OM in the News: The Silicon Valley of Recycling

The facility sorts out a 30 foot hill of debris daily
The facility sorts out a 30 foot hill of debris daily

You won’t find San Francisco’s Pier 96 in any travel guidebook but it has become a must-see destination for visitors from Afghanistan to Vietnam. They’ve come to explore Recology — one of the world’s most advanced recycling plants, a deafening system of conveyor belts and sorters that, with the help of human hands, untangles a 30-foot hill of debris collected by trucks every day from across the city.

Foreign officials and others come here to pick up tips on how to handle their own mushrooming piles of garbage back home. As the world’s population grows, people are consuming more, creating more trash, and countries are looking for ways to deal with it that put less stress on the environment. Many are part of a growing movement sometimes called Zero Waste or the Circular Economy, writes The New York Times (March 29, 2016). It entails trying to eliminate tough-to-recycle items like flimsy plastic bags and also pioneering new ways to recycle or compost everything else. Despite strained recycling economics–caused by falling oil prices that has driven down the cost of new commodities, like plastic, and, in turn, the price of recycled materials sorted and sold by Recology–interest remains strong.

Today, San Francisco diverts 80% of waste away from landfills, putting it among the elite recycling cities. San Francisco also has a world-class reputation for its composting processes, which turns food waste into fine, coffee-like grounds that is sent to farms as fertilizer.

Although Supplement 5 focuses on corporate social responsibility, this article illustrates that sustainability is a government issue as well.

Classroom discussion questions:

  1. What is the most difficult part of the process for Recology?
  2. Explain the concept of the triple bottom line.

OM in the News: Sustainability and Natural-Gas Truck Sales

A factor limiting natural-gas-powered truck sales is the arrival of new, more fuel efficient diesel engines
A factor limiting natural-gas-powered truck sales is the arrival of new, more fuel efficient diesel engines

“In the midst of the strongest market for commercial trucks in 8 years, sales of natural-gas-powered haulers are just crawling along,” writes The Wall Street Journal (Aug.26, 2014). Higher purchase prices compared with diesel trucks, improved diesel fuel economy and continued scarcity of fueling stations are damping natural-gas-powered truck demand. Forecasters had expected sales to about double to 16,000 vehicles this year amid the trucking industry’s enthusiasm for natural gas a year ago, but only a 20% increase took place.

What happened? A big roadblock remains the premium for a heavy-duty gas truck—$50,000 more than the about $150,000 for a new diesel-powered truck. In theory, the payback for that higher price is recovered from fuel savings of $1.60-$1.70 for the gas equivalent of a gallon of diesel. Paybacks can average 4 years considering the average truck travels 125,000 miles a year. But fleet operators typically replace their vehicles every 3-4 years, leaving little time for them to benefit from the lower fuel costs of natural-gas-powered trucks. And the limited number of natural-gas refueling stations limits the switch to gas. Only about 750 natural-gas fueling stations are available in the U.S., and not all of these can accommodate large trucks.

The good news: UPS this year has ordered about 300 gas-powered heavy-duty trucks and bought 700 gas tractors last year. The trucks operate mostly in corridors in the West and South that have plenty of natural-gas stations, some of which UPS helped to finance. By the end of the year, about 2% of UPS’s 100,000 vehicles world-wide will be powered by natural gas. In addition, Wal-Mart, Office Depot, Lowe’s and P&G are among the companies requesting their trucking suppliers use natural-gas vehicles to comply with corporate policies to reduce carbon dioxide emissions and pollution caused by burning diesel fuel.

This article nicely complements our treatment of Life Cycle Ownership and Break-Even Analysis on p.195 in Supplement 5.

Classroom discussion questions:

1. What are the advantages and disadvantages of natural -gas-powered trucks?

2. Why have sales stalled?

OM in the News: Sustainabilty in Trucking Logistics

waste mangaement truckHere is a great article that ties into our new chapter, “Sustainability in the Supply Chain” and its Example S2 (see p. 195) dealing with life cycle ownership/break-even analysis.  The Wall Street Journal (Oct.30, 2013) writes: “Operators of some of the largest U.S. truck fleets, including Lowe’s , P&G, and UPS are accelerating a shift to natural gas fueled trucks, betting on new engine technology that promises to drop the cost of shifting from diesel fuel.”  Lowe’s wants its delivery company to shift all of its several hundred trucks to natural gas by 2017. P&G already has 7% of its trucks on gas and could reach as much as 20% within two years. UPS says it plans to buy 1,000 natural gas trucks by the end of next year. FedEx plans to shift 30% of its long-distance trucks to natural gas over the next decade.

