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Waste Management's New Model: Garbage In, Profits Out
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Garbage guru
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Garbage guru,
User Rank: Apprentice
7/20/2013 | 2:58:53 PM
re: Waste Management's New Model: Garbage In, Profits Out
I'm new to this forum and not an "IT Professional" but have been in the waste/sustainability industry since 1996. I'm the CEO of a Fortune 5,000 company that manages waste services in 30 states. We deal with the company Waste Management frequently and I was shocked they were interested in developing a transparent pricing model and further surprised to read it required SAS and advanced programming to accomplish.

"Garbage" is, at its heart, a simple business - 1) put it in a container 2) pick it up 3) transport it 4) dump/process it. Every waste company relies on the same simple formula to derive cost: 1) the cost of the collection container + 2) the cost to dispose/process the collected material + 3) the fractional cost to drive from one collection point to the next on a route + 4) the fractional cost to move each collection stop's material to the final location for disposal/processing. This is the commodity part of the business and it's why the marketplace is homogeneous, mature, and focused on winning market share (even if the competition is degenerative and/or illegally priced under cost).
What complicates the equation are the sweetheart deals between governments and garbage companies (let's be honest, they're not "garbage companies", they're TRUCKING companies) and the relative distances between disposal/processing/hauling operations in a market geography. Like politics, all garbage is "local" and typically the area around an MSA (known as a "waste shed") has a mix of assets owned by a mix of companies and government(s). In the ideal world, the hauling companies are not supposed to talk to each other and exploit route densities and/or disposal/processing options to the determent of the market. In the real world, this happens all the time and it's the reason the DOJ and states' AGs' offices have so much say over M&A activity (and criminal prosecutions).
We've use the simple 1+2+3+4 model for over a decade to establish the "true" cost then compare ALL the assets available in a market to derive the best solution. This differs from hauling companies' approach as they can only (legally) discuss pricing about THEIR assets and are not supposed to collude with others in their market areas.
It's the mix of collusion between illegitimate hauling companies and sweetheart franchise deals (in reality monopolized markets under government direction - doesn't that have a sweet ring of "customer satisfaction" tied to it?) that complicates things. It for these reasons that only a small fraction of businesses (less than 2% by population) can afford to sort out all the silliness.
From an IT perspective this may be an "interesting and newsworthy" article. The view from the "garbage" industry remains the same - it's more Waste Management PR window dressing designed to make the company appear "cutting edge" while the reality of the market continues its march away from the old, single-provider, asset-based model.


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