More on Franchised Waste Markets
David Davis, principal of MSW Consultants sent me an email about my previous Franchised Waste Market post. He also emailed me a white paper he wrote for the city of Monrovia, CA.
Graciously, David agreed to let me post an excerpt. Let me know what you think about his take!
Lower Rates than those in Cities with a Single Exclusive Hauler Rates for commercial refuse collection service in cities with non-exclusive systems are
typically lower than those in cities in which a single hauler provides exclusive service to both the residential and commercial sectors. This is mainly due to two factors: market pressure and ‘subsidization.’
First, in non-exclusive systems, there is continued downward competitive market pressure on rates. If a hauler increases its rates too much, the customer is usually able to readily switch to another service provider.6 As a result, the freemarket keeps rates in check.
However, commercial rates in cities that have a single hauler with a city-wide exclusive contract typically suffer from a phenomenon known as ‘subsidization.’ In these cities, the commercial rates often subsidize the residential rates.
This phenomenon typically occurs over time when a single hauler provides exclusive service to both the residential and commercial sectors, typically under a single contract. From the hauler’s profit-seeking perspective, it usually views the city as a whole. The hauler is typically indifferent as to how much of its profit comes from the residential or commercial sector, as long as the whole contract is profitable. Consequently, as rates are adjusted and the
contract re-negotiated over time, there is a tendency for the commercial rates to be increased more than the residential rates.
This tendency is caused by two factors. First, residential rates usually consist of one or two simple monthly charges that are charged to a large number of single family customers. These high-profile rates are easily understood and often compared to similar rates in nearby jurisdictions. However, commercial rates are more abstract, and are based on a more complicated matrix of the size and number of bins, and number of weekly pickups.
Consequently, residential rates are often subject to more scrutiny when they are adjusted or re-negotiated.
The second factor is the political nature of local government. There are simply more voters in the residential sector. Elected officials tend to represent the needs of their constituents, and more of their constituents are residential ratepayers. As a result, commercial rates tend to increase more over time than residential rates. Those commercial rates tend to be higher than the rates charged in non-exclusive systems, which are kept in check by market pressure.
Sell Your Gadgets On Gazelle
Now that consumers are swarming the malls, it may not surprise you learn the average US consumer spends $1,500 every year on electronic gadgets. So we Americans are churning and burning through our electronics really fast. That’s where Gazelle comes in.
Gazelle enables recycling through a neat business model that’s akin to Netflix, another favorite of mine. View how Gazelle works here, but suffice it to say you notify Gazelle of the items you want to dispose of, they make you an offer and, if accepted, send you the box. When you send it back, you get paid!
Not a bad way to close the end of life loop for consumer electronics!
What’s more, businesses, non-profits and schools can sell to Gazelle in bulk too!
I hope Gazelle pans out. It’s a novel idea and a needed one. I am going to try it out soon and I’ll post my experience when I do. Why not try Gazelle yourself and let me know how it goes?
Franchise Waste Collection Areas
Many communities in California and Florida provide special challenges to organizations looking to reduce their waste disposal and recycling expenses. In fact, many organizations upon learning they are in a franchised market simply give up.
What is a Franchise Waste Collection Area?
Here is a compare and contrast I excerpted from Los Angeles:
Current Open-Market System
Solid waste collection services are provided through an open-market system in which each resident directly arranges for services with the hauler. Although many waste haulers are doing a good job, this system has been unable to meet demands created by changes in Federal and State laws, public attitudes toward protecting the environment, and consumers’ demands for better services and protection against excessive rate increases.
Proposed Franchise System
The new franchise system will provide residents with ways to dispose of solid waste in an environmentally-friendly way. Haulers selected to provide solid waste collection services are required to enter into a franchise agreement with the County based on specific terms and conditions. The agreements are based on services expressed by the community and are designed to improve customer service, increase accountability, promote cleaner neighborhoods, and regulate rates charged by haulers.
Benefits of Franchise System
The franchise system is designed to provide uniform service standards for haulers operating in each franchise area. The system provides each community with the flexibility needed to create services that will benefit area residents. These features are modified to reflect feedback received through survey cards, community meetings, and telephone calls. This interactive process allows the County to tailor each agreement to meet the needs voiced by each community. The franchise system also benefits the community by limiting the wear and tear on County streets, assists the County in meeting the State’s waste reduction mandate, and reduces the need for new landfills.
To me this definition is vague. Essentially franchise waste collection areas serve to reduce the number of garbage trucks driving around town and ensure a greater amount of compliance for the community.
What this means for an organization is that they have a difficult time negotiating rates because there is no competition. The rates have been determined by the local government. This is widely true, but not always. You have to make a few calls to double check.
Since most people’s idea of waste cost reduction is simply rate negotiations, you can see why they give up when confronted with a franchised market. However, waste reduction and recycling is still wide open and can provide a a big cost reduction.
Keep in mind that recycling rates are most often lower than waste disposal rates and recyling more can net you a win. Then there are other methods of reducing the frequency of pick ups that will drive down costs.
To be honest, these projects take some elbow grease and often busy managers never find the time to do their best. In short franchise markets are a great place to get a third party involved. OK, that’s a plug, but it’s the reality.
