M.E.L.D. Winter 2005 - Stanford...

M.E.L.D. Winter 2005

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Stanford University Design School ME 206 / OIT 333 Entrepreneurial Design for Eradicating Poverty: M.E.L.D. Implementation Plan Oscar Mascarenhas Elinor Mertz James Monsees Yves Vanden Hende March 2005


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Table of Contents

Executive Summary 1. Implementation Plan Overview 2. Products 3. Business Model and Financial Plan 4. Internal and External Organization 5. Risks and Considerations 6. Additional Research 7. Investment Highlights Appendix


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Executive Summary Vision: To design affordable technology that can transform the lives of the poor in developing countries. Mission: MELD’s mission is to address three of India's problems: pollution, unemployment and the unavailability of cheap materials to design products for the rural poor. MELD uses an innovative low cost, low energy technology process to transform readily available plastic scrap into useful materials and end-products while providing employment to a substantial number of the poor. Challenge The biggest challenge in designing for the poor is the cost of the materials (see figure 1.1). The IDE water storage bag is a good example; the cost of materials limits its durability and strength. More importantly, selling industrially manufactured products to rural farmers takes money out of rural areas. We want to develop a high-labor, low-cost solution as shown in the “MELD Model” below, where in addition to the end-product, the whole manufacturing process and supply chain create value for the rural and semi-urban poor. Figure 1.1 Economic Models for Designing Products for the Poor

Current Model:

MELD Model:


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At the same time that cheap materials for design are difficult to find, in many poor environments, waste plastics are found in abundance. This is a tremendous problem in India, especially with plastic bags. Plastic carrier bags clog up the streets, gutters and countryside, and are a health hazard to animals and humans. The environmental and economic consequences are severe. Yet, unfortunately, it is uneconomical to recycle waste plastic bags, given the high energy and volume requirements for cleaning, sorting and then melting them down to make new plastic forms. So, even in areas where the systems of incentives exist to induce some plastics recycling (of bottles and containers), plastic bags are rarely recycled and instead merely end up on the street after they have exhausted their useful lives. Our Solution By experimenting with plastic bags, we have found that by “agglomerating” them (i.e., heating several bags together at relatively low temperatures), we can create a surprisingly strong and hard plastic composite-like material. Depending on the thickness and rigidity, this material can be used to make roofing and building composites, cartons and trays for food and vegetable transportation and even consumer goods like wallets and handbags. Based on our economic estimates, we can produce a roof that retails for Rs. 550, almost a quarter of the market price of equivalent roofing material sold today in India. The competitiveness of our solution lies in a low cost production process and efficient input supply chain. Value Proposition Apart from solving a severe environmental problem, our solution adds value to the ‘informal sector’ which is ideally suited to taking on small-scale recycling activities. Such employment opportunities to earn a decent income are rarely missed by poor. Additionally, we will provide value to poor consumers by creating products that are actually priced within their reach.


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1. Implementation Plan Overview The following section will discuss the plastic bag recycling market failures, our approach to solving these failures, the availability of plastics, and our technology and process. The following section will discuss the end-products that result from our process innovation. 1.1 Problem Area What is the problem? The plastic carrier bag, also called the polybag, increasingly clogs up the streets, gutters and countryside of India. In the words of one Delhi environmentalist: “Omnipresent, the plastic carry bag has strewn itself everywhere. In gardens, parks, drains, garbage dumps, on branches of trees and even in bird nests, it can be found to exist, propagating almost like a life form”.1 Environmentally and aesthetically, plastic bags are turning out to be a tremendous problem. They clog drains leading to the spread of infection and disease from stagnant water, the death of cows and other animals that ingest them, soil and environmental degradation and pose health hazards from the dyes used to color the plastic bags. There is also a heavy economic loss associated with the aesthetic pollution, especially in tourist regions. Why does it exist? The problem of polybag littering arises primarily due to increased consumption, indiscriminate use and disposal, and inefficient waste management systems. The plastic bags cost consumers nothing, therefore the system is caught in a vicious ‘use and discard’ cycle. Wastepickers or “rag pickers”, the people who traditionally form the backbone of India’s waste collection, have stayed away from plastic bags for one simple reason – it is uneconomical; it takes between 450 and 800 of the thin polyethylene bags to make up a kilo with almost an entire day of backbreaking effort to achieve this. 2 Moreover with conventional recycling methods, the high energy and labor requirements in cleaning, sorting and then melting the bags down to make new plastic forms push value down the chain leaving little to nothing for the wastepickers. Contrast this with plastics recycling in the developed world where plastics are usually collected at the source from 1) curbside collection - where consumers place designated plastics in a special container at the curb outside their homes for pick-up (2) drop-off centers - where consumers bring their plastics to a centrally located collection points. As will be described later, the market failures with waste plastics collection in countries like India has much to do with poor civic awareness, low incentives for wastepickers and high cleaning and sorting costs. Growth of the plastic bag menace India’s rapid population and economic growth is estimated to lead to a spiraling demand for plastics. Based on statistics collected by the National Plastic Waste

1 As quoted in: Edwards, Robert. “Bags of Rubbish”, The Ecologist, November 2000. 2 Ibid.


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Management task force, New Delhi, 52% of the plastics produced in India are used for packaging. Polyethylene and PET (Polyethylene teraphatalate) are the dominant types of plastic used in packaging. Low density Polyethylene (LDPE) is used in the manufacture of carry bags and PET is used in packaging beverages like soft drink and mineral water. Industry estimates reveal that virgin LDPE consumption for carry bags is 31,000 tons per year. The consumption of recycled polybags is difficult to estimate since polybag recycling is done by the informal sector. It is estimated that 3 million plastic bags are discarded each day in Mumbai alone, a city of 16 million. Why have existing policies failed? Some state governments in India like Maharashtra and Goa have sought to ban thin carry bags (< 20 micron) and instead introduce the thicker bags that would make collection more economical for wastepickers. These bans have largely been ignored by the powerful plastics industry and have proved difficult to enforce. Manufacturers have gotten around the bans by producing blistered bags of variable thickness. In many cases enforcers do not have the right measuring instruments at the micron scale. Each instrument costs an average of Rs. 2000 and an inspector draws a salary of Rs. 6000/month.3 In fact, bans have had the adverse effect of introducing more virgin product in the waste stream. The Wastepicker Recycling in India is primarily carried out by the informal sector. The wastepickers are at the bottom layer of the waste collection pyramid. They form the backbone of plastic recycling in India. Over one million wastepickers (or “rag pickers”) are engaged in management of plastic waste in India with about 200,000 in Mumbai alone.4 Figure 1.2 Indian Rag Pickers Foraging for Recyclable Scrap

(Source - The Ecologist)

Rag picking is born out of severe poverty; those who are forced to rag pick lack other employment options. In the course of their work, rag pickers are subject to toxic exposure and commonly suffer from respiratory and skin diseases. Scavenging with bare hands causes infections, cuts and wounds. They are also mostly exploited by middlemen who underpay and create debt traps. Figure 1.3 shows how rag pickers effectively serve as the foundation of the informal waste collection system in India, by performing the bulk of collection, sorting and cleaning.

