Procurement’s Role in Turning Waste into Revenue Streams
Spend Matters welcomes a guest post from Ian Cotter of GEP.
In today’s environmentally conscious society, the pressure is on to go green in every area of business, especially manufacturing. From government mandates and regulations to environmental responsibility and consumer pressure, manufacturing companies of every size are being called upon to show that they can be green inside and out. This means they need to reduce, reuse, and recycle within their own facility and eliminate the amount of waste product being sent to landfill.
Procurement has a role to play in helping companies achieve their green agendas, and smart procurement professionals are also devising innovative ways to turn these waste streams into revenue streams. When people think of procurement, they normally associate it with buying. However, procurement professionals also need to think of how they can maximize the returns on their company’s waste streams. This is especially relevant for food manufacturing companies. As food production has become more industrialized, food production facilities have found ways to continue to recycle massive amounts of would-be food waste. Their motives aren't purely environmental; keeping the scraps out of the landfill makes more money for food manufacturers.
An interesting fact that not a lot of people may be aware of is that the food waste from large multinational food manufacturers ends up being sold to farmers to be used as feed for their animals. The market for food production cast-offs is big enough that middlemen have started to get in the business of getting the food waste to livestock producers. These middlemen purchase the food waste directly from the food manufacturers and process it at their facility. The waste goes into a dehydrator, where a drum spins it under temperatures of about 800 degrees. It produces a sterile, dry powder loaded with proteins and carbohydrates, which is then sold directly to farmers to be used as animal feed.
This is an innovative solution that benefits all parties. Repurposing saves thousands of tons from going into landfills every year, and it also provides farmers with a nutritional food source for their animals, which is more cost-efficient compared to corn, especially when the price of corn skyrocketed back in 2012.
Innovative procurement professionals negotiate these contracts to be a certain percentage of the corn or oat index, for example, so as the market moves, the value of the animal feed moves as well. That means when corn prices go up, so does the price for those batches of potato chips, oatmeal, and cookies that didn’t meet the grade. The animal feed isn't cheap, but it's usually about 70 or 80 percent of the price of corn, which can make a substantial difference to a farmer, especially when the price of corn is inflated. These are some examples of how procurement can help companies with their environmental goals while also generating an additional revenue stream. This truly is trash into cash.
For more interesting thinking on procurement, visit the GEP Knowledge Bank.