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The Art of Transforming Waste into Profit

7067719845_66d873de51Here’s a little different tactic from the usual idea of reducing or eliminating wastes in a manufacturing process. How about gathering the waste from the other steps in a manufacturing process and using it to make a new product?

Many manufacturing firms are at a loss as what to do with by-product waste. This idea of transforming wastes is to take the waste stream from one production process and using it to make a new product. Think about it; the productivity from using wastes as opposed to throwing it out can cut costs of disposal fees and the possibility of new revenue streams with by-product sales. For some companies and in some cases increasing profits may mean creating more waste.

If the firm is entertaining this concept there are several questions that need to be asked. They are the following:

  1. What are your resources?
  2. How can we organize to maximize the value we created?

In the past this idea was primarily used in agriculture, where cast off corn husks are converted to animal feed. There is another agricultural use but for the sake of decorum I’ll pass on mentioning it here.

However, there is a way to transfer that idea to modern manufacturing facilities. Every manufacturing process creates a product. There are other outputs, traditionally called waste disposal. With any new concept an adjustment to how we think is required.

Companies have to stop thinking of themselves as a creator of a particular product or products but instead re-focus onto the resources at your fingertips and how you can use them to produce as much value as possible.

Example: Chaparral Steel

A manufacturer of recycled steel. In a partnership with a cement manufacturer called Texas Industries they used the steel slag waste stream to produce Portland cement. This challenged the company to think like a company with resources and how best to use them.

Now comes the cost model with three possible situations. These situations are all based upon the value of the original product, the by-product, cost of waste disposal and cost of raw materials.

1. By-product is of low Value:

Company can maximize their profit by only turning a portion of the waste into a new by-product and still dispose some of it through traditional methods.

2. By-product value increases:

It might make sense to increase the production of original product to produce more waste. Despite the fact that profits may fall for the primary item the increased profits from the secondary product would more than compensate for the decrease.

  1. Styrene – is a chemical waste but used to clean molds between batches and used to make coating for concrete. The production of this waste allowed the company to increase revenue stream.
  2. Chicken wings – was not that long ago that these were discarded or processed into lesser quality chicken products. But a phenomenon happened: chicken wings started turning up at football tailgate parties and quickly became a demand item.

3. The by-product becomes more profitable than the original:

Source brand new material to create more of the secondary product. The company reduces costs on the original product but it gains advantage over other companies for the ‘new secondary product.

The only drawback for this method and its situations is the environment. There is always the possibility that as you create demand and value for the new product emissions might increase. But that is a situation that is difficult to gauge. Will it be better to have carbon in the air or toxic waste in a landfill?

In order for a company to take advantage of the model and the three situations it must widen its focus past a market driven management approach that only concentrates on customer needs. In addition, the company should look at what it is well positioned to make.

If all a company sees is market-driven, it is very unlikely the company will adapt these by-product situations to leverage resources and capabilities internally. Again, you need to ask what are your resources and how can we organize them maximize the value. Inclusion of these questions with a new marketing perspective can lead to powerful opportunities.

Someone else trash is someone else’s treasure.

About Stuart Rosenberg

Stuart Rosenberg has a regional reputation as a subject matter expert and published author in Supply Chain Management and Lean Six Sigma disciplines. He has outstanding knowledge of all inventory control functions in both manufacturing and distribution environments, and grasp of all data involved with all inventory systems, cost analysis and product evaluations. Stuart has initiated, managed and oversaw all inventory control environments and situations, with direct supervision of various warehouse locations, to certify continuous accuracy, reliability and integrity of companies inventory operational and financial data. He has influenced, counseled, and directed major revisions to enhance companies operational efficiencies. You can read more about Stuart on his blog and find him on Linkedin here. Stuart also has several thought leadership papers available on Flevy (srosenbe7).

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