3 Central Pollution Control Board, New Delhi. 4 Indian Centre for Plastics and Environment, Mumbai.


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Figure 1.3 Informal Sector Waste Collection Pyramid (India)

Existing Recycling Efforts There are more than 2500 recycling units in India with an average output of 350 tons per annum. These 2500 units mainly consist of granulators that make granules from scrap and converters that convert granules into plastic products. Many such units function in slums with old unsafe technology and pilfered electricity. The quality of plastic recycled is low and the backyard smelters used for these processes are a significant source of air and water pollution. Recyclers are the chief producers of thin plastic bags from pelletized PET and other plastic scrap. This plastic scrap cannot be recycled forever as it undergoes degradation during processing. Ultimately it has to be incinerated or disposed off in landfills. 1.3 An integrated implementation To solve the market failures associated with plastic bag recycling, our implementation plan relies on an integrated source-to-end product operation (Fig 1.4). Value is created in each element of the chain. Durable High Value End-Products Using our process we can produce useful durable products, such as: roofing and building material, crates and pots and consumer durables that are not discarded after a single use. We are therefore not feeding plastic bags back into the recycling chain. Simple and Inexpensive Recycling Process Our recycling process is relatively safe, requires low capital equipment costs and is low on energy use. The actual process is described in detail in Section 1.4. Sorting at Source Our solution approach will focus on directly collecting from the wastepicker. Based on


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current market rates, the price point for the waste plastic will range from Rs 20 – Rs 50/kg. Yet, through bypassing middlemen, we can lower our raw-material cost, while also raising the economic incentive to the wastepicker almost fourfold. The key factor is to encourage ‘sorting at source’, that is, by increasing incentives at the source (namely, households and commercial establishments), and making waste sorting worthwhile. Education and awareness are key elements of this strategy. The wastepickers will serve as a conduit into households, helping establish a quasi-organized waste-segregation system much as is done in western countries. A successful program has been carried out in Pimpri-Chinchwad, Maharashtra where 200 certified wastepickers are trained to carry out door-to-door collection, serving approximately 15,000 households with each household paying an average of Rs 10 to the wastepickers.5 Certified Collection Agents An appointed industry certified recycler will collect from the wastepickers ensuring that they are paid a fair wage. By following this standard we hope to lead the plastic industry, further encouraging the government to clamp down on the exploitation of the wastepickers. Collection Points There are several possible collection points: – House to house collection of plastics – Regular collection from shops, hotels, factories, etc. – Purchase from scavengers at municipal dumps. – Collection at Central points

5 Narayan, Priya. Analyzing Plastic Waste Management in India.


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Figure 1.4 Improving the Recycling Process

CCuurrrreenntt CChhaaiinn ooff PPllaassttiicc BBaagg RReeccyycclliinngg66

MMEELLDD CChhaaiinn

Value Created Through Improving the Process Improving the waste collection and recycling process has obvious benefits in reducing waste on the streets and employing wastepickers at “living” wages. Additionally, plastic products created through the MELD process have a much longer lifetime than normal plastic bags which are used and then quickly discarded. Agglomerating plastic bags – which are usually nearly worthless on their own and hard to collect into large, valuable units – allows MELD products to be easily recycled again at the end of their lifetime, and potentially retain some salvage value when they go through the cycle again.

6 Central Pollution Control Board, New Delhi.

Wastepicker

Kabariwala/ Raddiwala

Scrap Dealers

Bulk Buyers

Reprocessor Granulators/ Converters

2-25 Rs/Kg

5-22 Rs/Kg

6-45 Rs/Kg

11-52 Rs/Kg

Dumps Street Litter Landfills

Source: Households Commercial

Disadvantages:

- Long chain to recycling

- Plastic turned back to bags

- Creates waste

as plastic deteriorates

- Low incentive for wastepicker

- No incentives

for sorting at source

- Occupational health hazard at collection

Sorting at source: Households Commercial

Wastepicker

MELD Reprocessor

20-50 Rs/Kg

Plastic Products

Benefits:

- Incentives for sorting at

source

- No plastic bags put back into recycling

chain

- Higher profits for

wastepicker

- Reduced collection health risks

10 Rs/Kg

Certified Collection

agent


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Figure 1.5: Effect of Improving the Recycling Process Stylized Representation of Current Flow of Plastic

Under the current system, the great majority of plastic scrap (and especially plastic bags) ends up on the street. Of the small share that is actually collected after consumer use, only a fraction ends up actually being recycled rather being than disposed of in landfills or incinerated. Stylized Representation of Flow of Plastic with MELD Process

If our plan is successful at improving the recycling process, a large portion of scrap plastic can be re-tasked / re-used in new consumer products, both reducing the current amounts of litter found on the street, as well as the total amount of waste collected, stored and/or burned.


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1.4 The technology and process Traditional plastics recycling processes involve granulating or pelletizing the plastic, melting it down and then using injection molding or blow molding to produce new forms. Our process can be thought of as a combination of agglomeration and thermo-pressure forming. Layers of plastic bags are re-plasticized by heating under pressure and then solidified by cooling. The re-plasticization of plastic bags is done at relatively low temperatures around 100° C. This is around half of the melting temperatures used in conventional methods. The 1) number of layers, 2) heat application method and 3) rates of heating and cooling can all be varied to make material with differing thickness, hardness and strength. The end-product ranges from a strong plastic sheet like material (similar to a strong tarp) to hard plastic tiles. The MELDing Process The MELD end-product can be produced via various methods. In general, plastic bags are pressed onto a heated surface whole, requiring no initial preparation (i.e., shredding or extensive cleaning are not required). Depending on the desired end-product application, bags can either be pressed onto a single heated surface or pressed between two heated surfaces.

Method 1: The scrap plastic pieces are distributed evenly across agglomeration device surface. Layers are added incrementally, until desired thickness, durability and uniformity is achieved. Using a single heated surface works by heating the bottom layer of plastic directly, thus new bags that are laid on top of existing layers preferentially stick to the bottom layers and not to gloved hands which are pressing the heated bags together. This method is best for large, thin waterproof material.


