Recession Economics 101
Landfills
across the country are feeling the effect of our struggling economy. While much
of the wastestream is still flowing, some components are definitely drying
up.
Based on the
current pinch points in the economy, we can generally predict the eventual
impact on waste flow. New construction projects have been stalled for some time,
and those that were already in the pipeline are winding down. So it’s no
surprise that C&D tonnages are way down.
Similarly, as
sales of durable goods and consumable products slow, less trash is generated. A
thumbnail survey of landfills across the country indicates a 10%–15% drop in
waste tonnage, with some facilities showing much wider variation.
So what does
this mean for your landfill? It means a significant drop in revenue without a
corresponding drop in expenses. We’re talking marginal revenue here.
Many of a
landfill’s costs are fixed. The cost of your liner, environmental monitoring
systems, tractors, and (to some extent) your staff, are relatively fixed. In
many cases, especially for small and midsize landfills, it’s just not possible
to make a 10%–15% cut across the board. The machines you used when handling 600
tons per day are the same ones you still need to process the 480 tons you now
receive—same cost, just less revenue.
From an
economic standpoint, decreasing revenue and static costs are not ingredients for
business stability. No question, many landfills are feeling the pressure of a
down economy. But like most other things, the economy is cyclical. Things will
change, and the economy will again build steam and start moving. Bottom line:
For many landfills, it’s just a matter of how long it will take and how to
survive until things improve.
I’d venture to
guess that Congress’s bailout solution would not be broadened to include bailing
out cash-strapped landfills. If there’s to be a bailout, you’d better figure it
out on your own. In that regard, let’s evaluate some of the options you
currently have.
Every
landfill’s budget is based on short-term and long-term expenses. In tough
economic times, managers may have to borrow against the future. The first rule
of planning for the future is surviving long enough to get there.
An example of a
short-term expense is your fuel bill. If you don’t pay your fuel supplier, you
won’t be working next month. Same concept applies to payroll, utility bills, and
so on.
Machine
maintenance is not quite as short-term, but if you start skimping on basic
services and repairs, you’ll be paying for it within a few months. In terms of
borrowing against the future, we need to focus on something that’s a bit further
out.
Postponing
machine replacement is one way to provide some short-term economic relief. In
many cases, machine replacement decisions are made a year or more in advance. In
some cases, equipment replacement funds began building when you bought your
previous machine. So what would happen if you kept that old machine for another
year or two? Perhaps it would require more repairs, maybe even an engine or
undercarriage rebuild. “Hold on,” I can already hear you saying, “in the long
run, it will be cheaper to replace that old machine.” True—but we’re focusing on
keeping our budget afloat in the short-term. I’d venture a guess that if you
decided to postpone the purchase of a new machine, you could use that money to
help support other critical areas within your budget.
When things are
good and revenues exceed expenses, there is often little incentive to cut costs.
But when the economic picture flips upside down, cutting costs is no longer an
option—it’s a survival skill.
If your
landfill is feeling the pinch of declining revenue, now is the time to step back
and re-evaluate the system. Get key players from your team involved, including
people from finance, planning, maintenance, and compliance. Don’t forget to talk
with your crewmembers. They know what’s going on and may have ideas you haven’t
considered.
Look closely at
your budget and aggressively examine every major expense, even if it’s planned
and even if it’s in the budget. Things could get worse before they get better,
and by next year that machine you just had to have could be an economic ball and
chain. The Federal Reserve has published models showing our economy improving in
2009 and 2010…but wisdom would suggest a conservative view.
A few years
ago, I had the opportunity to conduct operational reviews of 28 small, arid
landfills in Kansas. These are landfills that receive less than 20 tons of waste
per day, but they still need basic equipment to do the job. Most had loaders or
dozers for handling the waste, and several had small compactors. These operators
had many of the same responsibilities of their high-tonnage counterparts, with
significantly less revenue. In some cases, these facilities operated on a
fraction of the cost that most landfill managers would consider possible. How do
they do it? Almost without exception, they do it very well. And they do it
because they have to: Additional money is simply not available.
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So they revert
to hard work and ingenuity, requiring their machines and staff to multitask.
Every economic decision is run through the is-it-really-necessary?
gauntlet.
Every
landfill operation accumulates some fat during the good times. It may not be
intentional, but it happens. When times are tough, those areas need to be
trimmed back. If your landfill is feeling the pinch, don’t waste time
complaining about it. Step back and re-evaluate. Start with those big budget
items and work your way down. What you learn during the tough times can help you
survive today and be even more competitive in the future.
Author's Bio: Neal Bolton is a consultant specializing in
landfill operations and management.
