Paper Recycling Supplement -- Keeping Fit

The Sutta Co. of Oakland, Calif.,  keeps its expenses lean with the bottom line in mind.

Steve Sutta has seen what happens to recycling companies that aren’t prepared for a down market: They tend to disappear. Sutta, president of The Sutta Co., Oakland, Calif., has been in the industry long enough to see competitors close up shop during a pricing slump, and he has no desire to see his company end up as one of the victims.

He notes that 15 years ago or so, nearly two dozen recyclers competed in the Bay Area for the scrap paper generated there. "It’s down to five or six significant companies now, and the shrinking of the competitive pool is going to be a continuing thing."

To avoid a similar fate, Sutta has concentrated on growing when an opportunity presents itself, and also on keeping operating costs lean and productivity high. "I’m really stubborn," he declares. "I’ve been willing to cut costs. One of our goals is to be the low-cost processor in any market we enter."

Steve Sutta’s experience as a recycling company owner goes back more than 25 years, when in 1975 he was the co-founder of a paper recycling facility that was eventually sold to Weyerhaeuser.

The Sutta Co. was started in 1984, where Steve initially worked out of his home as a broker. In 1987, he opened his first packing plant. "Now we’re in five cities: Oakland, Oxnard (north of Los Angeles) and Modesto, Calif., as well as in Reno, Nev., and in Seattle."

According to Sutta, the expansion to other markets has not necessarily followed a master plan, but has been more opportunistic in nature. "The expansions to both Reno and Oxnard came out of specific opportunities," he notes.

The Oakland plant remains the volume leader among the Sutta facilities, according to Steve, but each of the plants is "pushing 3,600 tons per month" in processing volume.

The material the company processes comes largely from industrial and office accounts. Sutta has decided not to tap into the residential curbside fiber stream.

"I don’t view someone who is in curbside as my competitor," he remarks. "They’re addressing 20 percent of the market; I’m addressing the other 80 percent. Curbside material is a smart way to go if you change your operation that way. For those who use them, the curbside sorting systems are incredible, but we decided not to go that direction."

Instead, says Sutta, the company has worked on solidifying relationships with large-volume generators. "We’ve really tried to understand what our suppliers’ needs are, and then to put together custom systems for large bulk generators of scrap paper."

Such solutions can include compactors or balers on site at generation points, Sutta notes. "Our goal is to try to streamline our suppliers’ waste handling systems. We reduce their operating costs and our handling costs. In short, we work with large generators and keep them happy."

Custom programs can also be more technical for printers and other large generators. "We’ve been very successful with the generators in terms of designing material handling systems; proprietary equipment that lowers their cost. That’s really at the heart of providing value to them," states Sutta.

"We’ve helped them design systems with conveyors and dryer systems, sludge presses, shredders: what ever is cost effective for the situation," he continues. "The custom systems are designed specifically for the generators, and sometimes include collecting plastics, metals, pallets and other materials. We have an engineer in house and two or three people on the sourcing side who can suggest what will work." One noteworthy case involved helping design a $600,000 air system for a corrugated plant.

The company is also offering document destruction and information security services as an adjunct business. Operating under the name Assured Shredding, the focus of the division is on document destruction and other business confidentiality matters, according to Steve Spence, who heads up Sutta Co.’s operations in Seattle.

The company provides security audits and then shreds and recycles sensitive documents and computer components containing sensitive information. "Material is recycled as much as possible," says Spence of the electronics operations. "We pull wire for recycling and collect the metal shells for recycling," says Spence.

Sutta’s goal of being the lowest-cost operator is needed to compete during pricing troughs and to thrive when margins are more generous. No matter what price paper might be selling at, Sutta says margins are tighter and there has been "price compression between the grades," meaning packers always have to watch the bottom line.

"We focus on costs," he remarks. "We try and run the most cost-effective equipment, and we buy a lot of used equipment. I’ve also got talented people on the operations side at each of the locations," he adds.

High-volume production at each location is important to the company, says Sutta. "We run the fastest balers that we can," he remarks, referring to Lindemann American Baler Ltd. Bigro 110 model single-ram balers Sutta Co. runs at three of its plants. "We want to ship out quickly and don’t want to carry more than 10 days of inventory at any one time. If we could move it out even faster, we’d like to."

Another key to how Sutta Co. works is "simplified operations," according to Sutta. The company tries to maintain a lean staff and collects paper and prepares grades in ways that will minimize the need to sort either mechanically or manually.

Sutta says he did not envision his operations taking the turn they have over the years. "I never thought prices would drop in 1984," he recalls. "I thought resources were finite and prices would rise in general—instead we’ve seen constant dollar prices for fiber below Great Depression pricing at times," he notes. "And I never thought I would avoid sorting, but price compression [among grades] made me change my mind."

Computers and powerful balers have also changed the way recyclers operate, he notes. "I never envisioned the efficiencies computers would bring. We had a staff of eight people in an accounting department in the 1980s, but now do five times the volume with half the number of accounting people. The computer has really transformed the process, with much better information."

Similarly, the high-production balers have allowed Sutta Co. to maximize production at each plant. "Now I bale in Oakland in an hour what I used to bale in two days in 1987," he comments. "We have larger balers with faster cycle times. The electronics and hydraulics permit them to create faster, denser bales. We can load 60,000 to 65,000 pounds per trailer. It’s the close to limitless speed that is amazing. You run something like news at 70 or 80 tons per hour—and that’s not pushing it. In the mid 1980s that was not achievable."

Adding high-speed balers and computer systems were natural ways to grow the company, but a key to doing it right was to not assume a heavy debt load, says Sutta. "We’ve enjoyed a lot of growth in the past five years, but I never wanted to do things that my income doesn’t justify. Why add new capacity so you can suffer debt payments? You’ve got to avoid burdensome debt."

Despite some industrial facilities moving away from California’s heavily regulated climate and into Nevada and Arizona, Sutta says there are still generators to tap into. "In California, there is still a nice bulk of customers in some segments," he says. "There are still printers and a lot of fruit growers and food processors. The agricultural business is huge in California. That’s really a base of business here—the boxes and labels used in agribusiness."

Sutta remarks, though, that, "The regulatory climate is not good. Land and labor costs are extreme. If I didn’t own my land, I’d be in trouble. There is less manufacturing in California, with much of it moving to Nevada and Arizona. But certain things can’t be moved."

Despite the forces causing some companies to relocate, people are still drawn to the Golden State. "Our focus is California. The population is probably going to grow by another 50 percent over the next five 10 years," Sutta remarks.

On the consuming side, Asian markets figure more prominently now than they did when the company began. "From my Oakland plant, more than half my cargo goes offshore," notes Sutta. Contrarily, product from the Reno, Nev., plant stays almost entirely within the U.S.

Steve Spence, who is also in charge of material marketing for the entire company, estimates that about 65 percent of the company’s material is shipped offshore.

The company continues to make moves to prepare it for any and all circumstances. "We decided we could no longer afford to work with outside haulers. We went out in what at the time was a difficult paper market and bought about 12 trucks and reduced our costs. It has taken up a lot of management time and focus, but it’s all part of keeping costs down," says Sutta.

The company also will deal in materials in addition to paper. "We move 200 to 300 tons of plastic per month," says Sutta, "and some metal, for those generators who want one-stop shopping."

It’s all a part of staying competitive and staying alive, says Sutta. "I think that everyone who is in this business will have to look at their costs and figure out how to reduce them."

The author is editor of Recycling Today and can be contacted via e-mail at www.RecyclingToday.com.