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Method 2: Using two heated surfaces is more difficult to create complex geometry but is best for making material that is about a millimeter thick or more. The extra compression achieved through this method makes for a more structural product, although due to directional shrinkage of the bags, it is more difficult to make thin, waterproof material using this method. As shown, the layers of scrap plastic are pressed between two heated metal surfaces.

Method 3: In the case of non-flat product applications (discussed later), the agglomerated material can be formed around molds to produce more complex shapes and functionality.

It should be noted that pressing two flat heat surfaces together is the simplest, easiest way to create reliable results, although additional methods such as heated rollers could improve efficiency of creating certain geometries such as sheet material.

Plastic Agglomeration: Background It is important to note that plastic agglomeration is not a new technique. In the United States, plastic agglomeration is already employed in certain recycling schemes. The Netplasmak website provides a good description of the current industrial plastic agglomeration process and machinery:7

Agglomeration machines are a cost efficient way of recycling thin walled

7 http://www.netplasmak.com/agglomer.htm. Netplasmak is a manufacturer of plastic processing

machinery.


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polymers. Agglomeration machines are used to physically transform loose material into chips suitable to be fed into the hopper of an extruder. The agglomerator is a cylinder with two rotating blades and three fixed blades at the bottom, which create friction and heat. This process causes material to reach a softening point. In this stage, the operator adds water to create a kind of shock. After the water evaporates, material comes from a pneumatic operated discharge door in the form of chips. Agglomerators can be used as material drier. Also it converts thin walled waste material such as bag clippings into reusable material. Netplasmak manufactures agglomerators in various drum sizes. A minimum of 60 cm drum sized agglomerator can handle 100 kg/hour polyethylene. This is ideal for t-shirt bag making lines. T-shirt bag clippings can be agglomerated and added to virgin raw material. For large scale recycling plants, Netplasmak produces larger sized agglomeration machines. Agglomeration machines can process thin walled materials like polyethylene (HDPE and LDPE), polypropylene and polystyrene. Industrial Agglomerator

The distinction between industrial agglomeration and the MELD process is that MELD uses the simplest form of plastic agglomeration possible. MELD does not prepare plastic for large scale processing, rather relies upon a much more labor intensive process to eliminate the need for large industrial machinery that costs hundreds of thousands of dollars. Such a process is not used in the United States because the ultimate appearance of the finished material is that of a clearly recycled product, not that of an industrially produced, highly processed and finished material. Indeed, MELD products can be clearly identified as being produced from recycled materials. However, the MELD process does retain the ideal material properties of polyethylene material (no water absorption, high tensile strength, abrasion resistance and excellent flexibility) at a small fraction of the cost for such a material as it is currently processed. Therefore, the advantages of the MELD process are:

1) Simple machine. Since our process does not require pelletizing and melting, the capital equipment costs are much lower. The process is a lot safer with practically no moving parts - no blades, rotors and motors. Temperature and fume control are also much easier with the low temperatures involved.

2) Less upfront cleaning and material processing required. Dirt and other particles are tolerated fairly well.

3) Low energy requirements. We experimented with using solar ovens to generate heat but since a large part of urban India and 40% of rural India is electrified, we decided that the electric option would be better suited for a small scale industrial unit.

A variety of heating devices were tested:


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• Solar Oven • Hot air gun • Hot Plate (a consumer griddle – see photos below) • Flat plate hot press (a panini toaster – see photo below) • As mentioned above, laminators, heated rollers and ovens are also possible

device concepts

Figure 1.6: Hot Plate

Figure 1.7: Hot Plate: MELDing in Process

Figure 1.8: Flat Plate Hot Press (with Minimal Plastic Scrap)

The cost of our agglomeration devices is mainly dependent on the area of the heating


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surface. As we have based our design on standard components and proven technologies, it is relatively straight-forward to make initial cost estimations. Table 1.1 Initial Cost Estimation – Agglomeration Machinery

The cost of panini toaster in US ($) $40.00Size of this panini toaster (sq ft) 1.0Margins of distributor and wholesaler 20%Cost to manufacturer ($) $32.00

sq ft Cost Machine cost 4 $128for different sizes 6 $192in $ 8 $256

10 $32012 $38414 $448

From these estimates, we find that a machine with a one square meter agglomeration surface area would cost approximately $350 to manufacture. For the purposes of reasonably estimating our investment costs, we have assumed a cost of $400 in our financial model for this size of machine. Areas for improvement of the machinery relate to adapting the shape of each device to serve its productive purpose optimally. This makes sense as we plan to use this device on an industrial scale. Moreover, machines would be designed with specific product applications in mind. As extensions to our process we plan on exploring the incorporation of PET (Polyethylene teraphatalate – used for plastic bottles and containers) and other materials into our process to form stronger composite materials and thermo-pressure forming processes to form different shapes. Safety Issues We conducted research into the potential health and safety issues that may relate to our process. Specifically, we were concerned with potential fume production from the heating of polyethylene, as the material can release butane and other alkanes and alkenes which cause asthma, asphyxiation, and severe irritation to the eyes, nose and lungs. The adverse effects from the heating process are influenced by: exposure and residence time, operating procedures, and the reliability of temperature control. For example, heating the polyethylene above 240° C with a residence time of more than 7 minutes is highly dangerous. Fortunately, our process relies on relatively low temperatures, which do not result in any fume production (only approximately 100° C).


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2. Products Having identified the problem of excessive plastic waste in India, and developed a process that addresses this problem by using plastic waste as an input, we find that our business product is fundamentally a low-cost material innovation. Yet, the ultimate value of the business model depends on finding applications for this material innovation. Based on our experimentation with the MELDing process, and our observations of the material we were able to create with it, we brainstormed a range of potential product applications. Generally, these product ideas can be grouped in three categories:

1. Low cost building and roofing materials. This category would involve very little transformation of the plastic beyond recombination into flat panels. The flat panels would be produced to be sufficiently durable and water-resistant that they could provide some of the features/quality of premium building and roofing materials that are out of reach for the average rural poor farmer in India. The value proposition behind this category would be a low cost material substitution that would allow consumers to upgrade the quality of their homes at fraction of the cost of premium building and roofing materials. (See roofing tiles case study that follows in section 2.1).

2. Low cost consumer products. This category would apply the same

value proposition as above to a range of existing consumer products. Namely, the MELDing process could be applied to a variety of products that include:

• plastic bins, boxes and cartons • water containers, buckets • re-usable bags, wallets • horticulture pots, fertilizer bags

For these products (and countless others), the MELDing process could be substituted for current materials in order to lower the cost – by replacing the main cost driver from materials to labor. Presumably, the MELDing process would also have a much lower capital investment requirement than equivalent processes for transforming metal or creating new plastic products. In comparison to category #1 (building and roofing materials), these products would involve more molding and additional labor to re-form the plastic once it has been agglomerated though the MELDing process.

