November 9th, 2012
Although the data is thin and somewhat contradictory, it looks as though there’s plenty of room for improvement in the recycling performance of smaller SMEs. But those who want to support increased recycling need to understand how the market-driven commercial waste collection sector works.
It isn’t difficult to see what drives trade waste collection costs: disposal makes up perhaps a third, and then there are vehicles, fuel, staff costs, administration – and of course a profit margin. With a good business model, good procurement methods and efficient working practices, a waste collector can knock a few percent off here and there, but they can’t deliver a step change in the end price to customers.
So if you’re a business shopping around for the best deal on waste collection, there will only be scope to make major savings if you’re starting out with a pretty bad deal. The real costs for any collector of visiting your premises and disposing of your waste will be much the same.
For a while now I’ve thought that one way to really change the game is through collaborative procurement. One key factor that determines how much it costs to collect from each customer is how closely spaced they are. The smaller the distance that must be travelled between collections, the better the ratio between productive time (spent actually emptying bins) and unproductive time (spent travelling between collections). So if you want to collect economically, the ideal thing is to have a lot of customers densely packed.
Instead what we see is a high level of competition between providers jostling for business in any given area. That leads to each getting only a small proportion of the total available customers which means that their customers are more widely spaced and that the costs of providing the service, including crucially the recycling element of the service, are higher. Oddly, competition leads to higher prices.
Individually, each business can do very little to influence collection density. Collectively, however, a group of business in a town centre or on an industrial or trading estate may be able to achieve a saving, by all buying their waste collections from the same supplier. At the same time, they’ll achieve a lot of other benefits:
- Fewer waste vehicles will need to visit the area, reducing traffic, pollution and accident risk;
- Waste can be presented and cleared at one time, so the streets and business environment are cleaner;
- Waste services can be offered in streams that might otherwise be uneconomic to collect (e.g. food waste)
- Greater scope to offer services such as waste minimisation and recycling training and advice.
Collaborative procurement isn’t a new idea. It was strongly supported when Eunomia ran stakeholder workshops for WRAP on factors that could help SMEs to recycle more. It has been promoted in the Mayor of London’s Business Waste Strategy, and was advocated in research work by the University of Brighton. The big problem is how to make it happen – who can co-ordinate collaboration between tens or even hundreds of businesses to get them to all buy from the same supplier?
Collectors seem powerless to effect such a change: local authorities are perhaps the best placed, and can achieve quite high collection densities in their trade waste services. They have the advantage of being focused on a relatively small area, and are often the “default” option for small businesses. They can indirectly enhance these advantages if they introduce measures such as time banding, which makes it more difficult for competitors who have longer journey times to offer a reliable service. But, rightly, they can’t impose exclusivity, and none has sought to organise local businesses to buy collectively. Perhaps most critically, within a competitive market few authorities price aggressively enough to drive home their advantage.
BID to make savings
The leaders in the field of collaborative procurement have so far been Business Improvement Districts (BIDs). A BID is a business-led and business funded body formed to improve a defined commercial area. It can only be formed when a majority of local businesses vote for it. Once established, it is funded through the “BID levy”, which is a small percentage of a businesses’ rateable value, typically 1%. The levy is collected by the local council alongside the business rates, but the BID is a separate organisation.
BIDs are well placed to offer significant saving. They bring together businesses in a relatively small area, and this potentially gives them major bargaining power. Perhaps that’s why the trail has been blazed by BIDs in Paddington, Bankside, Camden and London Bridge – each of these areas has introduced free or low cost recycling for its members. But InMidTown (Holborn) is one of very few that offers an integrated solution that also tackles refuse collection, although I understand this requires a subscription and that free recycling is available only if you use the residual waste service.
My sense is that an even better deal could be achieved with more savvy procurement and stronger take-up. Paddington BID, for example, has 181 of its 350 levy payers participating in the free recycling collection it funds – only just over half. The economies of density would be even greater if more businesses participated. So why wouldn’t businesses make use of a golden opportunity to save money with minimal effort? There are a number of possible obstacles:
- Divergent service requirements. More uniform services will have lower costs but may not suit all collaborators
- Space for containment. Attempts to increase recycling may be hindered if some businesses lack space for bins for separated material streams.
- Contractual commitments. Businesses with multiple outlets typically let group service contracts; other businesses may have entered long term contracts that prevent them from joining a collaborative procurement straight away.
Overcoming these issues to achieve the best possible results from collaborative procurement will require a co-ordinating body with energy, commitment and understanding, but it is far from impossible for collaborative procurement to offer businesses savings on an even greater scale than BIDs have already achieved.
In an attempt to demonstrate how it might be done, I’m currently working with the Bath BID to procure a service for the 620 city-centre businesses which they represent. The process is on-going and I don’t want to pre-judge the outcome, but I’m hopeful we’ll be able to show how it’s possible to deliver a step-change in business recycling performance at the same time as cutting the costs of service. A real win-win.