Every manufacturing process leaves undesirable collateral output that does not add value to a product described as waste. In early pre-industrial times, waste was mainly composed of ash from fires, wood, bones, bodies and vegetable waste (History of Solid Waste Management, n.d.). It was disposed of in the ground where it would act as compost and help to improve the soil. People didn't understand garbage was a threat until urban populations boomed (History of Solid Waste Management, n.d.). It. Today, waste management technologies continue to evolve and improve dramatically. For this reason, firms face a lot of pressure to improve the bottom line and increase awareness on the environmental impact of waste. This has lead firms to innovate new ways to manage its waste stream. This paper will present research found on how firms can generate and keep value by turning waste into useful and profitable by-product, while also benefiting the environment.
The process of turning waste stream from one production into a new product is commonly referred to as by-product synergy (BPS). This is not a new concept, in agriculture cast-off corn husks are converted to animal feed, animal waste is converted to fertilizer, and discarded cow parts are converted into leather and jet engine lubricant. However, the concept of BPS in the industrial field was introduced in the late 20th century. By definition, BPS is the “matching of under-valued waste or by-product streams from one facility with potential users at another facility to create new revenues or savings with potential social and environmental benefits” (What is by-product synergy?, 2011). As the saying goes, "one man's trash is another man's treasure," which is exactly the case for by-product synergy. However, the waste of one facility may not only be useful to another facility but also to the facility itself, turning their own trash into their own treasure.
II. BENEFITS OF USING BPS
Implementing BPS has proven to be beneficial for the environment, the economy and the community. This research covers some of its benefits including; creating new revenues, cost savings, energy savings, reducing environmental damage, and gaining potential trade opportunities. The BPS process helps break communications between industries, as well as the barriers between government and industries and between small and large companies, by promoting dialogue and working across groups to identify supply chain localization and waste minimization opportunities. Michael Gromacki, VP Operations & Chief Sustainability Officer of Dixie Chemical Company said, “with raw materials prices escalating as rapidly as they are, by-product synergy is a practical survival strategy for the years to come. In the US, manufacturers devalue millions of dollars of inventory each year, even the leanest manufacturing process does not eliminate the problems of yield loss or occasional off-specification product. Instead of total loss and disposal of these resources, by-product synergy solutions can identify new uses and can naturally lead to business savings in the six figure range or more.” (What is by-product synergy?, 2011).
Cost Saving
Waste could be dirty, hazardous and expensive to dispose of and for many years manufactures viewed waste disposal as a cost burden. In the simplest analysis, productively using waste instead of trashing it can cut costs by reducing disposal fees. Some companies have taken that a step further by opening up additional revenue streams through by-product sales. Deishin Lee, an assistant professor in the Technology and Operations Management unit at Harvard Business School, developed a model with three scenarios based on the relative value of the original product, the by-product, cost of waste disposal, and cost of raw materials. In the first scenario, where the by-product is of low value, a company might maximize profit by only turning some of the waste into a new by-product, while still disposing of some of it through traditional means. In the second scenario, as the value of the by-product increases, it might make more sense to actually increase the production of your primary product in order to increase more "waste." In that case, even though profits might fall for your primary product as the market becomes saturated, the increased profits from the secondary product would more than compensate for the loss.
In addition, the production of more waste might have other beneficial consequences as well. One case study Lee examined is a manufacturer called Cook Composites and Polymers Co., which produces gel coats for high-end yachts. One of the wastes produced in the manufacturing process is styrene, a chemical used to clean molds between batches, which can also be used to make coating for concrete. Productively using the styrene waste stream gave the company more degrees of freedom to optimize the now joint production process, creating a win-win situation.
The third scenario Lee considered is where the by-product becomes more profitable than the original product. In that case, an industrial manufacturer might deal with the problem by sourcing virgin material to create more of the secondary product. Not only does the company reduce costs for the original product by cutting down on waste, but it also gains competitive advantage over other companies for the secondary product that are limited to sourcing virgin material.
Energy Savings & Reducing Environmental Damage
Cutting cost and achieving financial objectives are not the only benefits of adopting BPS. Past research focused on environmental sustainability, examining how companies could minimize their impact on the environment. Recycling has been a common practice for most of human history, with recorded advocates as far back as Plato in 400 BC (History of Solid Waste Management, n.d.). During periods when resources were scarce, archaeological studies of ancient waste dumps show less household waste such as ash, broken tools and pottery, implying more waste was being recycled in the absence of new material (History of Solid Waste Management, n.d.). This is the same concept BPS implements; recycling or upcycling what one firm might consider as waste to create by-product that another firm can use. Using BPS will help conserve energy, reduce waste from landfills, and reduce toxic emission. Realizing what you can recycle from your waste materials, separating these materials to as high a spec as possible, and finding a buyer are three key steps to gaining maximum value from a successful recycling revenue system;
Results and Examples
The greatest returns however are only realized when a company widens its scope to think strategically to consider it as a joint production process. It’s hard to imagine how anyone could get excited about slag, a by-product of the steel-making process. For many years steel companies simply viewed slag disposal as a cost burden. However, when managers of Chaparral Steel, a steel manufacturer, got together with their counterparts at Texas Industries Inc., a cement plant, they came up with a surprising discovery. They discovered that steel slag could be converted into a valuable raw material for cement production. Together, they developed a patented process that uses steel slag in a cement kiln to create high-quality cement. The partnership has increased profits for both companies, cut energy usage, and reduced greenhouse-gas emissions. More successful synergies are shown in the table below retrieved from U.S. Department of Energy. As the numbers indicate, BPS presents a large opportunity for reducing raw material consumption, energy use, emissions, and waste generation, while also decreasing costs.