3. New applications. Given our distance from the market, we are limited

in our ability to effectively identify the full range of possible consumer needs to which the MELDing process could be applied. Instead, we believe that once MELDing manufacturing shops are in operation, many of the best new product ideas will come from manufacturers, craftsmen and consumers. These parties will be equipped with local knowledge that will allow them to identify additional uses for the MELDing process that we cannot even begin to conceive.


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To demonstrate the proof behind the concept of these different product categories, we experimented with various prototypes. To confirm the value proposition behind the products, we analyzed the value created by our product for both the producer and the consumer. The following product case studies describe two of our prototypes and the related economic analyses of value creation for producers and consumers. 2.1 Case Study A: Corrugated Roofing

Our earliest prototypes made from agglomerating discarded plastic bags on a plug-in cooking griddle (and later, a panini sandwich toaster) confirmed our hypothesis that a relatively durable and waterproof material could be made with relatively few layers of plastic bags.

Figure 2.1: Original Concept Drawing of Roofing Tile:

From these prototypes, we estimated that 17 bags were required to create one square foot of roofing material of the required density. To create a basis of comparison across different consumer roofing options, we assumed a single-family roof size of 150 square feet. Note: this assumes a very small (i.e., 10 ft by 15 ft single room) dwelling, but since the roofing material will come in tiles, the MELD roofing system is modular and can be incrementally made larger (with linear cost increases). Costs To produce this roof, approximately 17 bags * 150 sq ft, or a total of 2550 bags are required. Assuming 1000 bags per 1 kg collected and generous wages of 100 rupees per 1 kg collected, material cost for the roof would only be 255 rupees. To manufacture the roof, we estimate that two laborers would be required to operate one machine for approximately 7 hours. Based on our own production of roofing tiles on a very small machine, this rate of 20 sq ft per hour on a larger machine seems a reasonable production level for relatively unskilled workers (assuming minimal training for operating the machine beforehand). Hourly wages for machine operators are based on estimated market wages of 40 and 120 rupees per day for women and men, respectively. Additionally, we assume that the manufacturer will require a 30%


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minimum margin for wholesale prices above marginal cost. Finally, to arrive at estimates of retail prices, we have added an additional 30% margin to compensate the distributors and local dealers for carrying and selling the product. The tables below show the assumptions behind our cost model, and the per unit economics that result: Table 2.1: Model Assumptions for Roofing Systems

Model Assumptionsarea (sq ft) 150

# plastic bags / sq ft 17

Total number of bags required for 1 roof 2550

Labor required for 1 roof (hours) 7

Market price of substitute product rps 2300

Margin of manufacturer 30%

Margin to distributor & dealer 30% Table 2.2: Per Unit Economics for Roofing System

Per Unit EconomicsMaterial cost (rps) 255

Wages (per product) 70

Cost of product (rps) 325

Wholesale price of product (rps) 423

Retail price to consumer (rps) 549

Value Creation Based on these calculations, one machine would have an annual production capacity of 358 roof systems (or a total of 358 * 150 sq ft = 537,000 sq ft). Therefore, at 30% margins, this one machine could provide the manufacturer with annual profits of ~35,000 rupees – approximately two times the original investment cost of 18,000 rupees. Additionally, with a similar margin, the distributors and dealers would earn approximately 45,000 rupees (in aggregate) selling the output from one machine per year. For the end consumer, we assumed a substitute product price of 2300 rupees for equivalent roof coverage (150 sq ft) with an alternative roofing system (see comparable product discussion below). Given our retail price to the consumer of 549 rupees, the MELD roofing product saves each customer 1751 rupees per roof, or 76% total savings. As a result, the annual production of one MELD roofing machine results in a net savings to end consumers of over 600,000 rupees!


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Table 2.3: Value Created from Roofing Systems

Value Creation (rps)

Per machine per year:

# of products 1pers/1mach (in 1 year) 358

Profit per year per machine 34,861

Profit to distributor & dealer per machine 45,320

Savings to all end-users vs. comparable roofs 625,982

Savings per customer per comparable roof 1,751

% Savings 76%

Value Proposition The current rural farmer has basically two main roofing options. The farmer can rely on a self-built low-cost thatch roof. Alternatively, the farmer can upgrade to a corrugated steel or aluminum metal roof. Unfortunately, metal roofs can be prohibitively expensive for the average Indian rural farmer, with aluminum costing approximately 300 rupees per square meter, and corrugated steel costing approximately 35% less, or 225 rupees per square meter.8 For the extra cost, the metal roofs provide better protection against extreme weather (namely, rain from monsoons), presumably have much longer lives than thatched roofs (which may need to be replaced after each monsoon season), and may even have some scrap value at the end of their useful lives. To compare the relative costs of each of these roofing systems, we have converted the square meter costs to square feet and priced the cost of 150 sq ft of material. Additionally, for purposes of our economic model, we have also heavily discounted these new material prices by 25%-45% (discounts from market prices for corrugated steel and aluminum, respectively). This additional (discounted) comparative figure of 2300 rupees for a 150 sq ft roof is used in our model, so as to make our consumer cost savings estimate extremely conservative. We speculate that corrugated steel and aluminum available for rural roofing may not be straight from the manufacturer (i.e., brand new), nor of the highest quality. Hence, we suspect using market prices for the materials may be over-pricing what alternatives are available to (and actually considered for purchase by) the rural farmer. The table below provides cost and feature comparisons across the different roofing alternatives.

8 Source: “Aluminum Companies may take roof off GC Steel Co’s Heads”, India Times, December 13, 2004. Note: pricing data does not take into account differences in exercise taxes levied on different materials.


