This morning I had a meeting with one of our scrap material suppliers to try and give him the bad news we don't really want or need his business unless the price is reduced considerably. This is a hard one mainly as it was a joint venture for charity instead of the waste material ending up in a land fill. We as a business have moved on since we started this partnership and I know and understand the business completely these days.
He acknowledged this and appreciates us working with them and this is now more of a favor than a business venture. The price will be reduced and this is what I am currently working on as something needs to go to charity even if we reduce the current price by 70 or 80% to make it more viable. Free would be good, but then there is no benefit to the charity. Even if we took it away for free their business is saving money so me offering a much smaller percentage is more than fair.
The problem is this specific material is the PPE mask material that is left over after manufacturing and as we know mask material has no weight. These bags you see in the photograph are roughly 25 Kg's each and are roughly a similar weight to a punching bag, but 3 times the size. This material needs to be compacted by roughly 6 times and this takes time.
The time is where the cost comes into play as labor is not cheap and using this material takes roughly 4 x longer to complete one bag. The charitable fee is 2.5 x less than the material we purchase and therefore going cheap is not always economically viable. The profit margin is still great using this material it is that we cannot hit the daily volume targets with this material. The team currently achieves an average of around 100 and if we only had this mask material less than 30 which is fine if you have no orders to fulfil.
What complicated matters more this morning is I noticed they use pallet wrap and branded sellotape which I happen to sell. I would like their business and expect it considering the favor I am doing for them as it reduced their waste bill each month. I agreed to 6 more months of doing this deal only as a stop gap when we have no other material so I can still keep the team busy covering their costs. The material would still generate some profit, just not as much and have to consider how much down time costs as there is then zero profit so having another option is very handy even if not as profitable.
The above material is what works very well and the supplier can only supply 10 tons monthly and this literally lasts only a few weeks and have another supplier who tops us up with shredded material that is confiscated counterfeit clothing via customs that has been seized and shredded. This costs slightly more but takes less time to stuff so the mask material is still a distant third in the queue when it comes to desirable material.
I agreed to take 20 bags weekly which is 2 tons per month even when I really do not want it. A catch 22 really as I may need it at some point soon when the orders pile up. I now just have to come up with a system of somehow using this before it piles up as I have a feeling we may need this material when the busy season starts.