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Industries:  General 

New Sourcing Challenge: Finding Supplies Of Recycled Resins

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By: Beroe Inc

calender15 Feb 2018

By Saravanan V -- Customer Success Lead; additional inputs by Sakthi Prasad -- Senior Content Manager

Recycled Resin Sourcing: Time for Renewed Strategies

Major CPG, food and beverage companies across the world have awakened to the idea of using recycled resins, and are planning to increase its use before 2025. Conversely, the weak trend in global recycling rate has impacted the availability of recycled plastic volumes recently, indicating a possible shortage in recycle resin supply after 2020. For instance, r–PET import dependency of the U.S. has averaged around 400 million lbs (in 2011–2016) compared to 250 million lbs (in 2001–2010).This trend is expected to continue, with more companies adopting recycled resin usage. This demand–supply imbalance is primarily due to underlying structural and functional challenges.

To achieve their sustainability goals, CPG companies are working on various initiatives to ensure adequate supply of recycled resin. These initiatives primarily focus on two major aspects of its usage:

  • Packaging innovation to drive recycled resin supply
  • Securing supply through joint ventures, community programs, reward schemes, etc.

The decision to source recycled resins, in most cases, is the outcome of the organization’s strategy of and goals for sustainability. This makes it essential for procurement teams to work closely with their business stakeholders across various departments. To fulfill the larger goals of the organization and internal customer demands, the role of procurement becomes considerably critical and complex. An unfit recycled resin supplier may affect the overall sustainability goals, product quality, and ultimately, spend.
 

Recycled Plastics Supply—an Uneven Territory

Plastic recycling has been a key challenge for major economies and manufacturing companies across the world. As per a recent study, approximately 91 percent of global plastic remains in the environment without recycling or any further processing. Such high levels of plastic waste are mainly due to an increase in the use of single usage packaging materials by end use industries. Major governing bodies across the world have been insisting on increasing the reusability of plastics and usage of recycled plastics in their value chain.

The CPG sector, one of the major end use industries for packaging applications, has aligned its sustainability plans to reduce plastic waste. This is evident by their recent announcement of recycling targets. CPG giants—such as Coca Cola, Unilever and P&G—have incorporated recycled plastic usage targets as part of their sustainability goals.

Company

Sustainability Goals

Year

Coca Cola

Increase the use of r–PET bottles to 40 percent in total Europe bottle use by 2020

2017

Unilever

100 percent plastic packaging components to either be recyclable or reusable by 2025

2017

P&G

Replacing 25 percent of virgin resin by PCR in over 500 million bottles annually by 2018

2017

Body Shop

Reduce approximately 70 percent petroleum based resin in the packaging by 2020

2016

J&J

Increase recyclability of the packaging products to over 90 percent in key markets

2015

Shiseido

Switching to sugarcane-derived plastic as preferred packaging format

2014

Colgate Palmolive

Committed to make three out of four packaging 100 percent recyclable by 2020

2014

1. The uneven trend in recycling rates amid implementation of recycled resin usage goals by many more companies signals the scope for supply shortage after 2020.
 

Imminent Challenge - Uneven Trend in Recycled Resins Supply

Despite increased focus on recycled plastic usage, the fluctuating trend in plastic recycling rate has impacted supply recently. This may bear down on the recycled resin usage targets by these companies. For instance, r–PET import dependencies of the U.S. has averaged around 400 million lbs (in 2011–2016) compared to 250 million lbs (in 2001–2010)

Trend in Recycled PET Consumption by end use application

End Use

Share in %

CAGR (2010-2016)

Fiber

43 percent

9 percent

Sheet and Films

19 percent

6 percent

Food and Beverage

25 percent

9 percent

Non-Food Bottles

4 percent

2 percent

Other

1 percent

5 percent

Total Consumption

 

7 percent


The U.S. production rate is growing at the rate of 6 percent, than 9 percent, in major end use segments like fiber, and food and beverage sectors. This trend is expected to continue. It may further widen the import dependency of the U.S. recycled market.

A similar trend has also been observed in markets with high PET recycling rates, like Brazil. Brazilian PET current recycling rate was estimated to be approximately 49 percent, representing a 14 percent decline since 2011. This drop could be attributed to lower availability of plastic waste for recycling, which has declined by 9 percent since 2012, driven by poor waste collection systems and infrastructure.
 