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Table 2.4: Comparison of Alternative Roofing Systems In comparing the roofing alternatives, we find that the MELD tiles provide the added benefit of water-proofing similar to the metal options, yet deliver this benefit at only a fraction of the price. As a result, we suspect that many rural farmers who would not even consider purchasing metal roofs (given the prohibitive cost) may consider the significantly lower-cost MELD option. Additional Functionality Additionally, if the MELD roofing tiles were to be marketed and distributed by an organization such as IDE, additional functionality could easily be designed and added to the tiles to incorporate them into the IDE water collection and storage system. We have done some preliminary prototyping of fastening the MELD tiles to a thatch roof in a shingled fashion and adding a MELD gutter to the bottom edge. The gutter can easily be made through the basic MELD plastic agglomeration process, by molding the agglomerated material around a pre-formed gutter mold. Our experiments confirm that the shingled MELD tiles and gutter are water-repellent and therefore, do allow for water collection. As a result, we believe the MELD roofing system could easily be incorporated into the IDE water collection and storage system. Indeed, the MELD roof appears to be an ideal water collection system to fill the IDE storage bags. Similar added functionality would not be an option for an existing thatch roof, as the material is not inherently water-proof. On the other hand, such functionality could be added to premium metal roofs, yet it is difficult to imagine a market for this; presumably, those who can afford metal roofs are not in such dire straits to need to collect additional water from their roofs for their small farms. (See photos on the following page). Conclusion This analysis not only shows that the roof will be within the reach of a poor rural farmer (i.e., the customer), but more importantly at this price point some of the rural poor finally have access to an improved roof. The heuristic that IDE uses and that

NMThatched Roof

?X4200 rpsAluminum Sheet

?X3100 rpsGalvanized Corrugated Steel (GC) Sheets

?X2300 rpsModeled Comparison Product

XX423 rpsMELD Tiles

Water Collection Possibility

WaterproofCost per 150 sq ft roof (rps)Roofing Alternatives

Comparative Value Proposition – MELD Roof Tiles

NMThatched Roof

?X4200 rpsAluminum Sheet

?X3100 rpsGalvanized Corrugated Steel (GC) Sheets

?X2300 rpsModeled Comparison Product

XX423 rpsMELD Tiles

Water Collection Possibility

WaterproofCost per 150 sq ft roof (rps)Roofing Alternatives

Comparative Value Proposition – MELD Roof Tiles


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we “borrowed” is the following: “If you can build a product at 1/5 of the price of the cheapest available product in the market and subtract 30% margins for the retailer and distributor and still have margins as a manufacturer, then you have a product.” Hence, according to this criterion, MELD has a product in roofing tiles. Figure 2.2: Picture of MELD Shingled Roof

Figure 2.3: Picture of MELD Shingled Roof – Water Collection Functionality

MELD Gutter

Edge of MELD Roof

Thatch Roof Base

Flowing Water

MELD Gutter

Edge of MELD Roof

Thatch Roof Base

Flowing Water


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2.2 Case Study B: Produce Stacking Trays As described above in the discussion of potential MELD product categories, many of the best applications for the MELD process are likely to come from manufacturers and consumers who are working and living in India (product category #3). Only those who are intimately familiar with the day-to-day working and living conditions, the climate, the market, the community relationships and other important local details, will be able to identify key problems and needs of consumers (and, ideally, rural farmers) for which the MELD process may provide solutions. In discussions with our teaching team, our attention was drawn to a significant problem of rural Indian farmers that we would not have had any intuitive awareness of, given our geographic distance from the problem. Namely, rural farmers suffer significant spoilage and damage to their produce en route from their farms to market. Currently most small farmers have no safe way of transporting their vegetables to the market. The amount of spoilage is difficult to accurately estimate, given a host of variables affecting spoilage: the fragility of different crops, the relative ripeness of produce when initially picked, the distance of each farm from market, and the mode of transport employed. Given these variables, estimates range anywhere from 30 to 50% of produce carried to market arrives spoiled. This is the amount of rural farm produce that is damaged en route and therefore yields either less than the market price for that particular type of produce or cannot be sold at all. Given the magnitude of this problem for the individual farmer, this problem has drawn attention from NGOs seeking to improve agribusiness practices for the small farmer.9 As a result, we experimented with using the MELD process to reduce and/or eliminate this problem. Currently, many rural farmers will walk their produce from farm to market in plastic bags – providing no individual protection for each piece of produce. If we were able to replace this current form of transport with durable transport trays that protected each piece of produce individually and did not allow the produce to bump against itself or any outside surfaces (preventing bruising and other damage), we could improve the farmers’ revenue yield on each trip to market. Since such containers are commonly used for preserving and transporting produce in developed markets, we used existing designs as our primary models.

9 Based on references from the ME 206 teaching team, MELD contacted Vipul Khan, head of e-Mundi, who is currently working on a system to improve agricultural yield and efficiency of small Indian farmers through centralizing produce collection and transport to market. The idea of designing produce crates for small farmers to reduce spoilage is something that his organization is currently working on.


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Figure 2.4: Existing Produce Containers Based on these existing designs, and our familiarity with the MELD material, we estimate that 4 sq ft of MELD material (at a density of 20 bags per sq ft) would be required to create one produce container that could hold 4 kg of produce. The container could be produced at a rate of 5 containers per hour – a more labor-intensive process than the flat roofing tiles. We have provided a larger margin for the manufacturer of 50%, given the higher volume requirements to reach similar profitability as the roofing systems. With these assumptions, an individual container could be sold at a wholesale price of 15.8 rupees and a retail price of 20.5 rupees (after a 30% margin for the distributor and local dealer). Table 2.5: Model Assumptions for Produce Packaging

Model Assumptionsarea (sq ft) 4

# plastic bags / sq ft 20

Total number of bags required 80

Labor in hours for area mentioned above 0.2

Market price of substitute product NA

Margin of manufacturer 50%

Margin to distributor & dealer 30% Table 2.6: Per Unit Economics for Produce Packaging

Per Unit EconomicsMaterial cost (rps) 8.0

Wages (per product) 2.5

Cost of product (rps for area above) 10.5

Wholesale price of product (rps) 15.8

Retail price to consumer (rps) 20.5


25

At these price levels, if the farmer can retrieve a market price of 6 rupees per kg for his/her produce and the container eliminates the estimated 30% spoilage en route to market, the container will pay for itself in less than 3 trips to market. Therefore, if the container lasts for 6 trips to market, it will increase total revenues to the farmer by over 40 rupees (less the cost of the container, for a net value creation of 22.7 rupees.) Hence, over the lifetime of the product, the farmer will have increased his/her revenue yield by 23%, without any complex or expensive technological improvements to farming techniques or technology. Table 2.7: Value Creation from Produce Packaging

Value Creation to Farmer (rps)Produce Capacity of 1 Container (kg) 4

Market Price per 1 kg produce (rps) 6

% of Spoilage en route 30%

Value creation per package per trip (rps) 7.2

# of uses required for breakeven 2.8Expected Product Life (trips to market) 6

Net Value Creation over Product Life 22.7

Net Increased Revenue Yield to Farmer 23% Examining the product’s profitability relative to various produce prices and durability of the product, we find that the product creates value to the consumer for any produce that fetches 6 rupees per kg or more at market, and only requires a durability of 4 uses (i.e., 4 trips to market). Note: the following sensitivity analysis assumes each container would improve yield by 30%.


