Supply chain partnerships for more efficient recycling

An interesting story from the Wall Street Journal (Tight Supplies, Tight Partners, Jan 9). Apparently it is not as easy to get your hands on good trash as it use to be. That may not sound line a bad thing — unless, of course, your business depends on recycling that trash into usable products. That is the challenge facing SCA, a Stockholm-based firm, that in the US sells hand towels, toilet paper and napkins made of recycled paper to institutions like schools and restaurants. (Their brand in the US is Tork.) The company is caught in a double whammy. On the one hand, less waste is being produced. On the other, there is increasing competition for the waste stream that is being produced from developing markets.

SCA has taken on this challenge by working more closely with recycling centers. SCA does not own the local facilities that take in collected cardboard and paper. It can, however, offer financing and advice in order to make recycling centers more efficient in processing the paper that comes back.

The company provides the recycling centers with financial backing to buy upgraded equipment and offers consultation on operations and marketing. In return, the recycling centers sell recovered fiber exclusively to SCA. (The recycling centers may sell varieties of recovered paper that SCA doesn’t need to other manufacturers.)

Last fall, SCA increased its investment in a Chicago recycling plant so that it could bring in additional equipment that compresses the paper into bales. SCA is putting together a “multicity arrangement” with other recycling centers, declining to specify where. “We’re organically growing existing partnerships and adding new ones,” says David Knight, director of fiber procurement for SCA’s Americas division, which contributes $2.1 billion of the Stockholm-based parent’s annual sales.

For SCA, close ties with recycling-center owners has meant it can encourage investment in sophisticated equipment upgrades that enable recyclers to process more “dirty” paper, or materials that are more difficult to recycle such as books, envelopes with plastic windows and paper with heavy graphics.

“With supply going down, we have to go deeper and dirtier into the waste stream to get more,” says Mr. Knight. “Forming these relationships allows us to do that.”

SCA has also worked with recycling centers in order to spur greater recycling among the center’s customers. For example, they have worked to make recycling office waste easier and thus boosted collection rates from 10% to 50%. They also stuck with their recycling center partners through the recession; when other recycling centers failed, SCA’s partners were able to pick up accounts.

This is a neat story — and it will almost certainly end up spawning some academic papers. Shortage of raw materials are currently happening all over the economy (just say “rare earth metals”). What is unique about this story is that the market for recyclable waste is still fairly young (at least in comparison to cotton and minerals). A deep-pocketed player is then in a position to really influence how things develop. An interesting side note is the extent to which other users of recycled fibers can free ride on SCA’s efforts. The article states that SCA only uses one portion of the waste stream and recycling centers can sell what SCA doesn’t want. If SCA is generally making centers more efficient, some recycled fiber users are getting a sweet deal, benefit from more efficient suppliers while SCA foots the bill.