2. Such uneven trend in recycling rates, even in less complex plastics like r–PET bottles, along with implementation of recycling plans by many more companies, reaffirms the possibility of shortage in recycle raw materials supply
 

Structural and Functional Challenges in Recycled Material Usage and Sourcing

The widening gap between recycled resins demand and supply is due to underlying structural and functional challenges, as highlighted below:

Restriction on Plastic Scrap Trade

Plastic waste trade was highly regulated due to environmental concerns; for example, China’s recent move to ban plastic scrap (with specific parameters) from Jan 2018. This may disrupt the supply of recycled plastics from cost-competitive markets like China to major export markets like the U.S. and Europe.

Lack of Recyclable Design

According to the World Economic Forum (WEF) paper on new plastics, approximately 30 percent of plastic packaging will never be reused or recycled without fundamental redesign and innovation. For instance, many CPG companies are focusing on light-weight bottles to reduce resin spend, which results in low recovery rate, and affects recycling economies. The design and weight of virgin bottles have significant impact on the recycling margins.

Contamination to Impact Margins

According to the European Plastics Converters Association, approximately 60 percent of the European plastic converting companies find it ‘hard or very hard’ to reuse plastic scrap due to contamination. Quality material is necessary for higher recovery rates and recycling margins.

Expansion in Virgin Grade Production

Low crude oil prices (< $60/ bbl) and an increase in LPG supply facilitated low virgin resin prices and expansion plans across the world. Global plastic production is expected to increase form 311 million MT to well above 350 million MT, driving preference for virgin resin over recycled plastic.

Lack of Policy Support for the Recycling Industry

Recycled plastic offers better energy savings. It also supports reduction of carbon footprint by replacing virgin plastic. Yet, the plastic recycling industry cannot leverage carbon credits due to lack of policy support.

Collection Rate

Drop in the availability of reusable material in the market, along with lower consumer awareness, is likely to impact the collection rate. Absence of waste management plans in many developing economies may influence the demand for recycled resins.
 

3. Recycled plastic supplies are primarily driven by external factors like consumer awareness, crude oil prices, policy framework, and trade regulations limiting the buyer’s ability to tackle supply challenges
 

Recycling Sourcing Strategya Multi-tier Activity

Organizations across the world have used different strategies to overcome supply challenges in the recycled resin market. Supply assurance and economic viability of the recycled resin usage are key focus areas for the buying organization. At large, recycled resin sourcing strategy depends on two key aspects (detailed below), which involves a multi-team effort—from a board member to a buyer.

1. Packaging Innovation to Drive Recycled Resin Supply

Production techniques recommended in the WEF, Davos, 2017, could be a typical example for this approach. The three broad strategies highlighted in WEF can be considered a guideline to increase the supply of recycled resins.

The procurement team acts as an enabler by supporting sourcing needs in the above mentioned strategies. 

Three Key Strategies to Augment Recycled Resin Supply Focusing on Raw Materials, Recycling Rate and Margins

Recycle-friendly Design and Product Innovation

Innovations targeted to reduce the use of small format products, multi-materials, niche plastic materials, and contamination are likely to have a positive impact on the recyclability of 30 percent of the plastic used in packaging.

Focusing on Reusable Packaging and Functional Attributes

Increasing reusable materials in packaging applications and creating recycle-friendly single-usage plastic material can positively influence the recycling of 20 percent of the plastic packaging material in the market.

Focusing on Improving Recycling Margins Through Materials Selections in Packaging

The recent drop in recycling rates is also due to drop in yield rate. This can be effectively managed by proper material and additives selection

 
2. Securing Recycled Resins/ Recyclable Resins

As highlighted above, recycled resin usage has multifaceted challenges. These challenges are effectively managed by companies through various sourcing strategies involving multi-teams in the organization. For example, CPG companies predominantly used the options mentioned below to optimize their recycled resin sourcing.

Options

Key Decision Makers—Team

Role of Procurement Team

Case Example

Joint venture with recyclers to ensure recycled resin availability

  • Business heads, board members
  • R&D
  • MRO and Capex
  • Logistics and Warehousing
  • Category Procurement Members
  • External parties: Recyclers (hard tolling/ soft tooling arrangement are possible)
  • Identification of prospective recyclers
  • Monitoring price movements
  • Maintaining SLA’s
  1.  P&G’s recent launch of recyclable material bottle using 25 percent recycled beach plastic through joint venture with Teracycle and SUEZ
  2. Coca Cola’s joint venture with recycle resin manufacturer Plastipak Europe to achieve their sustainability targets

 

 

