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Business Sustainability: A cleaner production approach to small business management

Student Manual

Environment Australia
October 2000
ISBN 0642547149


Business Sustainability: Session 2 - Awareness and Wastage

OVERVIEW
Objective of this session

To give an understanding of the many forms of waste in a business and the high cost of waste to the business

The following topics will be covered in this session
Introduction
Cost of Waste
Awareness of Waste

Introduction

Long-term Business Sustainability

A competent manager understands the processes used in his/her business, and manages the required resources so that sales and profits are maximised, and the future prospects for the business are enhanced. This applies whether the business manufactures products or provides a service.

In the competitive marketplace, business survival depends increasingly on reducing costs. Efficiency in every aspect of business must be maximised for the business to prosper into the future. Trends in rejected products, customer complaints, labour costs and material usage are continually monitored and efficiencies in these areas are universally recognised as worthwhile objectives.

But what about waste? Very few managers of businesses (large or small) monitor wastage in their business. Nor do they work systematically to identify or reduce this wastage as a means of reducing costs.

Definition

Waste comprises all process inputs not incorporated into the product, and all process outputs that are not saleable. Wastes include materials (solids, liquids and gases) and energy. (Waste also extends to labour and production capacity, but these are not considered in this course).

Two Types of Waste

Waste can be categorised into two types:

Each is described below.

Process-inherent Waste

Process-inherent waste is required excess energy or material that is necessary in a process but does not form part of the final product. Process-inherent wastes may be reduced, but cannot be eliminated by process improvement.

Example of Process-inherent Waste

An example of process-inherent waste is the solvent content of paint. When a metal component is spray-painted, the solvents must be applied as part of the paint, and then allowed to evaporate during drying and curing. The solvents therefore are waste because they do not form part of the final product. However, they are necessary materials in the process of spray-painting.

By comparison, powder coating is a process in which the protective film is applied as a powder, to be cured by baking in an oven. Powder coating can be regarded as a painting process from which a process-inherent waste material (solvent) has been eliminated. Note, however, that solvent is eliminated by changing the process, not by improving the excisting process.

Incidental Waste

Incidental wastes are simply all wastes that are not process-inherent. An incidental waste is wastage which occurs while a process is carried out, but is not necessary in that process. Incidental wastes can be reduced and (theoretically) eliminated by process improvement.

Example of Incidental Waste

Staying with the painting example, over-spray of paint onto the walls of a spray booth is an example of incidental waste. Over-spray is not necessary for the spraying process but is an undesirable consequence of it, and should be minimised as far as possible by optimising the spraying process.

Full Cost of Waste

All wastes have had value added to them by production processes (eg. transport, storage, handling, heating, and partial processing costs). The full cost of waste is therefore not only the initial purchase cost and the cost of disposal, but also the cost of this added value. It is important in understanding the full cost of wastes to know how much value has been added to them prior to disposal.

Monitoring Levels of Waste

In most businesses, waste is rarely quantified by comparing quantities of materials produced with quantities of raw materials used. Nor are wastes segregated into process-inherent wastes and incidental wastes. Most businesses consider waste as unavoidable and therefore not worth the effort of measuring or monitoring.

For the same reason, records of energy purchases (electricity, gas or liquid fuel) are rarely compared with production records to identify process variations (which are often indicative of waste).

Most business managers therefore do not have the data necessary to improve profitability by reducing waste levels. The cleaner production assessment gives them that data.

Cost of Waste

Class Activity

Objective: to think about the various types of waste, and the cost to the business of that waste.

Brainstorm types of waste in a small manufacturing business. Discuss the costs involved in the types of waste identified.

The following "rules for brainstorming" are given to assist you in this and other similar activities:

Iceberg Model

The following diagram shows some of the sources of waste that may be identified in the previous exercise. The wastes are shown as an iceberg with the bulk of waste costs being invisible to the business manager.

Iceberg Model diagram

Figure 2.1 Iceberg Model Showing the Hidden Cost of Waste

Value-added Cost of Waste

The full cost to a business of the waste it produces is therefore the original purchase costs, the disposal costs, plus the value added to the waste material by the business. When wastes are produced, they "soak up" a proportion of the value of all the processes through which they have passed.

The higher the value added to wastes, the greater the cost to the business (direct loss of profit). More often than not, the total cost of wasted material far exceeds the purchase cost of the original material and the disposal costs.

As an example, consider the relative cost of the wastage of hot water compared with cold water. The purchase cost of the water and the trade waste disposal cost is minuscule compared with the cost of the fuel, labour and equipment used to heat the water, and sometimes even the cost of cooling the water before discharge.

Awareness of waste

Most Waste Costs are Unknown

The true cost of waste is very rarely accounted for by management or financial assessments and reviews.

For most businesses:

The Bottom Line

Despite its importance to the bottom line, the cost of waste is generally ignored. This is because the importance of waste to the business' bottom line is generally not recognised.

The Solution

One way to both raise awareness of waste and to reduce it in a business is to incorporate cleaner production into business strategy. Controls on waste and process efficiency improvements are not extra costs, but rather generators of extra profit.