A question from the owner
The owner asks a simple question at the monthly meeting: which grades make money? The sales manager says copper and aluminium obviously do. The operations manager thinks mixed paper loses money when prices are low, because of the sorting labour. The accounts manager says the business made a profit overall, which is all the accounts show.
Nobody knows. The purchase price per grade is in the weighbridge system. Sale prices are in settlements. Labour, energy, baling wire, residue disposal and haulage are in the accounts as totals. Nobody has ever divided them up by grade.
So decisions about which suppliers to chase, which grades to stop accepting and where to invest are made on instinct.
Why margin per grade is invisible
The data exists, but in the wrong shape.
- Purchase prices are per ticket, not summarised per grade.
- Sale prices are per settlement, with weight differences and deductions.
- Processing costs are totals, not allocated to grades.
- Residue from processing a grade is not charged back to it.
- Haulage is booked per load but not matched to grades in the accounts.
What not knowing costs
Some grades may be losing money every month and nobody knows. Others may be more profitable than assumed, and deserve more attention from sales. Without a margin view, effort goes where instinct says, which may not be where the money is.
When markets fall, knowing your true cost per grade is the difference between setting prices that protect margin and discovering losses at the year end.
And investment decisions, such as a new baler, a second picking line or covered storage, are hard to justify without numbers.
How we build margin per grade
What we build brings purchase, sale and cost together per grade.
- Purchase cost per grade comes from weighbridge tickets, net of deductions, including rebates paid to commercial suppliers.
- Sale revenue per grade comes from settlements, using buyer weights and prices, after any claims.
- Direct costs, such as haulage per load and baling wire, are assigned to grades from the loads and bales that used them.
- Shared costs, such as labour and energy, are allocated by a method you choose: tonnes processed, line hours, or a mix. The method is shown on every report.
- Residue from each stream is charged back to it at your disposal cost.
- A monthly view shows margin per tonne and in total per grade, with trends, and lets you change the allocation method to see how sensitive the result is.
| Component | Source | Allocation |
|---|---|---|
| Purchase cost | Weighbridge and rebates | Direct per grade |
| Sale revenue | Settlements | Direct per grade |
| Haulage | Load records | Direct per load |
| Labour and energy | Accounts | By method you choose |
| Residue | Residue weights | Charged to originating stream |
What you do with the margin view is your commercial decision. We make the numbers and the method visible.
The monthly meeting with a margin view
The owner opens the margin view. Copper and aluminium are strongly positive, as expected. Mixed paper is slightly negative this month once sorting labour and residue are allocated, and has been for three months as prices fell. Cardboard is healthier than anyone thought, because it needs little sorting.
The meeting decides to review the mixed paper price paid to suppliers and put more sales effort into cardboard suppliers. Next month's view will show whether it worked.
Do you know which grades make money?
- The accounts show overall profit but not by grade.
- Processing costs are never allocated to grades.
- Residue costs are not charged back to the streams that create them.
- Decisions about grades are made on instinct.
- You cannot say what a grade costs you per tonne to process.