By Brian Taylor, This e-mail address is being protected from spambots. You need JavaScript enabled to view it , 6/21/2001

The word courage is most commonly associated with battlefields and burning buildings. In the business world, courage may have more to do with daring to be unorthodox and risking failure than it does with putting oneself in harm's way.

In the paper recycling industry, Michael Finn, Jane Erkenswick and David Levinson are showing some courage by trying new ways of working with consuming mills while still achieving profitability.

The trio is guiding Chicago's Recycling Services Inc. through a volatile secondary fiber market with the intent of reducing the affects of that volatility for both their own company and their customers.

CAREER OPPORTUNITIES

Recycling Services president Michael Finn graduated from college in the 1970s with an idealistic outlook and hopes of improving the state of the environment. "I came out of the environmental movement in college," says Finn, who accepted a community development internship at that time with a recycling buy-back center in south Chicago.

In the course of that work, he met David Levinson, now a Recycling Services vice president, who was then working with Chicago's noted community development lender South Shore Bank. "After we had made initial contacts there, we purchased a couple of small buy-back centers," says Finn. "That's where I learned the scrap business, from the old-time scrap dealers who would buy from me."

The duo eventually focused on the scrap paper segment. "We next bought an 8,000-square foot plant with two pit balers," recalls Finn. "I started out to save the world, and ended up owning a recycling business," he quips.

The business, Recycling Services Inc., survived and grew, and became the first company in Chicago to offer large-scale office collection programs, says Finn.

Jane Erkenswick, now a vice president, was added to the management team in 1992, operating a brokerage subsidiary known as Fiber Options that served to market the tonnage being processed at the company's plant.

1992 was the same year Recycling Services Inc. moved to its current facility in the Brighton Park neighborhood on Chicago's south side. The company occupied 20,000 square feet originally, doubled its space in 1994, and in 2000 moved its offices across the street from its plant space to create more room for operations.

In 1999, the company acquired Great Lakes Secondary Processing, a firm that specializes in obsolete printer roll stock and other printer scrap. Last year, Recycling Services added document destruction to its roster of services. "It's a natural," says Finn. "We had some customers asking us about it."

The company's two balers, in combination with the trained sorters and a variety of material handling equipment, serve to process material shortly after it arrives.

"Basically, we don't store material here," says Finn. "Paper hits our floor and is gone in 24 hours."

The operating philosophy matches the trading philosophy that has been developed by the company, which stresses consistency and reliability.

Operations from Desk to Dock

Recycling Services Inc. operates out of two steel buildings built on a 100-year-old slab foundation located on an industrial side street in south Chicago. The company is situated less than 100 feet from a major east-to-west rail line, but the installation of Chicago's south side passenger train Orange Line from Midway Airport to downtown derailed Recycling Service's plans to add a rail spur to its site.

Instead, truck loading dock space has been expanded. Six docks serve inbound trucks bringing in material generated at area office desks and industrial sites, while three docks serve trailers being loaded for outbound shipments. Recycling Services itself owns six semi tractors and about 100 semi trailers.

Inside the plant, two skid steers and several forklift trucks unload material and take it to the appropriate staging area. Documents to be shredded head toward an area housing an Allegheny Paper Shredders unit.

Some incoming printer rolls are taken to a roll cutter made by the Canadian company Roeqco, which uses a guillotine motion to cut the rolls down to a more manageable size.

Other material is taken to the tipping floor, where sorters pull out improper paper grades, plastic or any other materials that should be segregated from the grade currently being baled. Additional tipping floor space serves packer trucks, roll-offs and a growing stream of peddler traffic bearing OCC and other materials.

"We've simplified the process," says Finn of the company's operating set-up, which features no sorting equipment, two balers (both fed by pit conveyors), and a minimum number of paper grades that are produced.

