<dhhead>Management Discussion & Analysis</dhhead>
Presently we are living in a society where our bonding with plastic is evolving at a fast rate. It is so much that we are talking of plastic money for our day-to-day use. In the past few years, consumption of plastic has been expanding in every sphere of our life. It has become difficult to think a life without plastic. Our kitchen, our bathrooms, bad rooms and even drawing rooms are full of plastic. In construction industry also, plastic has replaced steel, Aluminum at various places.
At the same time, Producers, Government and society is much worried for the increasing use of plastic and pollution created by plastic waste and its impact on the environment - AIR EARTH & WATER. There are more concerns for One time use plastic product. All the stake holders have a common target - to reduce plastic waste to ensure better environment for our future generations.
Government of India has already taken first Step towards the common target by implementing (PWM- 2016) Plastic Waste Management Rule 2016 as amended in Year 2018. Under PWM, responsibility has been fixed on the Polluters, Brand Owners, producers & Manufacturers for the collection of plastic waste from the society & its disposal in land filling & open burning. As per PWM 2016, Govt. wants to ensure 100% collection of plastic waste from the society in a phase manner over the time with the embodied principal "Reduce, Reuse and Recycle".
This step has given an opportunity for the development of sustainable business to establish infrastructure for the collection of plastic packing waste and recycle the material wherever possible.
RACE ECO CHAIN LTD is engaged in the business of trading & management of plastic packaging waste particularly PET plastic bottles. To achieve its aim, company is providing infrastructure solution and creating awareness in the society. Now it has been an established trader and aggregator for the collection system on behalf of recyclers.
Plastic Waste Focus
"Plastic Waste is a growing menace and wasted opportunity waiting to be explored & encashed"
- Sunil Malik, Managing Director
Todays Challenge for India in this space:
Over the past decades, the importance of plastic has significantly improved. It is now everywhere, and it is almost impossible to go a whole day without coming in contact or using plastic. Plastics are there in our electronic devices, household appliances, the synthetic fibres of our clothes, etc. It is one material that makes our modern lifestyle possible, and things would be very different without its usage.
There’s no sign yet that we are going to stop using plastics anytime soon. It has revolutionized almost all industrial sectors in the last few decades. It plays a crucial role in commercial sectors, from the carpet, furniture, and non-stick cookware in our homes, to the covering, instrument enclosures, seating, and panelling in our vehicles, to the personal protective equipment for medical personnel, medical devices, the synthetic rubber of tires, etc. Plastics are everywhere and in everything.
The world is awakening to the pressing need to save the Mother Earth from drowning into the plastic pollution. People and countries across the globe are looking at alternatives to reduce the impact on the environment and become more sustainable and greener. Today, plastic waste has become a major environmental concern.
While on one hand, industries are looking at plastic as a more flexible, convenient and cost-efficient material for products, on the other hand plastic products and packaging have been creating environmental hazard around the world. According to UN Environment, 1 million plastic drinking bottles are purchased every minute around the world and 5 trillion single-use plastic bags are used worldwide every year. Interestingly, around half of all plastic produced in the world is designed to be used only once and then thrown away, which most of the time end up in landfills or pollute our water resources. At the rate that we are moving ahead, it is believed that our oceans will be flooded with more plastic than fishes by 2050. Hence, it is a wakeup call for all of us to introspect, reimagine and act towards embracing recycling as The Need of the Hour & a requisite to leave the right legacy for the generations to come. The future is of reduce, recycle and reuse. Businesses and countries are working towards finding ways to become more sustainable and greener. The recent COVID-19 pandemic has further sealed the thought of restoration of nature and its resources to keep mankind and the Earth healthy.
The Opportunity: Awaiting to be Explored
Momentum is building to combat this issue. Countries, corporations, and communities are developing strategies and taking actions to reduce, reuse and recycle plastics. Leading global brands and retailers have made voluntary commitments to make their plastic packaging 100% reusable, recyclable, or compostable by 2025. The public and private sector are joining hands to realign priorities, rethink approaches and change mindsets toward seeing plastic as a valuable resource and business opportunity rather than waste. To catalyse the transition to a circular economy, the private sector needs to advance eco-friendly alternatives to plastic and innovative business models to support its reuse and recycling. This will help investors align with government interests and create value from used plastic, and most importantly, pave the way for a more sustainable future.
"The private sector must be a critical partner in driving solutions to the plastics challenge -- leading material, technology and financing innovations, contributing to education and engagement, and intensifying clean-up efforts. For its part, the International Finance Corporation is developing a framework to help create a new "asset class" of blue loans and bonds to mobilize capital for the
nascent market to tackle marine plastic pollution."
