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Secure the supply chain to secure your future

Richard McKinlay

The recent failures of several well-known plastic recyclers has caused concern and led some to question the future viability of this sector. Although these failures were influenced by a number of external factors, such as lower oil prices, changing demand and volatile markets, that is perhaps not the whole story.

Other successful recyclers operating today, such as Axion Polymers, have weathered changes in the economic landscape and are continuing to flourish. So, in these difficult times, how are they getting things right?

Two key elements of a sustainable and stable business model are having access to a reliable, long-term supply of input waste raw material and then being in full control of the whole value-adding process right through to the output of high-quality, finished products.

If there is a common thread of stakeholder involvement and shareholder equity that follows the materials recycling stages, then the management team can concentrate upon optimising the process efficiency and avoid having to battle with the trading mentality that dominates any ‘breaks’ in continuity along the chain.

A long-term approach that avoids external price influences and volatility created by the inbalance of supply and demand delivers the gross-margin stability that is needed to keep the business profitable and always covers monthly operating and overhead costs. The result is a regular and predictable cashflow that is necessary to pay back the investors in capital intensive processing plant.

Another key success factor is the choice of the ‘right’ recycling technology and selecting the best management team to design, install and operate the process equipment. We have been involved in many projects over the past decade when investors have engaged a ‘big name’ project engineering firm to design and build large-scale plants - only to find that the end result is not fit for purpose.

This is because real hands-on experience in the specialist technologies of waste recovery is a rare skill. Employing consultants who know the technologies involved and who have operated similar plants is key to making sound engineering decisions. This can deliver the confidence to move into a new area of recycling technology ahead of less able competitors.

You must also secure your finished product market to nail down long-term profitability. Many recycling firms fall into the trap of selling their output polymer as a commodity with a price that is indexed to the virgin polymer price. This delivers a nice saving for your customer’s buyer but leaves the business massively exposed to volatility in the market.

One solution could be a joint venture with an end-user customer, such as an HDPE milk bottle producer or a plastic storage box manufacturer. Bringing together complementary skills through a secure supply chain would offer benefits all round. Instead of selling a ‘cheap’ recycled polymer, you are selling a higher-valued finished product with a greater margin. The polymer producer benefits from guaranteed sales and the moulder benefits from consistent and predictable pricing. Although this type of collaboration is relatively unusual in the plastics recycling sector, I think this concept has potential to grow.

As we transition further towards the circular economy, the complete supply chain approach will play a key role in the survival of sustainable businesses. We need to build strong links between recyclers, those controlling the generation and collection of the waste and, ideally, the end user to keep the recycled material supplies flowing.

Richard McKinlay, senior engineer at Axion Consulting

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