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Tuesday, October 23, 2012

Avoided Costs

In our rush to produce, we often forget the true cost of doing business. Especially in fields that we describe as competitive, the focus seems to get skewed to the speed at which we can produce, or bring products to market, keeping costs as low as possible or touting features that will give us the "edge" over the competition. Although there are things to be said about all of these demand-side parts of the equation, there are many more aspects of supply-side economics that need to be considered in the mix. As awareness rises about the impact of our decisions in the marketplace, consumers are expanding the list of qualities that they are looking for in the products and services that they use. Many folks who read these posts regularly might think that all commercial interests rub me the wrong way, but that certainly is not the case. I too consume products and services, but with an eye to efficient and sensitive business models that make sense to me.

If I see a building with high ceilings, massive north-facing windows, little or no insulation and co-mingled garbage overflowing from their dumpsters, no matter what they offer, I will be looking elsewhere to meet my needs. energy is a major cost of doing business and those facilities that are designed to scream throughput must certainly have to tack those costs on to whatever they sell. Similarly, if I can see that the owners and managers are serious about recycling, that they keep the thermostat down in the winter and allow their buildings to run a little warmer in the summer, it goes a long way to make me feel better about spending my dollars there. Likewise, if the employees seem happy and well-cared for, I assume that working conditions for their laborers are better than places where the workers seem beaten down, depressed and listless.

Especially in competitive markets, running a tight ship and treating employees well mean much more to a growing segment of the market than many larger businesses realize. Two of my pet peeves are Trader Joe's and Whole Foods Market. Just because you offer organic products, won't gain you street cred amongst those of us who detest the Wal-mart business model. Get big or get out has been the mantra for agriculture for decades and the same out-dated refrain is making inroads to every sort of business. In their attempts to grow into top spot amongst their competitors, businesses frequently overlook the simple fact that a penny saved is a penny earned. I work periodically for an exhibition company that used to compete with hundreds of other companies across the country to bring conventions to cities across America. In the old days, they had competition and worked hard to keep costs down. Now, they have bought nearly all of their competitors and without any real threat to their position they have become adept at cost cutting. Oddly, since they now buy virtually all of their materials and equipment from China, virtually everything they use for a show goes in the trash when they are done with it. The wooden tables with steel legs do get reused, the extension cords get re-used and the pipe and drape travels from show to show, but the skirting on the tables, the table covers and even the garbage cans get thrown in the trash. The costs of this behavior are felt most strongly in China, where workers are exposed to hazardous chemicals in production facilities, but here too, we pay the costs with absolutely no benefit in higher taxes and tipping fees, waste handling costs and ultimately having to create new landfills when our current ones fill up more quickly.

The reason that this mind set thrives is because we offer corporate welfare in the form of publicly owned landfills, built with tax dollars, but those who fill them up are not charged the full price according to their use characteristic. In this particular case, the people using the dumpsters are not the people paying to have the waste removed. Miraculously, someone else is forced to cover the costs of bad business decisions. By throwing away all of the table skirts, you can avoid the cost of washing them of handling them in ways that allow re-use to occur, driving down labor costs as well. this means that the company has more money and spends less as well. In their world-view these avoided costs are good for them, but for the workers, it shaves away their income and increases the stress on their personal budget. Sometimes, doing the right thing can benefit both sides of the balance sheet, but the trend seems to be that business only looks to their own pocketbook. I remember learning that even the garbage cans got thrown away. several weeks earlier I had to buy a small garbage can for a friend and it cost just a few dollars, but seeing hundreds stacked up and thrown away I got to thinking. This happen every day, across the country, perhaps hundreds of thousands of perfectly good plastic bins per year make their way to the local landfills across our great nation annually, after just one day's use. The most insidious evil is that on paper, it looks like a good idea. who wouldn't like to send workers home an hour or two earlier and pocket the cash that would be needed to pay them if they had more work?

Well, you see where I'm going with that. Avoided costs mean something completely different to the large corporate interests than they do to you or me. I do not begrudge the Chinese their "work" either, I just hate the idea of them supplying us trash. I did have to rent my own dumpster recently. we did a major home renovation and removed tons of  debris from our home. As much as possible, we saved what could be re-used, burned safely in our fire pit, or recycled. I understand that the time spent sorting our waste added time to the project and I understand that the money we saved by cutting waste removal costs by about half probably would not be "worth" the effort, but it was the right thing to do. Until we find a way to penalize corporations and small businesses for making the wrong decisions, or until all consumers get on the same page about our responsibilities to the marketplace, there will continue to be abuses of the resources of the planet, difficult times for workers and massive subsidies for the worst offenders. I realize that we are all under ever-increasing stress over how we make our living, but the sense of satisfaction that comes when we learn about the industries that we support is truly priceless.

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