- Alfonso Garcia Mora IFC Vice President for Asia and Pacific
As interest in the circular economy grows, emerging recycling technologies that are complementary
with mechanical recycling are accelerating.
- Mckinsey & Company, May 2022
As industries continue to shift away from fossil fuels and toward sustainability, many consumer- packaged-goods (CPG) companies have pledged to sell goods that have less impact on the environment. These pledges affect a large portion of the plastic products people use or encounter in everyday life, including packaging materials such as bottles, caps, meal trays, and flexible film wrap. As a result, the demand for circular polymers is rapidly increasing—but capacity announcements are not on pace with demand growth.
Demand for recycled polymers is growing, primarily because of increased consumer awareness, CPG pledges, and regulations. These plastics can be produced through either mechanical recycling or advanced recycling. In mechanical recycling, plastic waste is washed, shredded, and pelletized, while in advanced recycling there is a chemical change and a longer route to go from plastic waste to ready-to- use plastic.
Recycled plastics are gathering steam: more than 80 global CPG, packaging, and retail companies have made public commitments to reach recycled content in their packaging between 15 to 50 percent by 2025. Europe leads the way in sustainability-related regulation, with fines imposed on nonrecycled-plastic packaging and a single-use plastics ban on ten items. Australia, Japan, and South Korea have set recycling targets for 2025 or 2030. And in North America, legislation in the United States varies by state, with Canada slightly ahead in terms of overall recycling requirements.
THE POTENTIAL: What’s Possible
As of today, mechanically recycled materials are the highest-by-volume non fossil plastics, followed by bio-based or biodegradable plastics. Mechanical processes are successful in effectively recovering the materials from polyethylene terephthalate (PET) and polyethylene (PE) bottles, which can be used to make recycled beverage containers (bottle-to-bottle recycling). These techniques are also applied to products as diverse as agricultural films, tubs, and bowls.
Another alternative is the feedstock recycling program which is becoming more critical and will only expand the available options to make a high-quality recovery. These technological processes result in some share of plastic rejects that can’t be recycled yet. The only way to address this is to focus more on the designs for recycling products and packaging that are partly made out of plastics. There are cases where it is more justifiable to consider banning the production of certain products made from materials that are difficult to recycle.
That said, using recycled plastics in food-grade materials is particularly challenging because of safety concerns around contaminants. Advanced recycling offers a way to solve this challenge by converting recycled material back into hydrocarbons and precursors that other processes can use as chemical feedstocks. Advanced recycling—which includes technologies such as pyrolysis, gasification, solvolysis, and microwave—offers a complementary way to expand the recycling landscape. As a result, it will likely play an increasingly important role in achieving circular-economy targets and commitments and help to expand the amounts, types, and qualities of plastic waste that can be recycled.
|Advanced-recycling technologies include conversion (feedstock recycling) and decomposition (monomer recycling).|
|Conversion (polymer to feedstock)||Pyrolysis||Mixed or sorted plastics, typically requiring||Naphtha (plastic feedstock)|
|Gasification||• >90% polyole fins (PE, PP, PS)||Synthetic crude oil, fuels, wax|
|? No oxygen or chlorine (PET, PVC)|
|Decomposition (polymer to monomer)||Pyrolysis/microwave||Sorted PS||Monomer Oligomer|
|Solvolysis||Sorted PET||Monomer Polyester polyols|
|Purification||Dissolution||Sorted plastics||Virgin-like polymers|
1 PE: polyethylene; PP: polypropylene; PS: polystyrene; PET: polyethylene terephthalate; PVC: polyvinyl chloride. Source: McKinsey analysis
A Must Win Battle:
While the challenges in the management of plastic wastes persist, there are still opportunities for it. The commerce sector has a variety of plastics which is a challenge. There are also technologies like the NIR (Near Infra-Red) sorting and other options for mechanical treatment for processing conditioned plastic wastes so that the quality of recovered plastics is high enough to be used as secondary materials to replace primary resources. Additionally, there are recycling manufacturers who are focusing of developing technologies to support Up Cycling and true recycling rather than down cycle the plastic which has been the real case so far in the shadows of so called "recycling". One such brilliant example is the newly found capability of producing a fresh bottle from a used recycled bottled which is nothing but a perfect example of churning the secondary category plastic to be born as Primary again.
What & Why of Unorganized to Organized # A deep dive!!
The Indian waste industry is highly fragmented. Waste dealers tend to scavenge and sell to small businesses, who sell it to bigger companies for recycling and as scrap. Because of the unregulated nature of the industry, there is a great gap between supply and demand. Currently, this ecosystem in India is spread across multiple levels, largely unorganized with transactions taking place offline haphazardly, some value transactions being made but not in an organized manner. Traders, rather than value-adders like Collectors and Recyclers, have mostly dominated the business.
