Waste Management and the Waste Industry - Essay Example

WASTE MANAGEMENT - FIRM ANALYSIS (Waste Management Inc Waste Management and the Waste Industry Waste management plays a vital role in urban infrastructure as it guarantees the preservation of the environment and protection of human health. Embracing fundamental concerns such as technical, environmental and even political problems, waste management is closely associated with issues like urban lifestyles, resource consumption patterns, jobs and income levels and other rudiments with social, economic and cultural significance. For quite some time now, it has been viewed as an imperative element in global environment protection and regarded as an interface between the production, distribution and consumption of goods on the one hand, and soil, groundwater, air and climate on the other. Hence, it is an essential collaborator in the perspective of sustainable development. In the current scenario, industrialized nations are busy enhancing their regulatory frameworks and waste management infrastructure. As it is, the industry deals with extensively rising environmental and legal standards, best practices and the need for greater efficiency, quality management and occupational health aspects. Apparently, with the diversity and intricacy of products and accordingly of wastes, byproducts, and residues, there is no single solution to the waste treatment demands of today. A suitable combination of technologies is necessary in order to meet and respond to the many technical, ecological and economic requirements of integrated waste management on a regional level. As long as industry and consumers produce waste, an infrastructure is needed for their proper treatment and detoxification and for the secure and continuing disposal of residues (Hunt, 1990). The idea of producer’s responsibility was realized by swinging or reallocating the financial burden for the appropriate treatment or recycling of end-of-life products to manufacturers. This move established a new line of communication between the environmental sector and the manufacturing segments of society. In this scheme, waste managers convey information concerning designs for recycling and the design for disposal upstream to producers and manufacturers, thereby advocating the cause of the environment’s capacities and environmental constraints (Deyle, 1990). Today, the waste management industry is highly conscious and responsive of the significance of social aspects. These include, among others, the siting of facilities and introduction of novel collection schemes, educating consumers, training workers and staff, establishing and promoting business, fostering business relations and international dialogue and many more. Since the waste management sector nowadays has a broader reach, better opportunities, increased potential and a sense of growing responsibility, it needs to generate trust in its management methodologies, business slants and technical operations. Trust as a long-term commitment, will be backed up with high standards, lucidity and precision, documentation and a sincere and straightforward strategy to block and fight offenders. Description of the Industry Over the years, the waste industry has expanded into three principal clusters depending on the type of waste dealt with: (1) municipal solid waste - this group includes commercial and institutional wastes; (2) industrial waste - industry-specific waste depending upon the industrial activity concerned; and (3) hazardous waste. In developing countries there is usually no distinction made between the different sources of waste; it is simply all mixed. Healthcare waste is a small, but highly significant waste stream with a highly rated perception of risk. It contains a wide range of hazardous materials, as well as infectious materials. In this area, there is a strong potential for improvement in all countries concerning waste prevention, segregation and recycling (Mclaren, Soemantojo & Dooley, 1994). This is especially true in developing nations where there is a dearth of distinctive management and an urgent need for training and support programs. Figure 1 shows the 1960-1999 waste generation rates in the U.S. alone while Figure 2 displays the country’s total generation of wastes as of 1999. Issues and Challenges In addition to traditional areas of environmental concern - odor, noise, traffic, ground contamination, etc. - concerns with greenhouse gases will mount. International conventions and commitments, mirrored by domestic regulations will drive many of the environmental pressures that will come in the future. Likewise, conventional waste collection, transport and disposal services will remain an essential part of the services and skills required of the industry, but with an increasing demand for higher standards of performance. In parallel with these traditional skills and services, new technologies, services and practices will be demanded and will emerge. In addition, the mix of traditional and emerging technologies and services must be managed, and there will be growing pressure for the delivery of integrated waste management solutions. Further, with waste reduction initiatives and higher levels of resource recovery, the nature of residuals for disposal will change continuously. This will require matching changes in the technologies and processes employed to manage those residuals. The pressures on handling facilities will increase rather than decrease and the industry will be called upon for increasing levels of sophistication and high performance outcomes. The industry is also responding to community pressures and companies and industry sectors are progressively taking up the principles of extended product responsibility or product stewardship. Suppliers will be called upon to improve their services and products, and consumers will be required to participate in the recovery of products. Many of these activities will lie outside of the core business areas for the product manufacturers and many of the activities will overlap with current functions and activities of the waste management sector. There will be a growing need for service providers to address resource management from pre-manufacture through reintroduction of the resources into the productive economy after each use. The use of tradable rights is another tool of regulation which will impact on the waste management sector. In the management of greenhouse gas obligations, carbon credits will become a force for the waste sector to manage, and the possible advent of landfill disposal airspace rights could create a secondary market for rights trading. Finally, in the provision of infrastructure such as