perfect match

perfect match

Departments - Scrap Management

Manufacturers have no shortage of demanding tasks and goals facing them each day to make sure the buyers and users of their products remain satisfied.

May 28, 2007

Manufacturers have no shortage of demanding tasks and goals facing them each day to make sure the buyers and users of their products remain satisfied.

Devoting time and attention to solid waste and recycling concerns is seldom at the top of the "to do" list. A manufacturer's balance sheet is clearly most affected by orders received, orders filled and upholding quality so more orders are received.

However, just as the raw materials used by machine shops and custom manufacturers are increasing in price (metal alloys and polymers in particular), so too the scrap portions of these materials can yield a better return.

For manufacturers who find it difficult to devote human resources to figuring out the scrap recycling industry, an advisory firm like Cozzi Consulting Group, Burr Ridge, Ill., can provide an out-sourced solution.

The company was formed by members of the Cozzi family, long-time participants in the scrap metal industry with extensive experience in the buying, processing and selling of scrap materials.

In the following interview, Cozzi Consulting Group partner Albert Cozzi offers his views on what manufacturers who generate scrap can do to help themselves navigate the scrap industry waters.

Scrap Management: How should a manufacturer begin a search for a scrap dealer?

Albert Cozzi: I would say most manufacturers are regularly contacted and solicited by scrap companies. The largest have sales forces that are out finding customers and generators all the time. Scrap is a reverse commodity, and companies need to have a source of material to sell to the producers buying from them.

A scrap generator should ask competing scrap companies what their experience level is.

They can also ask the companies they buy their raw material from—the companies who supply them with metals—if they have a melting facility, who do they buy their scrap from.

Additionally, today all the large scrap companies have Web sites where you can get information about them and read about what they specialize in. Today, companies are as easy to find on the Internet as in the Yellow Pages

It's important for a manufacturer to match the type of scrap material that they are generating to the scrap company to which they're selling it. They should make sure they sell it to somebody who regularly handles or specializes in that type of material.

If a producer generates several types of scrap, that might require one type of buyer—an all-purpose company. But if they generate large quantities of one high-value material, that's going to require another type of buyer. You want to make sure you are dealing with someone that specializes in that type of material.

SM: How many dealers should a generator contact initially?

AC: It depends, certainly, on how big of a company the generator is. Do they have multiple plants or one plant? Most of the large generators probably use several buyers across their universe of companies. In a lot of cases they could be using several buyers at each individual plant.

A lot of large companies today are very good at maximizing how much they are getting from their buyers. The question is: Are they using the right buyers? If they are selling copper to someone who specializes in cardboard, then probably not.

SM: What are three important questions to ask a prospective scrap dealer?

AC: A generator's environmental liability does not end when the product leaves the plant, so make sure you do a thorough check or audit of the people to whom you are selling material. Do a tour of the facility— a picture is worth a thousand words. Make sure material is being handled in an environmentally responsible way. Does it look like a production plant or like a junk yard? Is equipment clean and well maintained? Companies need to make sure they are doing business with professionally managed and operated scrap processor.

Ask if they have the right type of transportation equipment that matches up with the kind of scrap you are producing. Will it efficiently move material and is it a match with what you'll need?

vWhen checking reputations, I would think that most scrap dealers would be a little bit reticent about talking about their competitors, but if you were to ask a scrap metal processor in another city if they know who the good processors are in your city, that can be doable.

SM: Are there professional or accrediting organizations to which scrap dealers should belong?

AC: Any credential a company earns, whether ISO 9001 or the RIOS program from ISRI (the Institute of Scrap Recycling Industries Inc.), it is something that a prospective seller should look at to find out how consistent a particular dealer is.

SM: What are some signs that a dealer is likely to provide timely service? (What sort of equipment or facilities should they possess?)

AC: Taking a tour of the facility is, again, very important. Find out if they are operating their own fleet of trucks and if it is well maintained. Is there a dispatch department? Generally, a dealer should be able to provide references. Do some due diligence.

SM: How can a generator determine that a dealer is offering current and fair pricing?

AC: That's a tough one, particularly today, with prices at record levels. It can depend on the size of the manufacturing company and how much scrap they generate. Large generators can have someone who can monitor prices on a daily basis. Several publications and Internet sites will help them do this. Scrap generators, as a rule of thumb, should be aware that if the price of their raw material is going up, then the price they get for their scrap is also going up. They don't always move in tandem, but generally they do.

SM: How can a generator determine that honest weighing of scrap is taking place?

AC: They have to make sure they have a good audit control system in place. They should regularly audit and examine their own internal controls. Make sure that they are getting paid not only the right weight, but the correct price for every shipment they make. They really need to control weights internally and have their own scales.

Beyond that, I've seen cases with scrap metal where the guys in the plant didn't take care of it as well as they should, and some of it is thrown out in the rubbish. Company managers should do a yield analysis and know how much scrap they are generating. Perpetual inventory management is a good idea. Control the scrap bin for contamination (which causes price downgrades) and to make sure the scrap is actually appearing in the scrap bin.

SM: Does it help a generator to gain some knowledge of scrap grades in order to be conversant when shopping for service?

AC: If they know the grade of material they are selling, then they should also find a consumer (scrap melting facility) that can maximize the use of the grade.

SM: What are some signs that a current scrap service provider may have shortcomings?

AC: I would think in most cases, because the scrap industry is very competitive, in most markets if all of a sudden you see a lot of competitors soliciting business all at once, someone in the industry thinks there may be an opportunity to replace a company that is not doing so well.

Other than that, if a once high standard of service is slipping, or if payments are taking longer, those can be signs.

SM: What is the value of a scrap generator working with a consulting firm like Cozzi Consulting Group?

AC: A critical aspect is we do what a manufacturing company would have to do anyway, but, in all modesty, they would probably not do it as well. As professionals with a lot of experience in the scrap industry, we can do it better than they can and cheaper than they can.

When we founded this company, we realized that we had a long history of working with industrial plants and now enjoy being on the same side of the desk and representing them.

One thing we do is go in and scope out what a manufacturing company is currently doing. And if we can improve on their current situation relative to recycling or storage or transportation, we tell them that.

It doesn't cost them anything if we don't find anything. Our philosophy is: As a manufacturer, you work on making and selling your product and you hire us as your employee to sell your scrap for you.