The company's marquee baler is a Bollegraaf 100 model extrusion baler, which has been producing 60 bales per hour, according to Finn. "It's a pretty phenomenal piece of equipment," he says of the machine's ability to churn out a steady stream of 1,700-pound bales of office grade paper.

The other workhorse of the plant is a 25-year-old Logemann Bros. Co. baler, which can produce five to six tons per hour of baled product.

SLOWING DOWN THE ROLLER COASTER

Although growth has been steady for Recycling Services, dealing with paper markets does not always provide a smooth ride.

Paper industry consultant Bill Moore of Moore & Associates, Atlanta, has tracked the price volatility of secondary fiber against other commonly traded commodities—including pulp and finished paper—and found the numbers backed up the intuition of paper recyclers that they are on an unmatched roller coaster ride.

Most recyclers have come to treat the volatility like the weather—it's something that can be talked about, but nothing can really be done. Other recyclers have devised strategies to take advantage of the volatility when circumstances are in their favor, while pulling back from the market at other times.

Recycling Services Inc. is attempting a new approach at supplying paper mills it trades with the positive and negative impacts of volatility for a more consistently priced supply agreement that allows both parties to budget and plan with greater confidence.

"We're looking to develop special long-term partnerships with mills that consume fiber, rather than taking the traditional adversarial approach of extracting every dollar the market will bear," says Finn.

"What we mean by partnership is a level of involvement that really understands the needs of both parties, as far as volatility, supply and cost," says Erkenswick.

She notes that the business term "supply integration" is often used to convey the level of understanding and partnership Recycling Services is looking to achieve with mills. "We want them to understand the costs we have in regard to collection, processing and shipping," says Erkenswick. "We then work to provide them the best product at the lowest price."

Forging such an agreement can be tough in an industry that has pitted suppliers versus consumers for some time, and sticking to it can be difficult in the face of price swings that will favor one party or the other.

"These partnerships are different in that they understand the true costs involved despite what the larger industry sentiment is dictating," says Erkenswick. "If you want us to be a reliable supplier of raw material, then understand what it costs us to provide that raw material."

Deeper understandings and long-term agreements can have several positive consequences, according to the Recycling Services executives. "We're looking to remove volatility for both parties," says Finn. "These are long-term deals, and the mills are interested because we can remove that volatility."

They note such interest is not unanimous in mill cultures where people from the cost accounting level may wish to narrow it down to a "How cheap can I buy this material?" question.

"A large percentage of these mills' dollars are spent to acquire their raw materials, yet they don't always empower their buyers," says Erkenswick. "When we're able to match up with a mill group who empowers their buyers, we can achieve that level of partnership."

The partnerships that work have resulted in new levels of cooperation and efficiency. "We're trying to take a joint perspective, to drive costs out of the system together," says Finn. "They say you take costs down by building volume. We're making the capital investments that allow us to process that volume efficiently."

He notes Recycling Services has also sent personnel to the mills to help evaluate the merits and performance of different grades, and devise new grades. "When we do blending, we do it to drive costs down for the mill, not to hide materials or get something by the mill."

"It has to be a dynamic relationship," says Erkenswick. "Both parties may come up with suggestions and ideas. We have to be prepared to make adjustments here, and they have to be understanding in terms of any sudden requests or changes."

The most tangible benefits of the partnerships, however, are their effects on pricing and supply. "What's it worth for them to have that fiber insurance?" asks Finn. "When prices go up, we don't put their supply on an export container," he remarks.

The stable prices accepted by both parties ensures a steady market for Recycling Services and a steady supply for the mill. "When you're committed to taking the volatility out, you're sacrificing those opportunities to 'make a partnerships, however, are their effects on pricing and supply. "What's it worth for them to have that fiber insurance?" asks Finn. "When prices go up, we don't put their supply on an export container," he remarks.

The stable prices accepted by both parties ensures a steady market for Recycling Services and a steady supply for the mill. "When you're committed to taking the volatility out, you're sacrificing those opportunities to 'make a killing,'" notes Erkenswick, adding agreements currently in place had weathered the volatile pricing of 2000 and early 2001.