Because of the lack of a proper Code of Conduct, the sector has been deprived of a proper industry status - and hence not received investments and more important little deployment of technology.
Fragmentation of this industry and, on the other hand, the Governments Plastic Management rules of EPR (Extended Producers Responsibility) for big-scale waste generators have created a peculiar problem. There is a gap between the consumption of Pet-bottles and recycling capability with no single player having the capacity to handle this. With the industry being largely unorganized there is no access to finance and so no technology and no scalability is possible.
Big scale generators hence cannot utilize their EPR budgets or do social audits as mandated since this is a largely unorganized industry where child labour is common, pay-outs are meagre and fluctuate and depend upon the mafia. This current situation ensures that no social audits can be done since the existing players are not organized and results in the EPR budgets lying unused. We at RACE are constantly adding capacity and diversifying our product mix to keep our growth engine fuelled. At the same time. the regulatory compulsions in the form of extended producer responsibility (EPR) and pledge for sustainability by brands and corporates will help to create a good demand for the recycled inputs - thus, furthering the ecosystem.
INDIAN R3 INDUSTRY MATURING # TECHNOLOGY, SCALE, RELIABILITY
Advanced recycling also has sustainability benefits. For example, it uses waste rather than fossil fuels for polymer production, and it diverts plastic waste from landfills and incineration. With landfills nearing capacity in some regions and incineration prompting concerns about carbon emissions, advanced recycling offers an alternative. If the current sustainability momentum were to continue at pace and if the constraints were resolved,2 we anticipate that advanced recycling would continue to grow and play a crucial role in meeting the demand for recycled polymers. In such a scenario, advanced recycling could satisfy 4 to 8 percent of total polymer demand by 2030 and would require the deployment of more than $40 billion in capital investment over the next decade (Exhibit 3). Although that may seem like a small portion of the total market for plastics, it demonstrates significant growth over today’s near-zero percent. Moreover, the technology has the potential for more than 20 percent year-over-year growth through 2030.
For these reasons, among others, new programs should help to improve the collection of plastic waste, particularly around flexibles, multilayers, and pouches.
Some programs have been introduced to improve sortation for flexible plastics and enhance recovery rates, including pilot programs for enhanced optical sortation in material recovery facilities (MRFs) and alternative collection programs, such as secondary bagging.
Scaling these programs, however, entails significant changes in consumer behaviour, and investment in waste collection and MRF upgrades. Material densification, which compresses loose plastics into waste bales of uniform size and shape, can help offset high transportation costs. Other routes to help scale supply require changes in collection processes and consumer participation to expand the supply of plastic waste, improved feedstock management via digital solutions to ensure consistent input and output quality, and technological advances in sortation to improve recovery rate.
THE FUTURE: WHAT IS LOOKING AT US
(Using an Economic Feasibility Lens to Select the Next Moves)
The elements that could provide the foundations of a successful recycling system
a. A circular economy for plastics # The first is to design or redesign plastic products to be recyclable.
b. Next is putting in place effective systems to recover end-of-life plastics.
c. The third element is to reuse the recovered plastics by recycling them, turning them into new products that will create value.
Our research, experience and deep digging has shown substantial value-creation potential in capturing plastic waste and using existing technologies to process it to make new plastics and other chemicals. To date, however, investments to translate this potential into reality have been relatively small. Globally, only around 15 percent of plastics produced each year get recycled.
After deliberating and exploring a great deal, we at Race have realized that in order to have a sustainable and viable solution to manage the entire recycling aspect, India desperately requires an exclusive, relevant and state of the art Supply Chain to serve this sector which possess massive potential to provide wings to each and every bird who makes part of the chain. The following section has been handpicked to emphasis upon considering the value it carries in our opinion.
THE NEED & THE SOLUTION # SUPPLY CHAIN MANAGEMNET
A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end user.
The fundamental steps of a supply chain in order are as follows:
a. Sourcing raw materials.
b. Refining those materials into basic parts.
c. Combining those basic parts to create a product.
d. Order fulfilment/Sales.
e. Product delivery.
f. Customer support and return services.
The amount of time it takes any one of these processes from start to completion is known as lead time. Supply chains can be contrasted against value chains -- they contribute to the end product in different ways. Supply chains aim to meet customer demands. Value chains seek to add value to a product on top of its inherent value. The purpose of the value chain is to give the company a competitive advantage in the industry. Supply chain management and value chain management are two slightly different perspectives on the same basic process and work in tandem to meet two slightly different definitions of "demand." At Race, we are not only aiming to build a robust supply chain for our industry but are highly aspired to create the Value Chain to make the Real Difference.