26

Table 2.8 Sensitivity Analysis:

Total Value Creation per Package (rps)

2.3 Low cost consumer products: Besides novel new applications specifically relevant to rural Indian farmers’ needs, the MELD process could be used to replace and reduce the existing material costs for a variety of existing consumer products. For example, in the course of our prototyping, we easily replicated a leather folding wallet to create a fully-functional MELD wallet. While such a product does not present significant market opportunity in developing countries, it does provide proof of concept that the MELD material can be shaped and formed to replace a variety of materials and make almost anything.

Future areas for research M.E.L.D. intends to pursue further research to investigate the possibility of creating composite materials, which will allow us to produce a wider range of building materials. We feel that the material properties (such as strength and durability) of our final product will dramatically increase, if we are able to incorporate additional types of scrap material besides polybags that provide structural strength to the end-product.

23 2 4 6 8 10 12 14

1 (18.1) (15.7) (13.3) (10.9) (8.5) (6.1) (3.7)

2 (15.7) (10.9) (6.1) (1.3) 3.5 8.3 13.1

4 (10.9) (1.3) 8.3 17.9 27.5 37.1 46.76 (6.1) 8.3 22.7 37.1 51.5 65.9 80.3

8 (1.3) 17.9 37.1 56.3 75.5 94.7 113.910 3.5 27.5 51.5 75.5 99.5 123.5 147.5

12 8.3 37.1 65.9 94.7 123.5 152.3 181.1

14 13.1 46.7 80.3 113.9 147.5 181.1 214.7

Price of Produce per kg (rps)Pr

oduc

t Life

(#

of t

rips

to m

arke

t)


27

3. Business Model and Financial plan 3.1. General overview of the business model While the target markets for our end-products (i.e., roofing, gutters, containers, etc.) are rural areas inhabited by small farmers, our business operations will be much more focused on urban and semi-urban areas. Our business model is based around the concept of creating small machine shops in areas where they will have sufficient access to scrap plastic materials. In order to ensure ready supply of plastic, we will, therefore, locate these shops in areas where most of the waste is produced: namely, urban areas in close proximity to landfills, dumps, incineration plants, etc. Urban areas will not only provide our shops with ample plastic, but also with ample labor supply. Urban unemployment in India is generally high, and therefore it will be possible to provide financial incentives to people to go out and collect those plastic bags, despite the labor-intensive nature of the work. Our shops would then plasticize these plastic bags and convert them into useful products, which would be in turn be distributed to the areas and people that currently do not have access to similar products that are priced within their purchasing range. 3.2. Demographic Data The cities are the most polluted areas in India; therefore availability of plastic bags is greater in urban areas. Throughout the conception of our business plan M.E.L.D. has been very concerned about supply chain issues. Given our fundamental objective of keeping money in the community, we initially wanted to locate our business in rural areas. But, we soon realized that it made more sense to locate our small manufacturing shops close to where the waste is produced, thereby eliminating almost all of our material procurement concerns. In order to determine what cities could support our operations (with sufficient plastic scrap input), we started with the top Indian urban areas by population size. We estimated available on-going plastic supply by assuming a conservative average use of 2 plastic bags per week per person in an urban area. Given the low quality of plastic bags produced in India and the dirty city conditions, we assumed that only 50% of the bags “consumed” (used) would be available for waste collection and in decent condition to be re-used in the MELDing process. We then assumed that each shop would have on average 5 machines which could process 3000 bags per day. Based on this set of assumptions, we were then able to estimate the number of shops each city would be able to support. The following table provides these results.


28

Table 3.1 Statistics on Initial Target Cities

Number Population Generated Collectible and Reusable

# shops sustainable per

cityMumbai (Bombay) 1 16,368,000 1,702,272 851,136 155Kolkata (Calcutta) 2 13,217,000 1,374,568 687,284 126Delhi 3 12,791,000 1,330,264 665,132 121Chennai 4 6,425,000 668,200 334,100 61Bangalore 5 5,687,000 591,448 295,724 54Hyderabad 6 5,534,000 575,536 287,768 53Ahmadabad 7 4,519,000 469,976 234,988 43Pune 8 3,756,000 390,624 195,312 36Surat 9 2,811,000 292,344 146,172 27Kanpur 10 2,690,000 279,760 139,880 26Jaipur 11 2,324,000 241,696 120,848 22Lucknow 12 2,267,000 235,768 117,884 22Nagpur 13 2,123,000 220,792 110,396 20Patna 14 1,707,000 177,528 88,764 16Indore 15 1,639,044 170,461 85,230 16Vadodara 16 1,492,000 155,168 77,584 14Bhopal 17 1,455,000 151,320 75,660 14Coimbatore 18 1,446,000 150,384 75,192 14Ludhiana 19 1,395,000 145,080 72,540 13Kochi 20 1,355,000 140,920 70,460 13Visakhapatnam 21 1,329,000 138,216 69,108 13Agra 22 1,321,000 137,384 68,692 13Varanasi 23 1,212,000 126,048 63,024 12Madurai 24 1,195,000 124,280 62,140 11Meerut 25 1,167,000 121,368 60,684 11Nashik 26 1,152,000 119,808 59,904 11Jabalpur 27 1,117,000 116,168 58,084 11Jamshedpur 28 1,102,000 114,608 57,304 10Asansol 29 1,090,000 113,360 56,680 10Dhanbad 30 1,064,000 110,656 55,328 10Total number of cities 30Average population per city 3,425,001Total number of shops 976

Plastic bags per year ('000)

Based on these results, we found that all of the top 30 urban areas in India could support multiple MELD shops. Indeed, a city of only 1 million residents could support up to 10 small shops each operating 5 agglomeration machines. Hence, in any of these urban markets, MELD’s operations footprint would have to get quite large before the available flow of plastic would become a limiting factor to production. 3.3 Important revenue assumptions Our growth plans assume we will start slow as we perfect our initial shop operations, and then accelerate our roll-out of new shops. We will begin the initial roll-out with three shops (all in the same city) in Year 0. The crucial milestone in this first year will be to prove that each of the shops can be independently profitable soon after conception. Once this is proven, growth will increase linearly in the first 3 years and slightly accelerate in Year 4. In Year 5 we expect to feel the first signs of saturation


29

in certain markets and growth will slow. Figure 3.1 Growth Plan: Manufacturing Shops and Cities

3

15

29

51

102

146

610

1520

1 30

20

40

60

80

100

120

140

160

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Total Shops in Operation Total Cities

