality is so poor that the processor or end market can not use the recyclables as a raw material, they may reject the entire load of material. In this case, the generator not only loses all of the revenue from the material, but will also have to dispose of the material. You must clearly define the requirements for downgrading and rejecting loads in the contract document. The processor or end market should be able to inspect loads (at the time of delivery) and the generator should be able to inspect loads in cases of downgrading or rejection. The contract should base downgrading and rejection on industry specifications wherever possible. End markets may interpret these specifications differently depending on the market. As supplies become tighter, manufacturers may be willing to loosen specifications in order to get needed material. As recyclables become more plentiful (or demand decreases), suppliers will be much stricter in interpreting the specifications. As a generator, it is critical that the materials you provide are consistently high in quality. This will allow you to meet the strictest specifications. Quality is also a critical long-term issue. Processors and end markets took for high quality material. If a generator provides quality material on a consistent basis, markets will consider considered them a dependable supplier of material and will provide the best prices over time. The generator will also continue to have a dependable market for the material. back to top |
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