Todays Supply chain challenges # Specific to our Industry
India’s waste management and Recycling supply chains are complex and present several common challenges. These are:
a. Potential lack of transparency. Having transparency enables stakeholders to understand the status of the supply chain.
b. Waste due to inadequate production cycle. Businesses that inaccurately gauge their supply, demand or capabilities may end up with an overstocked inventory.
c. Unsatisfied business partners and customers. The ultimate goal of SCM is to meet customer expectations. This involves managing those expectations realistically, but also providing a valuable product.
d. Lost or delayed goods. Goods that go missing at any point in the chain ultimately delay the whole process and can impact customers negatively.
e. Increasing customer expectations. New technology and businesses raise customer expectations, which can be difficult to manage, and impossible to meet if not properly managed.
f. Resiliency to sudden changes in the supply chain. External factors can cause unforeseen changes in a supply chain, so best practice is to prepare for the unexpected and be able to pivot if need be.
g. Technology advancement requires the supply chain to cope up with it. Food Grade Material, Bottle to Bottle
h. Hoarding, Push & Pull, No Process or Security leading to a gap between Supplier and Recycler and they both kick each other as and when the opportunity rather than supporting each other to create value for both of them
How Race is attempting to solve for the challenges # The Plan
a. Adapting LEAN: A lean supply chain is a supply chain operating at its very best: it supplies the goods or products to the end customer in the most efficient manner possible, with minimal waste, loss, and with enough flexibility that it can adapt to unexpected delays
b. Use lean SCM and logistics techniques. Lean increases flexibility and minimizes inventory waste.
c. Increase inventory velocity. Companies need to ensure their supply doesnt outweigh demand, and that they can capitalize on distributed, quickly changing demand.
d. Enterprises need to collaborate with other businesses in their supply chain to optimize the entire chain, not just one companys process. The relationship with suppliers is especially important.
e. Shorten cycles. As supply chains become more complex, they get longer, and so do processes. Businesses should aim to keep them as short as possible to meet customer expectations.
f. Use supply chain technology. Technology allows managers to integrate their supply chains and collaborate more effectively.
g. Implement useful metrics. Well-defined metrics allow managers to accurately gauge the efficiency of the chain.
THE CRITICAL ONE # SETTING UP END TO END PARTNERSHIP
End to end (E2E) supply chain involves an entire integrated process. From product design and procurement of raw materials then scheduling, production and then final delivery of finished product to the customer. It is further extended to after-sales service and reverse logistics depending on the nature of the business.
Main Components #
a. Demand/ Supply planning - stocking strategy and sourcing based on product/ service forecasting
b. Procurement - sourcing plus purchasing
c. Sourcing - vendor/ supplier selection and supplier delivery agreements
d. Purchasing - purchase orders based on supply planning/ order management
e. Production / Manufacturing - making the product (by hand or industrially)
f. Warehousing - resources and space required for managing inventory
g. Delivery/ Distribution/ T ransportation - strategy based on retailer or customer
h. After-sales service - maintenance and managing returns from customers
i. Reverse logistics - product return, reuse, or repair
a. Seamless flow of activities across the supply chain
b. Reducing delays with the ability to detect any issues across the supply chain
c. Better relationships with suppliers and customers
d. Complete visibility can reduce risks, operating costs, and predict and plan to meet the needs of market changes
e. Transparency and the ability to view "blind spots"
f. Reduced labor and material costs, by removing waste in the process
Elements of Trade Offs #
a. Cost: Finding a cheap supplier to lower the raw material cost may impact the material availability due to low supplier reliability.
b. Quality: Bad quality sourcing to reduce costs can impact the production plan due to a higher defection rate impacting machine downtime.
c. Inventory: Due to lower supplier availability and bad quality, the safety stock of both components and finished products needs to adjust to counter the low-cost strategy at first. But increase in safety stock will eventually increase the overall cost due to holding, handling, and possibility of damage and obsolescence.
d. Service level: An increase in promised service level to customers to get higher revenue increases the risk of customer dissatisfaction due to the inability to deliver in full on time (DIFOT).
e. Working capital: Improving the cash-to-cash cycle may result in procuring material at a higher than usual cost, as the supplier will take away any discount due to paying them late. This is the same when it comes to the customer side where business asks them to pay early as a result of giving some customer incentive which will impact the overall revenue.
f. Promotions: To increase sales, promotion is one of the strategies. However, it comes with a cost of creating disruption in production and inventory due to volatility created by intermittent demand.