How to convert by-products charges into profitability ?

Is the cost of external processing of your by-products getting higher and higher? Are you looking for better economic opportunities?

 

Let’s take a look at how on-site by-product recovery can create value for your company.

 

The real cost of waste

 

First of all, are you sure you know the total cost of your co-products?

 

Indeed, according to a study conducted by ADEME from 2013 to 2020, the cost of waste is largely underestimated by 90% of companies. Thus, only the expense of external management by a service provider is cited by the companies surveyed to evoke the cost of their bio-waste. However, this cost is much more important.

 

Thus, the full cost of bio-waste (co-products, by-products) includes :

 

• The cost of external services to collect and treat the residues. This is often the only cost known by the companies.

 

• The production costs of the bio-waste. Each secondary flow results from a process (purchase, storage, transformation) which costs the company without bringing value to the customer.

 

• The costs of internal management of secondary flows (handling, sorting, storage) by the company on its site.

 

Current situation : charges of by-products are included in product cost thus undermining product price

 

 

By-product costs affect product competitiveness

 

Companies generally include the cost of producing and managing by-products in the cost price of their products or services, which affects their competitiveness.

 

Let’s take the example of an Upcyclink customer case, before recovery.

 

In the case below, in the initial situation (no recovery of by-products), the material and production cost of the product is €3. The production cost of the secondary streams represents one third (loss of raw material, process, utilities) or 1 € and the overheads (structure costs, marketing, … ) are 1 €. The product is sold for 6 € with a net margin of 1 €.

 

Increased product profitability

 

 

To gain competitiveness on its product

 

The company decides to valorize internally its by-products to obtain new marketable products resulting from this valorization.

 

The cost of the by-products is therefore logically no longer allocated to the main product but to the products resulting from the valorisation. The cost of the main product is consequently clearly lower than the cost of the product before valorization.

 

Thus in our example:

 

• The cost of the material and production remains €3.

 

• The cost of co-products is now 0 €.

 

• The overheads decrease to 0,6 € (we only take into account here the overheads applied to the products and not to the bio-waste).

 

If we keep the same final selling price, the net margin on the product increases to 2.4€ instead of 1€, which is an increase of 140%. If we want to keep the same margin, we can decrease the selling price to 4,60 € and increase the competitiveness of the product to gain market shares.

 

 

Finding new growth drivers

 

By-products that are processed and valorized directly on site retain their freshness and properties. The by-products can then be transformed into marketable products with high added value, such as human food. The valorization offers a source of new revenues and markets for the company.

 

It is on these new products resulting from the valorization of by-products that the initial cost of by-products (material, production of the by-product) increased by the cost of investment in the technological solution of valorization.

 

Thus in our example the cost of co-products increases from 1 € to 1.5 €.The overheads are 0,5 € (part of the overheads applied to the by-products and their new valuations).The product resulting from the valorization is marketed in food at 3 € the Kg.

 

The net margin on this new product resulting from the valorization is thus of 1€/Kg.

 

The cost of the by-products is included in the price of the new product resulting from the recovery.

Recovering value

 

The economic interest of an internal valorization of by-products is real. Indeed, in situ recovery allows :

 

• to gain in competitiveness on its initial product ;

 

• to reinforce its net margins ;

 

• to find growth relays by marketing the products resulting from the valorization.

 

 

In our example, the economic gain is the following :

 

•  Gain on the initial product: +140% net margin

 

•  Sale of the new product resulting from the valorization: 1 € of net margin / Kg.

 

But in situ recovery does not only have economic advantages. It is also a source of environmental benefits with a reduction of the carbon footprint, in particular by limiting transport and better preserving the resource. We will talk about this in a future blog post !