Sticking to a core agreement based on trust and the open sharing of information is a core value shared by all three partners. "I'd say we don't know any other way than to be honest and to have integrity," says Finn. "That's the underlying theme of our company. We don't want to be adversarial, and we don't want to lie or cheat."

In an industry where tough negotiating over the price of every ton can seem like the bottom-line path to survival, the Recycling Services approach may seem questionable. But Erkenswick frames their approach differently. "It boils down to a philosophy of 'I'd rather be less rich with fewer headaches,'" she says.

Making Friends out of Foes

Recycling Services Inc. has put a great deal of time and thought into its efforts to create a less adversarial way of dealing with paper mills.

The company's ability to turn adversarial relationships around has not ended with the mills. Many recyclers are at odds with waste haulers, and see themselves chasing the same accounts and vying for the same space to place containers.

Recycling Services has formed a strong relationship with one Chicago area waste hauler in particular by subcontracting with the company. "We make a lot of our collections in packer trucks in partnership with an independent waste hauler," says Recycling Services president Michael Finn. "We decided we didn't need to be haulers."

The two companies work together not only on a contract basis, but also share relevant information. "We feed them garbage business, they feed us paper business," Finn remarks.

FUTURE SUPPLY AND DEMAND

If the management team of Recycling Services is experiencing fewer headaches, it is not because the pace of change has slowed within the paper recycling industry.

Among the changes facing paper stock dealers are apparent shifts in both the definition of and demand for many paper grades. "We have had to adapt," says Erkenswick. "Many of the grades no longer exist. Colored ledger and filestock are gone, while the sorted office mix has changed dramatically over the past five years."

In a classic chicken-or-egg scenario, new collection methods have both spurred some of the changes while reacting to others. "Chicago was one of the first cities to collect all paper in one container," says Erkenswick. "It's a dramatic change from the 'all white paper' and 'all colored paper' programs of the past."

The shifting nature of grades has made it even more important for a company like Recycling Services to work closely with its generators, says Erkenswick. "Generator cooperation is continual. The first place that quality starts is where you're picking up your material, or you end up dealing with shortcomings at the mill."

Simplicity is again a key word in this aspect of Recycling Services' operations. "We provide containers, compactors and arrange pick-up service with a hauler," says Finn. "We don't charge them and we don't pay them, but we control their disposal costs while providing building owners and tenants with a functional recycling program."

The company's stance against volatility can also be seen in its approach to collections. "We're always seeking more volume," says Finn.

"We have not traditionally pulled in the reins or stopped seeking new business when markets go down," adds Erkenswick. The company collects office paper from business accounts and old corrugated containers (OCC) from large retail and industrial accounts, often in the city of Chicago where there is an ordinance requiring recycling. This makes dependable service an important part of what Recycling Services can offer.

Finn estimates that one-third of Recycling Services' volume is in OCC, another third in assorted de-inking grades, with the final third consisting of a mixed office grade used by a tissue mill who is a large customer.

"It's a consistent, low-cost product they know they can depend on," says Finn. The production of two main grades helps bring about the simplification that can drive costs out of processing materials.

The company's stable workforce, combined with concentrating on a limited number of grades, has created an efficient, smooth-running plant. "We're moving toward self-directed work teams, because we have good people who can think," says Finn.

The creation of a successful business is Finn's greatest source of pride. "We employ almost 50 people now," he notes. "A lot of them are from this neighborhood. Some are immigrants, and some have saved to buy homes here. It's something I think we can be proud of, and it also keeps us motivated to make sure this business is here for the long term."

Whether seeking partnerships with consuming mills and material suppliers or making a commitment to employees, the long-term perspective seems to be the one kept in focus by Recycling Services Inc. RT

The author is editor of Recycling Today and can be contacted via e-mail at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .