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DRC - Raising Value, Lowering Costs

Gustavus Disposal and Recycling Center Committee

 

 

Raising Value, Lowering Costs

Karen and Mike Taylor
May 30, 2007

We gave some thought to methods of considering business case alternatives for the DRC and the possible move of one or more functions. Here are some ideas we wanted to share.

 

The Value Proposition

 

The following quote from “Innovation Agility” in the Summer 2007 issue of Strategy + Business may help us think more clearly about business case alternatives. The article draws examples of competitive advantage from Toyota, the world’s most successful manufacturing company.

Competitive advantage can be defined as the spread between the cost of making your product and its value, as perceived by customers, relative to that of your strongest competitor. Companies can widen this gap by increasing perceived value, reducing manufacturing cost, or both. The overall competitiveness of any research and development [R&D] operation is thus determined by its contribution to increasing this spread over time. The Toyota R&D system is, in fact, explicitly directed toward widening the gap between product value and product cost. Since value is defined by the customer, Toyota’s up-front conceptual designs concentrate on clearly articulating the product’s customer value proposition. . . . Yet many companies take the opposite approach. When they launch a product development program, they start out by focusing primarily on the cost target rather than the value target. This policy—whether explicit or implicit—hamstrings their ability to create any true competitive advantage.

What this means for the DRC and the City of Gustavus

 

What do our customers value? How do we increase value while decreasing cost, thereby increasing the gap between the two? In part we need to very carefully scrutinize any change that adds costs without adding even more customer value. Any action that narrows the value/cost gap rather than widens it should be a tough sell, because it is likely to reduce customer satisfaction and decrease market share.

 

Let’s first consider the customer values and costs of our operations as they relate to the gap that defines our value proposition:

 

Values to Customers—what they get out of using the DRC

(not in any particular order):

  1. Responsible, reliable means of reusing/recycling/disposing of their waste stream
  2. Convenient location: can drop off items while conducting other errands in central Gustavus
  3. Cleanliness; reduction of pollution (e.g., air and water quality) of community
  4. Sense of environmental responsibility
  5. Distinctiveness of community (appearance; pride in model landfill)
  6. Support for tourism-oriented businesses that depend on an attractive community.
Costs of providing DRC services

(paid for by city subsidies, disposal fees, or direct expense to customer)

  1. Capital costs not funded by grants
  2. Operational costs (salaries and benefits, training, power, phone, fuel, maintenance, environmental monitoring, permits, supplies and related shipping, etc.)
  3. Transportation costs from customer’s home or business to the DRC facility (customer time and vehicle operational costs)
  4. Processing at DRC (How we organize processing has a big effect on our operational costs.)
  5. Shipping of recyclable materials, hazardous waste, etc., from site to harbor, and on to ultimate receiver.
  6. Final disposal or receiving fees at receiving site, usually in Lower 48.
  7. Volunteer support—time spent by DRC Committee and by volunteers working at both Community Chest and DRC harbor site

Whether any function moves or not our continuous improvement program needs to focus on improving value to customers while reducing costs to the community.

 

We do have competition
We may not have a business competitor, but we do have competing waste disposal channels that are used frequently ( i.e., already have part of the market-share):
  1. Backyard burning or dumping or accumulation of trash and junk.
  2. Disposal of septage on private or public land or in public water.
  3. Disposal of hazardous waste on private or public land.
These competing channels have costs to the individual resident or business and to the community:
  1. Personal or public eyesore
  2. Later clean-up/remediation/restoration
  3. Water-monitoring
  4. Installation of rain cistern or purchase of water to compensate for polluted well-water
  5. Reduction of property values (offender and neighbors)
  6. Reduction of tourist appeal (with reduced income for tourism-dependent businesses); etc.
  7. Harm to wildlife
A move of one or more functions will affect value to customers and total operating costs, i.e. will change the value/cost gap and the net value proposition to the community one way or the other.

 

 

Potential positive and negative value changes might be:
  1. Ample space for construction/demolition debris disposal
  2. Septage disposal channel
  3. More space for existing DRC functions
  4. Opportunity for model layout and rational use of space resulting in greater efficiency
  5. Possible opportunity for green design construction/use of green energy technologies
  6. Release of harbor site for other use
  7. Happier existing neighbors (depending on what new use is slated)
  8. reative involvement of residents in planning new sites and becoming involved as volunteers
  9. Non-central/scattered/distant location(s) inconvenient to customer
  10. Unhappy new neighbors, even if it is only the perception of proximity to a landfill that causes unhappiness; concomitant decrease in property values. (Living downstream from a septage disposal site would provoke even greater concerns.)
  11. Environmental damage to new site(s), unless purchase of large buffer zone offsets this by protecting significant acreage from future development.
  12. Potential contamination of downstream water where water table is high

 

Potential Moving Costs (depending on what and how much moves)
  1. Purchase/lease of land
  2. Closing and remediating existing site, demolition of facilities, moving some equipment and structures, and/or modifying existing site to transfer station.
  3. Permit application fees for new site(s)
  4. Bond for closing new site(s)
  5. Operator at each site when site is open for business
  6. Fencing for each site
  7. Construction/preparation of site so that it meets standards for specific functions to take place
  8. Bringing in power and phone; monthly utility costs for each site
  9. Equipment for each site; equipment maintenance
  10. Construction of buildings; building maintenance
  11. Construction of dedicated road or upgrading existing roads
  12. On-going road maintenance and snow plow for new roads
  13. Possible transport of materials from existing site (customer convenience) to more distant site and back to existing site for shipping (not energy efficient)
  14. Consultant fees
  15. Increased DRC staff time for move-related work
  16. Increased demands on volunteer time for DRC Committee and Planning Committee

 

A final thought

 

One of the problems with government enterprises is that they don’t operate as if they had competition; we need to act like we have a strong, innovative competitor and be enhancing our value proposition at all times.

 

 

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