transfer stations, materials recovery facilities, processing plants and landfills, progressive governments are commissioning private sector capital to finance and operate these facilities, and requiring higher levels of planning, community relations management and overall facility management on the part of the private sector. WASTE MANAGEMENT INC. The Company The leading provider of comprehensive waste and environmental services in North America, Waste Management Inc. is intensely dedicated to achieving an establishment based on financial strength, operating excellence and superior customer service. Waste Management Inc. customizes its services to respond to the needs of each customer group and ascertain an unswerving, commendable service at the local level. With headquarters in Houston, the company’s network of operations includes 413 collection operations, 370 transfer stations, 283 active landfill disposal sites, 17 waste-to-energy plants, 131 recycling plants and 95 beneficial-use landfill gas projects. These assets allow the company to offer a full range of environmental services to 21 million residential, industrial, municipal and commercial customers. Deriving its strength and capabilities from its resources and experience, Waste Management works to make a positive difference for the environment and the communities it serves. The firm recovers and processes methane gas, naturally produced in landfills, into an energy source for generating power. It currently supplies enough landfill gas to create more than 250 megawatts of green energy—enough to power 225,000 homes, replacing over 2 million barrels of oil per year. Its subsidiary, Wheelabrator Technologies Inc., converts municipal solid waste to energy by burning, saving more than 6 million barrels of oil and generating enough clean, renewable energy to power 600,000 homes each year. The firm also reduces pollutants equivalent to taking more than 28,000 cars off the roads by using natural gas in place of diesel in nearly 500 trucks and installing new pollution control devices on nearly 800 trucks. It has taken a leadership role in promoting the recycling and reuse of materials that would otherwise end up in landfills. Likewise, in collaboration with its wholly owned subsidiary WM Recycle America, and North America’s largest recycler, it processes 5.8 million tons of commodities each year, saving more than 41 million trees and enough energy to power 600,000 homes annually. More than that, Waste Management teams up with communities, government and industries to develop and reuse land at both active and closed landfill sites into recreational and commercial facilities such as parks, athletic fields, campgrounds and golf courses. Across North America, WMI works with environmental groups to set aside land to create and manage wetlands and wildlife habitats. Its landfills provide more than 16,000 acres of protected land for wildlife, of which, 15 of the landfills are certified by the Wildlife Habitat Council. On top of it all, Waste Management Inc. helped found the Chicago Climate Exchange, an organization established to provide a voluntary marketplace for reducing greenhouse gas emissions and trading credits earned from those reductions (Waste Management Inc., 2005). Current Business Strategies Even with just a perfunctory appraisal of the company’s physical assets, strengths and position in the waste industry, anyone can easily figure out that the firm, through its overall business strategies, is doing well and is continuously growing, leaving its competition behind by leaps and bounds. Primarily, the firm has focused all efforts on achieving operational excellence and profitability rather than on revenue growth. To reach this goal, WMI has persistently reviewed its operations and identified its best practices, adopted these best practices as the standard for all of its operating units, and then worked constantly to enhance them. They have centered their attention on implementing strategies founded on four objectives-- revenue growth through pricing initiatives; lowering operating and selling, general and administrative costs through process standardization and productivity improvements; improving portfolio of assets through the “fix or seek exit strategy” program and seeking acquisition candidates; and generating strong and consistent cash flow from operations that can be returned to shareholders. The company likewise gave top priority to four fundamental corporate initiatives, namely, (1) Information Systems, (2) Market Business Strategy, (3) Service Machine – which was its customer-facing initiative, and (4) Procurement, with huge emphasis on the last initiative. As to why procurement has been given so much importance is because the company strongly believes that “that is where the money is.” For WMI, business is about serving customers better than anyone else and they knew they wanted the best equipment – from garbage trucks and bulldozers that they drive, to the containers on the street and in the mall, to the uniforms and safety gear that their field employees wear up to the IT service providers who help develop their systems. They knew that they need to have all these things come up to a standard to support the firm’s brand name and quality image. However, the biggest and the most important line of attack the company has undertaken which undoubtedly is responsible for the company’s exceptional ascent in the midst of competitors is its courage to change the way they think and the shift to a longer-range view about business, about themselves and their role in the world. With the shift in vision, WMI conducted its business more like a science, relying on solid facts and good data, producing best practices, utilizing the rich intellectual resources throughout the organization, and formulating action plans that generate reliable, predictable outcomes that can be duplicated across the company. This has made the firm a stronger, more disciplined organization with clear paths to greater profitability and growth. Financial Health At a time when most companies are caught in an upward spiral of insurance costs, WMI’s continuing double-digit per year improvement in safety records helped the business to lower its total risk management costs in 2005. Its recent revenue growth and pricing excellence strategy focuses around obtaining a return on invested capital that suitably captures the firm’s cost of capital, the risks they have taken in the business and its unique disposal of assets. As WMI has been utilizing an increasingly more disciplined approach to pricing, it has carefully analyzed its operations and made decisions based on market specific information including its