Revenues will come from two different streams:

• Revenues that are generated through the sale of our products • Revenues that are generated through licensing our technology

Revenues derived through sale of our products will be obviously dependent on prices set by management. As described in the case studies in section 2 for both the MELD roofing system and produce packaging, the process of setting prices will start with analysis of the marginal cost of producing each product (primarily, dependent on labor and material costs). From these marginal cost projections, MELD (as the manufacturer) will add an operating margin for itself (in the range of 30 to 50%) to arrive at wholesale prices. Retail prices will assume an additional 30% mark-up to provide compensatory margins for distributors and local dealers. Once we have done this preliminary pricing analysis, we will evaluate these prices to determine whether they are indeed attractive to a customer segment that is currently under-served: the rural poor. Based on the research two Stanford students did this past summer in India on the experience of pricing within IDE, we are confident that we can hit the price points which make our products attractive to this segment of the population. (Again, see case studies in section 2.) Less than 1% of our revenues will come from licensing our technology to other small manufacturers. Once we have demonstrated our proof of concept by creating our own shops we believe that other manufacturers may express interest to adopt our technology. Licensees will pay a fixed fee per year that is based on the net revenue produced by their stores. This will give them an incentive to make the most of our technology. We strongly believe that licensees will be an important source for new product ideas and operational improvements; therefore, we will seek to maintain


30

close relationships with them. The table below shows an overview of our revenues. All numbers are stated in rupees. Table 3.2 Revenues (rupees)

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5Total revenue from all shops 2,500,183 13,250,968 27,155,651 50,621,878 107,318,382 162,829,341Total revenue from license holders 0 31,186 165,286 525,608 1,114,290 1,968,579Total revenue 2,500,183 13,282,154 27,320,936 51,147,487 108,432,672 164,797,920 3.4 Cost assumptions The table below gives an overview of our cost structure in rupees. Table 3.3 Cost Structure (rupees)

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5Investment cost 202,500 777,600 870,912 1,313,833 2,923,876 2,421,657Fixed rent cost 36,000 180,000 348,000 612,000 1,224,000 1,752,000Fixed HR cost 323,000 1,119,000 2,213,000 3,755,000 6,270,000 8,610,000Variable Material cost 1,242,132 6,210,661 12,007,278 21,116,248 42,232,496 60,450,436Variable labor cost 375,429 1,877,143 3,629,143 6,382,286 12,764,571 18,270,857Variable electricity cost 124,213 621,066 1,200,728 2,111,625 4,223,250 6,045,044Total costs 2,303,274 10,785,470 20,269,061 35,290,992 69,638,193 97,549,994 The investment cost covers the cost to buy our machinery. MELD is able to keep those costs low due to the use of a standardized materials and proven technologies; as explained previously in the technology and process section, our agglomeration process relies on very simple technology. Small-scale agglomeration machinery, in the form of cheap consumer cooking devices, is readily available and effective for use in the MELD process. Therefore, our main investment costs will only require that we find a suitable manufacturer in India to recreate and increase the scale of these machines. Our rent will also be low as it is in our interest to locate in areas that are heavily polluted. Desirable areas for MELD shops, such as near dumps and landfills, are generally avoided for living purposes and therefore should be low in demand – with low rents. Our only real requirements for shop space will be access to electricity. Our fixed human resource cost is an important one and covers the people that are managing this whole operation. We have estimated their salaries based on the skill set that is required to do the job and salary levels in India. The next section will discuss this in greater length. Our variable material cost is the salary we pay out to people collecting the waste. Rag pickers will be paid based on volume of scrap plastic brought to the shop, not on hourly or daily salaries. We will pay approximately 4 times the top of the range of current market rates (2 to 25 rupees per kilogram), or 100 rupees per kilogram. We believe this wage will provide sufficient monetary incentive for rag pickers to collect plastic bags (and equivalent plastic waste) despite the labor-intensive nature of


31

plastic bag collection in comparison to other recyclable materials. Our variable labor cost is the salary of the workers in our shop. We will (conservatively) pay workers twice the market rate of unskilled to semi-skilled labor in India. In order to make our products we need electricity. This cost might fluctuate depending on our machinery, as well as the specific locations of our shops, but we again believe these costs to be conservatively estimated in our model. 3.5 Net Income

Figure 3.2 Cost Structure and Net Income

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

rps

Net income

Variable electricity costVariable labor cost

Variable Material costFixed HR costFixed rent costInvestment cost

The figure above shows a general picture of our cost structure and our net income (in pink). If M.E.L.D. would be structured as a pure non-for-profit, we would be able to invest $1 million back into the community. At the same time, the high level of projected net income also serves as an important financial buffer for the business in the case of unexpected (negative) events or the appearance of other business opportunities.


32

4. Internal and External Organisation 4.1 The internal organization The chart that follows (next page) shows the organization of our business. The organization relies on a geographic-based hierarchy of Shop Managers, Marketing and Distribution Managers, Regional Managers and a Country Manager. The Shop Manager is responsible for recruiting the plastic collectors and the laborers that work in his shop. He is also responsible for acting as a shop foreman and overseeing the production within the shop, as well as training his “craftsmen” to operate the machinery. He will manage plastic scrap inventory to ensure that production is never interrupted for lack of inputs. Part of our net income could be redistributed in the form of bonuses to provide incentives to our Shop Managers. The Marketing and Distribution Manager is responsible for creating a network of distributors that can distribute our product. He is also responsible to increase consumer awareness of our product line; this will require that the manager create marketing initiatives aimed both at the distributors – to convince them to carry our products – as well as the end-consumers – to ensure rural farmers (and others) understand the uses and benefits of our products. Based on our research of Indian markets, we found that people tend to do business based on personal relationships (similar to most other markets). Hence, we believe establishing good relationships with the distributors will be instrumental for developing product awareness and demand from local rural dealers. We may seek to potentially leverage the existing IDE distribution network to gain access to local dealers carrying similar products. We will employee multiple Marketing and Distribution Managers per city, based on the number of shops open in each city. The Regional Manager, in conjunction with the Country Manager, is responsible for developing the business’ growth and expansion strategy. His responsibilities will include identifying ideal locations for new shops and supervising their openings, as well as hiring the Shop Managers and the Marketing and Distribution Managers. He will also be responsible for collecting best practices that are originated in individual shops or through our licensees and disseminating them through the organization. The Country Manager manages the overall business and deals with governments and authorities. Manufacturers of plastics recycling equipment Machinery for plastics recycling and processing varies in size and sophistication. In most developing countries it is not possible to find new equipment which can be purchased off the shelf. Therefore, machinery will either have to be imported, manufactured locally, or improvised. Within the informal sector, the latter is usually the most common method of procuring equipment and the level of improvisation is often admirable and ingenious. We intend to research appropriate manufacturers for our machinery, and to work with them to determine optimal machine specifications to minimize costs while ensuring the required functionality.