Partnering with waste management groups/ municipal waste collection program

  • Business leads, board members
  • MRO and Capex
  • R&D
  • Logistics and Warehousing
  • Category Procurement Members
  • External parties: Recyclers (hard tolling/ soft tooling arrangement are possible)

 

  • This can be an organization-wide strategy to use third-party material collection and recycling facilities
  • Role of procurement team could be limited to pricing contracts

The WRAP program in the UK acts as a platform to increase the recycling rate and availability of recycled materials; as many as 40 companies (including recyclers and end users) have extended their support to this platform for effective collection of recyclable materials, and to increase their recycled resin usage

 

 

 

Closed Reverse Logistics Practices: Deposit to refund schemes (DRS) focusing on end consumers and direct community services to access recyclable materials

  • Business leads, board members
  • MRO and Capex
  • R&D
  • Logistics and Warehousing
  • Category Procurement Members
  • External parties: Recyclers ( hard tolling/ soft tooling arrangement are possible)
  • Inhouse recycling units

 

  • The scope for the procurement team could be highly limited to pricing contracts in case of any agreement involving third parties

Around seven major brewing companies have extended their support to deposit refund scheme for containers conceptualized by Association for the Protection of Rural Scotland (APRS)

 

4. The supply challenges in the recycled resins can be tackled only through combination of two different aspects—finding ways to generate recyclable materials and securing recyclable resins through best possible strategy

Role of Procurement Team Pivotal in Recycled Resins

As highlighted above, the sourcing activities of recycled resin are shared between multiple teams. They can be directly driven by organization decisions. However, the procurement team plays a pivotal role in selection of suppliers or partners for sourcing of either recyclable raw materials or recycled resins.

Lack of interest in recycling due to low crude oil prices and volatile margin trends can make the supplier selection more challenging to meet the recycled resin usage targets. This can be overcome by selection of key evaluation metrics focusing on supplying ability of recyclers/ recyclable material supplier and their profitability. Ideally, recyclers/ recyclable material suppliers should be evaluated based on following metrics:
 

Key Criteria for Recycle Resins Suppliers/ Strategic Partners

Raw Materials Sourcing Ability

The ability of recyclers to provide supply assurance depends on diversified raw material sourcing strategy. The recyclers’ engagement with multiple sources—like joint venture with collecting agents, municipal solid waste teams, and waste management entities—is likely to ensure steady supply.
Teracycle partnered with SUEZ, a waste management expert, specifically to support P&G’S beech plastic-based recycled resin.

Level of Integration

Integrated recyclers with collection, processing and production abilities are expected to provide cost-efficient end products. Integrated producers with strong logistics and warehousing abilities across the value chain are preferred.

Processing Capabilities

The cost of recycled resin depends on the quality and yield rate of raw materials used. Recyclers with advanced technologies in various phases of processing can increase the yield and quality. Hence, such processors/ suppliers are preferred.

Ecoplast has patents to process contaminated feedstock to produce quality product.
 

5. Selection of supplier/ sourcing partners for recycled resin is complex, as it is directly connected to the supply assurance, margins, sustainability goals, and quality of the end product.
 

Environmental Footprint of Recyclers

The underlying purpose of recycled resin usage is to achieve sustainability goals. Hence, detailed understanding of environmental footprint of recyclers should also be considered.
The recycling process involves various chemicals, such as compatibilizers and stabilizers.

Supplier Aligned to Closed Loop Strategies

The partners selected for recycled resin sourcing should be focusing on similar applications. For example, bottle recyclers should be an ideal partner for recycled resin buyer with bottle as end-use. This can optimize the cost and sourcing benefits.
PepsiCo’s partnership with Kum & Go to increase beverage container recycling rate is a typical example

Auditing process and Quality Certification

Recyclers must have internal auditing processes, and be quality certified. Regular cost auditing can be helpful in evaluating the profitability of recycled resins. The quality certifications are highly important for food applications.

Suppliers comply with European standards regulation; Reach and ASTIM standards are preferred.
 

Conclusion

Global recycled resin supply tends to witness volatility; it may result in supply shortage in successive years. This can be overtly managed with the efficient implementation of production techniques and recycled resin sourcing strategies. Unlike other categories, recycled resin sourcing involves multiple teams, and depends on organizational strategies. The role of category leads is prominent in selection of preferred recyclers/ partner in line with organizational goals. A meticulous selection of recyclers should consider various capabilities related to profitability, quality and supply consistency, since it is one of the major factors to reduce the impact of supply volatility for a buyer.

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