costs. This shift of focus was seen most clearly in 2005, in its collection lines of business, where the focus was on new business pricing, the minimizing of price roll-backs, and charging an environmental cost recovery fee and a revised fuel surcharge. Further, the organization has implemented fee programs to recover the costs that have been incurred for items such as the collection of past due balances, container delivery and other services. In the second quarter 2005, the landfill pricing study was expanded and by the end of 2005, it has executed its findings from the study at nearly all of its landfills and transfer stations. The huge success in pricing, as demonstrated by the company’s increasing internal revenue growth, is a direct result of these pricing strategies implementation. In addition, it has remained dedicated to finding the best practices throughout the organization and standardizing those practices and processes. As implied in its financial reports, in the second half of 2005, the focus was on improving internalization rates, standardizing operating and maintenance practices and emphasizing the importance of safety translated into cost savings across the organization. The intention was to continue to identify operational improvements that will provide cost reductions in 2006 the succeeding years. In some cases, it was determined that to achieve these operational improvements, it is necessary to put in place new information systems and other tools that will provide the firm’s manpower with the necessary resources to make better decisions and work more efficiently. For instance, in the fourth quarter of 2005, it was announced that the company has entered into agreements for new revenue management software and support services. Although that decision required an asset impairment charge, it was believed that the system will provide the best capabilities and functionality of the available alternatives. Moreover, in the third quarter of 2005, plans were revealed to simplify and streamline the structure of the organization. Duplication of administrative functions that were in the field and corporate organization was eradicated and likewise eliminated one of the reporting Groups and integrated those operations into other groups as a way to further reduce administrative costs and improve efficiency. This affirmed the company’s commitment to making the choices that will benefit the firm in the long term that includes improving the way it operates in order to achieve cost savings. The consolidated financial data proved its competitive advantage over the other players in the industry. By being consistent in its focus on quality customer service, the organization has accomplished its primary financial objectives for 2005 of robust profit growth, margin expansion and improved cash flow. Its pricing initiatives, which allowed the company to grow its revenues by increasing its prices while maintaining solid volumes, were largely responsible for the improved financial performance. Significant financial achievements include: Net cash provided by operating activities increased to $2.4 billion and free cash flow increased to $1.4 billion, compared to 2004, there was an 8% increase in net cash and a 33% increase in free cash flow; Internal revenue growth of 4.7% for the fourth quarter of 2005 and 3.7% for the full year, driven by increases in base business yield, which is the highest in a period of five years; Improvements in costs as a percentage of revenues, particularly in the second half of the year, despite margin pressure created by continued increases in the cost of fuel; and $706 million in stock repurchases and $449 million of dividends paid pursuant to our capital allocation plan. Strategic Issues Confronting WMI Despite its continuing growth, its strength and position in the industry and the fact that its operations is backed up by a solid financial foundation, it cannot be denied that WMI is not the only player in the industry, so much so that to stay on top of its league, WMI shouldn’t stop focusing its efforts on how to become the (1) waste solutions provider of choice for customers; (2) the best place to work for employees; (3) the leader in promoting environmental stewardship; (4) how to be a trusted and valued community partner; and (5) to maximize shareholder value. Look of the Future As part of the company’s on-going initiatives to expand and develop its operations, WMI has developed a program that will enable divestment of underperforming and non-strategic operations. In the third quarter of 2005, the firm identified operations with yearly gross revenues of over $400 million for potential divestiture under this program. Recently, it was announced that the organization has identified additional assets, representing over $500 million in annual gross revenues that may also be sold as part of the divestiture program. While it is too early to assess the financial impact of the divestitures, and whether there may be any material asset impairments as a result of the program, the company looks confident that its “fix or seek an exit strategy” approach to any under-performing operations will benefit its financial results in the long term. Further, it can be seen that the firm is keeping its focus on acquisitions and other investments. S W O T PRINT SOURCES / READINGS Piasecki, Bruce W. & Gary A. Davis. (1987). Americas future in toxic waste management: Lessons from Europe. New York: Quorum Books Sutter, Hans. (1989). Low-waste technologies in the Federal Republic of Germany. The Environmental Professional, 11, 190-198 Huisingh, D., Martin, L., Hilger, H. & Seldman, N. (1986). Proven profits from pollution prevention: Case studies in resource conservation and waste reduction. Washington, DC: Institute for Local Self-Reliance Deyle, R.W. (1990). Hazardous waste management in small business: Regulating and assisting the small generator. New York: Quorum Books Maclaren, V.W., Soemantojo, R., & Dooley, J. (1994). Reduction, reuse and recycling of industrial waste in Jakarta and vicinity. Final Report of a Joint Research Project between the University of Indonesia and the University of Toronto, University Consortium on the Environment Waste Management Inc. Annual Report. (2005) Munroe, G., Bradley, W. P. & Neuber, F. (1990). Profit from pollution prevention. (2nd ed, vol. 1). Toronto: Pollution Probe Foundation Lohwongwatana, R, Soponkanaporn, T., & Sophonsridsuk, A. (1990). Industrial hazardous waste treatment facilities in Thailand. Waste Management and Research, 8, 129-134 Hunt, Gary E. (1990). “Waste reduction techniques and technologies. In H. Freeman (ed) Hazardous waste minimization. New York: McGraw Hill Read More