Recycling for Manufacturing
Creative recycling can go a long way towards minimizing waste disposal costs. Recently we got creative with recyling recommendations for a manufacturer. Two waste streams in particular were bulky and hard to compact.
The first was literally acres of tarps. These are the blue tarps you can buy at any home improvement or hardware store. Thing is, they were huge since they’re meant to wrap trains during transit. We sourced a local home improvement non-profit who was willing to accept the tarps and cut them down to (re)salable sizes. A win-win, but also one with strong local PR and media potential.
How to recycle tarps
The second waste stream was small spools. Purchasing sourced the material at lower cost, but the spools were not recylable nor were they returnable to the supplier. Nor was the disposal cost part of Purchasing’s math. This item made the case for a sustainable or green purchasing practices.
It's smart to source recyclable or returnable spools
What materials at your plant or shop can you recycle with just a little effort and creativity?
Keep Your Waste Disposal Costs Under Control
Keep Your Waste Disposal Costs Under Control.
By Tim Johnson
Friday, 31st August 2007
Waste management is entrenched as the least exciting aspect of the lodging industry -
Aside from the obvious unpleasantness, waste disposal is a comparatively small expense and is often thought of as, “out of sight, out of mind.”
Even so, the nascent green lodging movement has taken trash and recycling from the loading dock and parking lot and into the executive offices. There, the movement has quickly established itself as a viable way to control costs, enhance guest satisfaction and improve occupancy.
While the economic benefits of going green are straightforward, the difficulty in executing a green lodging waste initiative boils down to the fact that it can be time consuming. While there are many resources advising hotel operators what to do, there are few resources who can actually step in and do it, saving managers time and money and helping them avoid missteps along the way. Consequently, this low hanging fruit is often ignored or abandoned after a couple of false starts.
To help stay on top of waste disposal costs, you need to do the following:
Remove Automatic Renewal Language In Your Contract
Standard waste vendor contracts include language that automatically extends existing rates and terms if certain notices aren’t properly given within a stated window of opportunity. Failing to give the proper notice means you forfeit your opportunity to improve rates and terms. To combat this, immediately send your vendor notice that you are canceling this language by certified letter, return receipt.
Don’t Rely on Competitive Bidding As Your Primary Cost Control
While competitive bidding may get you a decent price, it doesn’t guarantee you the exact service that you need. Haulers will ask what you have now and bid on that. Rarely will they spend the time to conduct a customized needs analysis for you. If you have an eight-yard dumpster, but really need a four-yard dumpster, getting a good price is meaningless because you’d still pay twice as much as you should.
Periodically Monitor the Waste Industry
Ask an administrative assistant to do an Internet search periodically. If a hotel operator had searched earlier this year, he’d be forewarned that the largest companies in the waste industry, like Waste Management Inc., and Allied Waste Systems, are focusing on return on capital, much of which is coming from price increases.
Don’t Buy Into the Myth Of ‘National Purchasing Leverage’
Waste disposal pricing, and the vendor’s costs, are largely a function of the distance from a property’s dumpster to the vendor’s nearest landfill. So while “purchasing leverage” does entail some discounting, it is really a misnomer for administrative simplification, where the hotel operator leaves money on the table in exchange for time. In particular, hotel operators who work with waste brokers sacrifice transparency and control because they no longer see the actual waste and recycling vendor invoices. This gives the waste broker the opportunity to operate with, and profit from, an additional margin.
Don’t Accept Price Increases Without Question
Waste vendors prepare for a percentage of their customers to refuse their price increases using actuarial techniques. Also, the sales managers instruct their staff not to lose any business over a price hike. So the next time you’re notified of a price increase, be sure to call them up and challenge it.
Be Clear on How Waste Bans and Laws Impact Your Costs and Liability
The bulk of a standard waste hauler agreement is language that limits their liability. Your vendor will not advise you nor guide you with respect to waste recycling requirements and regulations. You alone are responsible to ensure compliance and know that your hauler may provide services that expose your organization to financial risk and other penalties simply because it’s cheaper for them to operate that way.
Capture and Recycle All Valuable Commodities
There’s big money in selling cardboard, cans and plastic, so recycling service costs should be lower than those for solid waste. Managers should verify that the lower cost structure is passed along to them, not pocketed by the hauler. If there is space for one or more recycling containers, separating recyclables from waste should be carefully considered. Composting should also be considered for larger properties. Operators can reap community service and publicity benefits by considering local options for recycling like nonprofits and small businesses.
Identify and Correct Problems With Waste Collection Equipment
At larger properties, compactors are the equipment of choice. Like everything else, they require periodic maintenance, but it’s most often up to the hotel operator to ask for a checkup. Compactors should have working, accurate pressure gauges so staff can accurately monitor capacity. If you don’t have a pressure gauge, demand one from your vendor. In either case, it’s advisable to have an independent third party verify that the compactor’s pressure limit switches meet the manufacturer’s specifications. If they are lower than spec, you’ll pay for more frequent pickups, which makes your hauler more money.
Tim Johnson is president of Madison, Wisc.-based Midas Management Consulting LLC. Midas is a cost recovery and containment firm that specializes in no risk, performance-based expense reduction services for small and mid-sized businesses. Go to Midas Management Consulting or write to timjohnson@midasmanagementconsulting.com.
