MISSISSAUGA, Ontario—Gaining big industry or big government as a customer can make a scrap rubber recycler's fortune—or break it, if he or she isn't careful.
Three experts on the subject—a president of a rubber recycling company, a retired tire company executive and a recycling manager for a state agency—explained the advantages and pitfalls of supplying industrial and government markets to an audience at Rubber Recycling 2000. The conference and trade show, co-sponsored by the Rubber Association of Canada and the Scrap Tire Management Council, was held in Mississauga Oct. 11-13.
Ted Pattenden, president and CEO of Toronto-based NRI Industries Inc., knows more about dealing with major industry accounts than most in the recycling industry.
His company employs 550, has $70 million in sales annually and processes 70 million pounds of material annually—90 percent of it recycled and 65 percent of it going to make original equipment parts for the automotive market.
"Why do smaller companies want big customers?" Mr. Pattenden asked at the beginning of his talk. There are many reasons: a large amount of revenue per customer, a potentially long relationship, big orders, long production runs and the "reflected glory" of association with famous names.
One of the most important advantages, he said, is that "big customers usually pay their bills on time. With small companies, there's a problem with collecting accounts receivable."
But there are just as many pitfalls as advantages to playing ball with the big guys, according to Mr. Pattenden. These include:
Concentration of risk. "It's nice to have 300 customers, because if one goes down the tubes, you still have 299," he said. But if you only have two customers, you probably can't withstand the sudden loss of 50 percent of your business.
A non-equal relationship, or what Mr. Pattenden called the "elephant-vs.-mouse" situation.
The corollary to the above, which is that "big customers are demanding in their priorities, but slow to address your priorities," Mr. Pattenden said.
A severe slowdown in research and development. "Small companies are used to doing things quickly, but big companies have a much longer timetable," he said.
Big bureaucracies, or "the death of 1,000 paper cuts," Mr. Pattenden said. "Big industry and big government thrive on paper. If you don't have the resources to handle paperwork, you're in big trouble."
The key to doing business with big companies, according to Mr. Pattenden, is to remember that all of them want to gain a competitive advantage and expect their suppliers to help them do so.
"Failure to deliver these values usually lead to a brief and potentially painful relationship," he said. "Big companies don't have time to deal with suppliers who don't meet their priorities."
To compete with larger suppliers, small companies must learn to differentiate themselves from the pack, according to Mr. Pattenden.
"Cost and quality are givens, but it's difficult for small companies to achieve economies of scale," he said. "To compete with big corporations, service is crucial. Failure is punished by strict and unforgiving audit reports—that's why North American business is so competitive."
New technology, more than anything else, is what really levels the playing field for small companies, Mr. Pattenden said.
"You want to change the rules so big companies have to play by them," he said. Research and development are expensive—NRI spends 4 to 5 percent of its sales on R|&|D, twice the usual Canadian level—but worth it, he added.
Michelin North America Inc. is proactive in adding recycled content to its tires, according to Clarence "Red" Hermann, retired director of Michelin government affairs. But like other tire and auto makers, it will sacrifice recycled materials before it sacrifices safety, tread-life or performance.
Michelin began its effort with a tire for the Ford Windstar minivan, which contains 5 percent recycled rubber. But it wasn't just a matter of replacing virgin material with crumb, according to Mr. Hermann.
"The first thing you must do is reformulate the compounds," he said. "Crumb has very specific properties of its own. It may take several iterations before we achieve what we want."
In sizing up crumb rubber suppliers, Michelin looks for certain attributes, according to Mr. Hermann. These include:
A well-established supplier. "We want to see a supplier who is viable and making money," he said. "We realize this is a Catch-22 for someone just getting into the business, but he needs to realize he's competing with people who are already certified."
Demonstrated reliability from someone who is "able to deliver consistent high-quality material," Mr. Hermann said.
Technical expertise. "Crumb producers don't always have a lot of technical experts, but some do, and some have in-house testing capabilities," he said.
Computer capability. "As we go toward e-commerce, we are setting up more and more with suppliers to do invoices and other documents electronically," he said.
The right packaging. "They must meet our packaging needs, depending on what plant it's going into," he said. "They shouldn't have just one kind of packaging, and they must have the ability to deliver very specific amounts of material."
Flexibility. "Customers will call us and say they need more or less of a product," Mr. Hermann said. "We expect the same from our suppliers."
A confidentiality agreement. "Depending on our relationship, we might ask you to sign one, particularly if there's joint development of a new product or material," he said.
Price competitiveness. "That's probably the most important issue of all," he said. "The thing that keeps us from using more recycled material is its cost vis-a-vis virgin material. What will drive crumb rubber more than anything else is a good economic reason for using it."
There are good economic reasons for using crumb-rubber-modified asphalt, although state highway engineers have been slow to realize this, according to Rebecca Davio, recycling manager with the Texas Department of Transportation.
"For the people who tabulate economic results, `too expensive' might mean a 50-percent improvement in performance at a 10-percent higher cost," Ms. Davio said.
"It's important to stop thinking of scrap tires as waste and start thinking of them as an important natural resource," she said. Unfortunately, she added, the motto of many state highway officials and engineers when it comes to asphalt rubber is: "I'd rather fight than switch."
Too many engineers remember the federal mandate to use rubberized asphalt in an ever-increasing percentage of federally funded highway projects as a condition of receiving federal highway funds. This, Ms. Davio noted, led to some ill-planned demonstration projects and the undying hostility of many engineers.
"Some engineers won't even talk to me about asphalt rubber," she said. To try and change their minds, the Texas DOT is using a "carrot-rather-than-stick" ap-proach, offering financial incentives for using rubberized asphalt.
Asphalt rubber producers must also make a commitment to marketing their product, according to Ms. Davio. "If you don't do it, the use of your product will never happen," she said.
It is "absolutely crucial" that such marketing efforts be consistent, even relentless, she added. "If you're sick of your message, your audience is probably just starting to hear it."
Some people in the conference audience, however, suggested it will take time for asphalt rubber to get a fair hearing in state agencies. Cornelia Snyder, president of JaiTire Industries in Colorado, said she once asked an official of the Colorado Department of Transportation what had to happen for his agency to use crumb rubber in asphalt.
His answer? "Selective retirement," Ms. Snyder said.