- A major US chemical company identifies synergies between six of its own plants with an estimated annual cost savings of $15 million and total annual energy savings of 900 billion BTU.
- A fiberglass manufacturer connects with a firm that will use its 500 tons/year of off-spec material as well as discovering soy polymers and chicken feathers as more benign and less expensive raw materials.
- A brick manufacturer uses incinerated cow bone ash from meat processing plants, industrial ash, and water treatment residue to create a new product line of recycled “eco-bricks,” diverting 16,000 tons of waste from landfills each year.
Many companies are now launching programs to help businesses collaborate and find new ways to transform waste into more profitable and innovative uses. They support these forward-thinking companies that are motivated to adopt a sustainable approach by helping them generate valuable information to improve their resourcefulness and enhance their competitive edge. TerraCycle is an example of a company which helps turn the world’s waste into new products. It collects non-recyclable waste, some straight from manufacturers and some from schools, charities and other community groups, and it partners with other manufacturers to recycle or “upcycle” that material into new products. It has created plastic lumber from juice pouches and shower curtains from sewn-together granola wrappers.
Eventually all products become waste. Some, like soda bottles, are recyclable but most are not. Major corporations ranging from Kraft Foods to Colgate-Palmolive work with companies like TerraCycle to create solutions for waste that is currently not recyclable such as toothpaste tubes and cookie wrappers.
There are also companies who collect post-industrial waste such as excess packaging, misprints, etc. directly from these corporations. Once the waste is collected, companies such as TerraCycle then work with major manufacturing companies to produce products from the collected waste. To accomplish this, science teams develops a range of materials from each type of waste and then its products team works with the manufacturer to turn the material into something that can be sold. The idea is to lessen the need for virgin materials and render previously non-recyclable items recyclable. The resulting products are then sold at major retailers like Wal-Mart and Target.
There are other companies such as iTrading that work openly with its customers in all parts of this process. Rather than just offering a price for recycled materials, they educate companies about what can and cannot be recycled, work with them to get the best value from their waste and identify all possible revenue streams.
These companies compete and never miss an opportunity to turn waste into something useful. They take a material’s specs and go around different industries and buyers to find a market for it. Jeremy Kay, owner of iTrading said, “There is a vast untapped market out there. What many people don’t realize is the range of materials that can be recycled. For example, plastics go from Grade 1 such as coke and water bottles to Grade 7 such as car bumpers and compact discs.” (Beard, n.d.)
So if a company is interested in the BPS process of reducing costs, becoming greener, and capturing all potential revenue streams, they should start by asking the following questions: what do we throw away, what’s it costing us, and could it be recycled? If they don’t know the answer to some of these questions, there are companies that specialize in that.
II. LIMITATIONS
There a lot of businesses that know they should be recycling, however get too preoccupied with their core business. Many also don’t realize that much of their waste could be turned into revenue rather than being a cost. In order to take advantage of those kinds of savings and the potential profits of by-product synergy, a company must broaden its focus beyond a market-driven managerial approach that only takes it cues from what customers want, and also look at what the company is well-positioned to produce. "If you look at everything as market-driven, it's very unlikely you'll get to operational synergies that fully leverage natural resources and capabilities within the firm. You need to ask what are your resources (raw material, labor, and capital), and how can we organize to maximize the value we create? Merging this with the market perspective can then be very powerful." (Lee, 2011).
A second limitation is government regulations that dictate how businesses must dispose of waste. Such rules can discourage companies from seeking creative alternatives and inhibit technological breakthroughs. The Environmental Protection Agency regulates how hazardous wastes must be disposed of. It is unclear if a given BPS implementation involving hazardous waste would adhere to the existing regulations. If regulators want to promote productive use of waste streams, there will have to be a careful balance between encouraging BPS innovation that is good for business and the environment, and curtailing illegal waste disposal disguised as by-product sales.
Although BPS is generally viewed as having a positive impact on the environment, careful analysis shows that this is not always the case. The focus here is on the impact on emissions when a firm implements BPS rather than the environmental impact of waste disposal in landfill. Carbon emissions are a result of the use of new materials with a carbon generating extraction/production stream. Two environmental benefits of BPS that are often highlighted are: 1) less waste incineration, and 2) the by-product replaces competing products in market that are produced in a manner that is worse for the environment. For example, the displaced products use virgin raw material that creates emissions during the extraction process.