The nation’s supply of relatively cheap natural gas is helping spur this shift. So are new natural gas engines that can power heavy-duty trucks that weigh up to 80,000 pounds. About 5% of all heavy-duty trucks sold next year will run on natural gas, up from 1% this year. Barriers to wider use are coming down, driven by the relatively low-cost of compressed natural gas, or CNG, which sells for about $1.50 less a gallon than its equivalent in diesel fuel, which averages about $3.87. Natural gas also produces less carbon dioxide, carbon monoxide and sulfur-based pollution than diesel or gasoline per mile driven. Diesel-engine trucks get 5-7 mpg and average 100,000 miles a year.

Waste Management, Inc. has converted 15% of its 22,000 truck fleet to natural gas, and  90% of its future purchases will be natural gas fueled, helping it save $15,000-$20,000 a year per truck, a 2-year payoff. The cost of the natural gas vehicles is still an issue. CNG trucks cost $40,000-$50,000 more than a diesel truck, which costs about $120,000. In large fleets, that premium could add millions of dollars to equipment cost.

Classroom discussion questions:

1. Why is the switch to CNG trucks an OM issue?

2. What factors are driving the change?

OM in the News: Fill ‘Er Up…With Natural Gas

LNG pump at Blu filling station in Salt Lake City
LNG pump at Blu filling station in Salt Lake City

If you drive down I-15 in Beaver, Utah, you’ll see a 30-foot-tall silo with white letters that spell out “Blu.” Next to it is a truck stop. It is no ordinary truck stop. The silo contains liquefied natural gas (LNG) chilled to -200° F and ready to fuel specially outfitted 18-wheelers. The facility is owned by Blu Transfuels, which expects to build 50 natural-gas filling stations nationwide this year, according to Fortune (May 20, 2013).

Drawn to the vast potential of America’s fracking boom, Blu plans to convert natural gas into a liquefied form and use it to power the country’s fleet of 8 million heavy and medium-weight trucks, which account for 15% of U.S. oil consumption. The company’s partner, ENN, already operates 238 natural-gas stations in 59 cities in China. Blu’s VP of sales says, “LNG will allow our transportation fleet to save money and at the same time reduce its carbon footprint by 25%.”

Blu is not alone. Clean Energy, a company backed by T. Boone Pickens, says that it will have about 150 natural-gas stations in 33 states by year-end. Shell’s first LNG station opened in April in western Canada. Shell’s president says, “LNG has the potential to transform the transportation sector in a big way.”

The new LNG trucks should cost only $30,000 to $40,000 more than diesels. Given that a typical 18-wheeler travels 100,000 miles a year at 5 mpg and that LNG is about $1 to $1.50 a gallon cheaper than diesel, a driver can save as much as $30,000 a year in fuel — a one-year payback. Many trucking companies lock in their fuel costs for five years, which would provide a total savings of $120,000 over the life of the contract.

Discussion questions:

1. Why is LNG a supply chain topic in operations?

2. What major US shippers have announced plans to convert to LNG-powered fleets?

OM in the News: How Oslo Turns Garbage into Energy

Half of Oslo is heated by burning garbage
Half of Oslo is heated by burning garbage

Oslo, writes The New York Times (April 30, 2013), is a city that imports garbage. Some comes from England, some from Ireland. Some is from neighboring Sweden.  A British tax on landfill makes it cheaper to send it to places like Oslo. “It helps us in reducing the escalating costs of the landfill tax,” says a spokeswoman for Leeds, England. Oslo even has designs on the American market. “I’d like to take some from the United States,” says the director of one plant that turns garbage into heat and electricity. “Sea transport is cheap.”

A recycling-friendly place where roughly half the city and most of its schools are heated by burning garbage — household trash, industrial waste, even toxic and dangerous waste from hospitals and drug arrests — Oslo has a problem: it has literally run out of garbage to burn. The fastidious population of Northern Europe produces only about 150 million tons of waste a year, far too little to supply incinerating plants that have capacity of more than 700 million tons. The problem is not unique to Oslo, a city of 1.4 million people. Across Northern Europe, where the practice of burning garbage to generate heat and electricity has exploded, demand for trash far outstrips supply.

Garbage may be garbage in some parts of the world, but in Oslo it is very high-tech. Households separate their garbage, putting food waste in green plastic bags, plastics in blue bags and glass elsewhere. The bags are handed out free at groceries and other stores.

Still, not everybody is comfortable with this garbage addiction. “From an environmental point of view, it’s a huge problem. There is pressure to produce more and more waste, as long as there is this overcapacity,” says one Norwegian environmental expert. Retorts the head of Oslo’s waste recovery agency, “Recycling and energy recovery have to go hand in hand.”

Discussion questions:

1. How do some US cities deal with massive amounts of garbage?

2. Why are sustainability efforts such as this of interest to operations managers?