March-April 2009
Recession Economics 101
Landfills
across the country are feeling the effect of our struggling economy. While much
of the wastestream is still flowing, some components are definitely drying
up.
Based on the
current pinch points in the economy, we can generally predict the eventual
impact on waste flow. New construction projects have been stalled for some time,
and those that were already in the pipeline are winding down. So it’s no
surprise that C&D tonnages are way down.
Similarly, as
sales of durable goods and consumable products slow, less trash is generated. A
thumbnail survey of landfills across the country indicates a 10%–15% drop in
waste tonnage, with some facilities showing much wider variation.
So what does
this mean for your landfill? It means a significant drop in revenue without a
corresponding drop in expenses. We’re talking marginal revenue here.
Many of a
landfill’s costs are fixed. The cost of your liner, environmental monitoring
systems, tractors, and (to some extent) your staff, are relatively fixed. In
many cases, especially for small and midsize landfills, it’s just not possible
to make a 10%–15% cut across the board. The machines you used when handling 600
tons per day are the same ones you still need to process the 480 tons you now
receive—same cost, just less revenue.
From an
economic standpoint, decreasing revenue and static costs are not ingredients for
business stability. No question, many landfills are feeling the pressure of a
down economy. But like most other things, the economy is cyclical. Things will
change, and the economy will again build steam and start moving. Bottom line:
For many landfills, it’s just a matter of how long it will take and how to
survive until things improve.
I’d venture to
guess that Congress’s bailout solution would not be broadened to include bailing
out cash-strapped landfills. If there’s to be a bailout, you’d better figure it
out on your own. In that regard, let’s evaluate some of the options you
currently have.
Every
landfill’s budget is based on short-term and long-term expenses. In tough
economic times, managers may have to borrow against the future. The first rule
of planning for the future is surviving long enough to get there.
An example of a
short-term expense is your fuel bill. If you don’t pay your fuel supplier, you
won’t be working next month. Same concept applies to payroll, utility bills, and
so on.
Machine
maintenance is not quite as short-term, but if you start skimping on basic
services and repairs, you’ll be paying for it within a few months. In terms of
borrowing against the future, we need to focus on something that’s a bit further
out.
Postponing
machine replacement is one way to provide some short-term economic relief. In
many cases, machine replacement decisions are made a year or more in advance. In
some cases, equipment replacement funds began building when you bought your
previous machine. So what would happen if you kept that old machine for another
year or two? Perhaps it would require more repairs, maybe even an engine or
undercarriage rebuild. “Hold on,” I can already hear you saying, “in the long
run, it will be cheaper to replace that old machine.” True—but we’re focusing on
keeping our budget afloat in the short-term. I’d venture a guess that if you
decided to postpone the purchase of a new machine, you could use that money to
help support other critical areas within your budget.
When things are
good and revenues exceed expenses, there is often little incentive to cut costs.
But when the economic picture flips upside down, cutting costs is no longer an
option—it’s a survival skill.
If your
landfill is feeling the pinch of declining revenue, now is the time to step back
and re-evaluate the system. Get key players from your team involved, including
people from finance, planning, maintenance, and compliance. Don’t forget to talk
with your crewmembers. They know what’s going on and may have ideas you haven’t
considered.
Look closely at
your budget and aggressively examine every major expense, even if it’s planned
and even if it’s in the budget. Things could get worse before they get better,
and by next year that machine you just had to have could be an economic ball and
chain. The Federal Reserve has published models showing our economy improving in
2009 and 2010…but wisdom would suggest a conservative view.
A few years
ago, I had the opportunity to conduct operational reviews of 28 small, arid
landfills in Kansas. These are landfills that receive less than 20 tons of waste
per day, but they still need basic equipment to do the job. Most had loaders or
dozers for handling the waste, and several had small compactors. These operators
had many of the same responsibilities of their high-tonnage counterparts, with
significantly less revenue. In some cases, these facilities operated on a
fraction of the cost that most landfill managers would consider possible. How do
they do it? Almost without exception, they do it very well. And they do it
because they have to: Additional money is simply not available.
So they revert
to hard work and ingenuity, requiring their machines and staff to multitask.
Every economic decision is run through the is-it-really-necessary?
gauntlet.
Every
landfill operation accumulates some fat during the good times. It may not be
intentional, but it happens. When times are tough, those areas need to be
trimmed back. If your landfill is feeling the pinch, don’t waste time
complaining about it. Step back and re-evaluate. Start with those big budget
items and work your way down. What you learn during the tough times can help you
survive today and be even more competitive in the future.