Finally, using the waste stream to make new products doesn't always create such serendipitous scenarios. A classic example is chicken wings. Years ago, wings were thought of as waste, processed into any manner of lesser quality chicken products. When buffalo wings began appearing at every football game tailgate party, however, wings suddenly became a hot commodity. Since BPS implies a proportional quantity relationship between products, it becomes more complicated to manage production. Should the demand for breast meat be driving the production of chicken, or should it be the wings? (Lee, 2011).
III. CONCLUSION
From shifting from a dispose mentality to a reuse mentality we can possibly eliminate the concept waste from industrial supply chains. This research shows that companies who adopt sustainable practices can realize bottom-line benefits in operating revenue and cost avoidance. They can also benefit the environment through reduced resource use, reduced carbon emissions, reduced waste to landfill and reduced processing and disposal costs of hazardous materials. BPS helps the creation of new innovations in the manufacturing industries. Companies large and small have much to gain from finding new uses for their consumables. By-Product synergy is a targeted approach to creating these collaborative relationships. In conclusion, the double benefit of recycling waste materials is a far better solution than choking the earth with land-fill sites. And if your trash turns out to be someone else's treasure, well, then so much the better.
What is By-Product Synergy? . (n.d.). By-Product Synergy Hub. Retrieved April 30, 2013, from http://bps-hub.org/2011/08/09/what-is-bps/
What is By-Product Synergy is an article that explains the definition of By-Product Synergy and gives examples of different companies who have implemented BPS.
Beard, C. (n.d.). ManufacturingNZ - Turning waste into wealth. ManufacturingNZ - Home. Retrieved April 29, 2013, from http://www.manufacturingnz.org.nz/resources-and-tools/lean-manufacturing/lean-manufacturing-resources/turning-waste-into-wealth
Turning wste into wealth is an article written by C. Beard. It talks about a company called iTrading iInternation owned by Jeremy Kay who helps many firms realize that much of what they are disposing of as ‘waste’, is actually a tradable commodity, capable of providing an ongoing revenue stream for their company whilst also improving their green credentials.
Blanding, M. (2011, October 3). Transforming Manufacturing Waste into Profit. HBS Working Knowledge - Faculty Research at Harvard Business School. Retrieved April 29, 2013, from http://hbswk.hbs.edu/item/6800.html
Transforming Manufacturing waste into product written by M. Blanding is an article that discusses the in depth research of Deishin Lee, an assistant professor in the Technology and Operations Management unit at Harvard Business School, on by-product synergy.
By-Product Synergy Supports Sustainable Development. (n.d.). U.S. Department of Energy: Energy Efficiency and Renewable Energy. Retrieved April 30, 2013, from texasiof.ceer.utexas.edu/texasshowcase/pdfs/casestudies/cs_dow_bps.pdf
The US department of energy explains the different benefits companies encounter after implementing BPS. It gives a chart of the benefits company encounters that help save energy and cut cost.
History of Solid Waste Management. (n.d.). Environmentalists Everyday - Green Waste Disposal, Landfills, Green Energy. Retrieved April 30, 2013, from http://www.environmentalistseveryday.org/publications-solid-waste-industry-research/information/history-of-solid-waste-management/index.php
History of Solid Waste Management is an article on the history of waste. It gives specific dates and how they dealt with waste during that time.
Kennedy, T. (n.d.). New Program to Transform Waste into Profit | peoriamagazines.com. peoriamagazines.com | powered by CIBP. Retrieved April 29, 2013, from http://www.peoriamagazines.com/ibi/2008/nov/new-program-transform-waste-profit
T. Kennedy talks about IMEC, a company that is launching a program to help Peoria businesses collaborate and find new ways to transform waste into more profitable and innovative uses.
Lee, D. (2011, July 29). Turning Waste into By-Product. Social Science Research Network (SSRN) Home Page. Retrieved May 1, 2013, from http://ssrn.com/abstract=1337751
Deishin Lee is an assistant professor in the Technology and Operations Management unit at Harvard Business School. Her research paper describes in-depth the different benefits of implementing BPS while also describing some of the limitations she found during her research.
Szaky, T. (2011, April 6). Introducing Sustainable Profits: Turning Waste Into Profit - NYTimes.com. Small Business Blog - You're the Boss Blog - NYTimes.com. Retrieved April 29, 2013, from http://boss.blogs.nytimes.com/2011/04/06/introducing-green-money-turning-waste-into-profit/
Introducing Sustainable Profits: Turning Waste Into Profit by T. Szaky is an article on TerryCycle, a company that helps other companies implement by-product synergy.
Turning manufacturing waste into profit | Green Pages (Australian Edition). (2012, February 15). Green Pages (Australian Edition) | The hub of sustainability: Connect, explore, change the world. Retrieved April 29, 2013, from http://www.thegreenpages.com.au/events/turning-manufacturing-waste-into-profit/
Turning manufacturing waste into profit is an article on the first QWESTNet forum for 2012 will be the Turning Manufacturing Waste into Profit. It talks about opportunity for businesses to find out how bottom-line savings can be achieved through sustainable manufacturing processes and technologies.