The
landfill business is, as the name implies, a business. So let’s test
your business savvy with a short quiz.
Question
No. 1 If it costs $10,000 per day to operate your 400-tpd landfill,
what is the cost per ton?
It’s $25/ton.
Just divide cost by tons. Based on that simple equation, any landfill
could calculate its cost per ton.
Question
No. 2 A local hauling company inquires about bringing an additional
100 tpd of waste into your landfill - and they want you to give them
a price. Obviously, before you can give them a price, you’ve got to
know your cost per ton. So, what is your cost per ton to handle
an additional 100 tpd?
Hint:
The answer is not $25/ton.
In order
to calculate what it would cost to add 100 tpd of waste to your landfill,
you must think in terms of marginal costs. No, marginal costs
aren’t costs based on some flaky estimate that you wrote on the margin
of your notebook. In this context, "marginal" is an economic
term.
Marginal
costs can be thought of as additional costs. For example, if your landfill’s
tonnage increased from 400 to 500 tpd, you wouldn’t need to buy more
land, build another scale, or drill more groundwater monitoring wells.
You wouldn’t need another service truck or a larger shop. There’s also
a good chance that you wouldn’t have to buy more tractors or hire more
employees. Most likely, you would benefit by being able to amortize
the cost of all these things over more tons, resulting in a decreased
cost per ton.
Yes, it’s
true that your landfill, including the lined areas, will fill up 25%
faster. And the increased workload to handle 25% more waste will translate
into a few more machine and employee hours. But in terms of overall
economics, when tonnage goes up, the cost per ton goes down.
A few years
ago I was talking to a well-to-do farmer. This fellow’s farm extended
for miles in every direction - almost as far as one could see. He explained
his success with a question: "Is it easier to make $1 million per
acre on 1 acre or $1 per acre on a million acres?" Judging by his
success, I’d say that he understood marginal costs.
Question
No. 3 Is it easier to make $1 million/ton on one ton of garbage
or $1/ton on a million tons of garbage?
$1/ton
on a million tons of garbage.
But the road
to success is not paved entirely with marginal costs. The issue of marginal
costs can hurt you if you aren’t paying close attention.
Despite Bill
Cosby’s statement that "there’s always room for Jello," there
comes a time when there just isn’t room, no way, no how. And so it is
with garbage.
While it’s
generally good (in terms of economics) to add tonnage to your landfill,
consider what would happen if you surpassed your dozer’s capability
by one ton of garbage. That’s right. That additional ton just cost you
half a million dollars for a second bulldozer. Now of course we know
that the line between the bulldozer keeping up or not keeping up isn’t
as narrow as one ton of trash. However, there is a point where one dozer
just won’t keep up.
So if you’re
out there courting more tonnage for your landfill, be sure you aren’t
flirting with disaster. Know where your trigger points are: those points
where a little extra garbage is going to require a big (additional)
capital investment.
As an example,
let’s take a look at the dozer’s cost per ton of garbage. Just in case
you’re a visual learner, the graph shows how the dozer’s cost is amortized
over various tonnages.
Like any
piece of equipment, the dozer’s cost depends upon the amount of work
it does. In this case, the work is measured in tons of garbage per day.
Suppose, for example, that a single dozer can handle a maximum of 400
tons of garbage per day (based on a fixed push distance).
Thus, when
the dozer is handling 400 tpd, its costs are spread over the maximum
number of tons it can handle and its costs are minimized. If it were
to handle only 100 tpd, however, its cost per ton would be significantly
higher.
Based on
this line of thinking, you might say, "If that’s the case, then
we should handle as much garbage as possible; that is, more tons per
hour."
However,
consider what happens when the tonnage increases just past the point
where one machine can’t keep up and a second machine is required. The
cost per ton is then "bumped" up because now you have the
cost of two dozers to amortize more than approximately 400 tpd. Then,
if the tonnage continues to increase, the cost per ton will slowly decrease
to a minimum point where both dozers are once again working at full
capacity.
The key is
that the dozer’s amortized cost (per ton) decreases as the (marginal)
tonnage increases. But once the tonnage increases beyond what one dozer
can handle - wham! - costs increase. This same pattern continues each
time another dozer is added.
This same
thing happens whenever tonnage increases require you to spend money
on what might be considered fixed costs.
These are
the two sides to marginal costs. Be sure you consider both of them before
you negotiate to receive additional garbage at your landfill. If you
don’t, your ability to manage the landfill might be considered somewhat
marginal.
Neal Bolton
is principal at Blue Ridge Services, a solid waste consulting firm in
Atascadero, CA.
MSW
Nov/Dec, 2000
|