M.E

.L.D

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34

4.2 The external organization Our distributors The pricing of our product takes into account a 15%-30% margin (over the wholesale price) for the distributor. This margin is currently applied in India and should be sufficient to provide incentives for distributors to carry our products. Since our main product (at least at the start) will be in the form of sheeting materials (i.e., the roofing tiles), we believe they will be relatively convenient to stack, and not take up excessive transport space within the distributors’ trucks and buses. In the start up phase of our business, we will also rely on and leverage the distribution network of other non-profits (such as IDE) and governmental organizations (such as KVK) to increase awareness about our product offering. Leveraging the network of non-profit organizations such as IDE will be crucial. Distribution is very costly in developing countries. At the same time, we believe that distributors will realize they can make a healthy margin on our products. Our retailers The pricing of our product takes a margin into account of 15%-30% for the retailer (i.e., the local rural dealer). This margin is similar to the margin retailers currently have on the KB drip in India. (For the purposes of comparing our prospective retail prices with competing products, we have assumed a 15% margin for the distributor and a 15% for the retailer – resulting in a retail price of 30% above wholesale prices.) Government We strongly believe that governments would be prepared to subsidize our operations if we can prove that our operations solve one of their major urban problems: street-side waste and, specifically, pollution of plastic bags. We must continue our research to explore the feasibility of receiving subsidies of one form or another. Regardless of our success in pursuing this additional source of funding, our current business plan does include any subsidies, as we believe that we should be able to operate and grow without subsidies.10 The Municipal Corporation of Delhi spends about Rs 620 to collect and transport one ton of waste. It is estimated that the wastepickers feed into the recycling chain between 12 and 15% of the total waste generated. Of the approximately 6000 tons of garbage produced each day in Delhi they collect between 720 – 900 tons. Applying the municipality rates, it would be safe to say that the wastepickers save the municipality of Rs 558,000/day. Additional External Beneficiaries The MELD business model involves creating significant employment in urban and semi-urban areas, as locals are hired to both collect plastic as well as operate machinery. The table below shows that in the fifth year of our operations we will provide employment for more than 2500 people. And last but not least, our product is aimed at an un-served customer segment that 10 Assuming a one-time initial capital investment to finance start-up costs.


35

may be able to increase its living standard by gaining access to new low-cost products (such as those produced by MELD). In our fifth year of operations we expect to provide savings of over $18,000,000 per year to these consumers who purchase our products rather than more expensive substitutes. Table 4.1 Employment for Initial Years

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Salary in rps# of shops we create 3 15 29 51 102 146# of shop managers 2 8 15 26 51 73 50,000# of Marketing managers 3 9 18 30 45 60 80,000# of region managers 0 0 1 1 2 2 100,000

# of bag collectors 35 173 334 587 1173 1679 36,000# of laborers 15 75 145 255 510 730 25,029

Total people employed 54 264 512 898 1,781 2,544

Savings on our products 12,500,913 66,410,770 136,604,681 255,737,434 542,163,360 823,989,600 in rupees277,798 1,475,795 3,035,660 5,683,054 12,048,075 18,310,880 in USD

Competition We are currently investigating patenting our plasticization process, but we are aware that patents are not treated with the same seriousness in many countries outside of the US. Therefore, given the low barriers to entry to recombinating scrap plastics, we believe that patents may provide us with little protection in India. To achieve our objectives of providing employment, keeping money within poor communities, and developing low-cost products for the rural poor, we would actually welcome competition and imitation. Competition and imitation will show that MELD has an innovative idea. Furthermore it will increase the availability of cheap building materials and provide jobs for those who need it. And finally, the more products are developed using MELD methods, the more plastic will be taken off the streets. At the same time, in order to achieve our growth estimates and maximize our profitability, we will need to stave off entry of formidable competitors by creating a recognizable brand for our products. We may seek to emulate the IDE model with their distinctive IDE labeling that conveys the idea of low-cost quality to the consumer. Instead of creating our own brand, it may be easier for MELD to partner with an existing organization (such as IDE) that already has a recognizable brand in our target markets.


36

5. Risks and Considerations

• Consumers may have cultural objections to purchasing and using consumer products or materials in their house that are produced from waste products. We will not be able to assess such objections until we survey potential consumers and present them with finalized product.

• In order to alleviate any consumer objections (as described above), we may

be required to improve the aesthetics of our products, so as to disguise what they are actually made of. This requirement may significantly alter and increase the cost of producing MELD products.

• We may encounter resistance to product adoption with the MELD roofing tiles.

Rural consumers may not readily recognize the new material as a valuable roofing alternative, and expensive marketing initiatives may be required for product adoption. Additionally, marketing expenditures may not have much leverage if little communication exists between local rural markets.

• Similarly, regional distribution and marketing managers may have difficult

identifying and convincing appropriate distributors to carry MELD products. They may not believe our products have the ability to sell, and will not agree to take the inventory risk. Additionally, they may have agreements with producers of competing products (both roofing materials and consumer products) that provide better margins and/or exclusivity agreements with regard to these competing products.

• Roofing systems may require more training to install than we currently

estimate. Skilled labor may be a limiting factor to purchase and installation if consumers are unfamiliar with product.

• Despite our calculations regarding availability of scrap plastic, we may not be

able to collect the quantity or quality of scrap plastic required for our growth model. The scrap plastic available on the streets and in landfills may be extremely dirty and structurally deteriorated, thereby preventing its use in our process.

• We have assumed that given the low-tech nature of our agglomeration

machines, we will be able to find suitable manufacturers in India to build these machines on an industrial scale (i.e., up to 1 sq meter in size, rather than the 1 sq ft machines sold to US consumers). We may incur additional research and development costs in outsourcing the production of these machines. In a worst case scenario, we may have to manufacture the machines in the US – incurring additional costs (from labor, shipping and import taxes) as well as a significant time delay.


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6. Additional Research Before even considering opening up our first manufacturing shop in India, we would continue our research into the following topics: • Agglomeration Machinery: we need to identify the proper technical

specifications required for making industrial sized devices, as well as to confirm that such machines can be made cost-effectively in India (to avoid import taxes).

• Likely Customer Adoption: as addressed in the risks and considerations

section, the success of our business requires that potential end-consumers do not have any cultural objections to using products made out of “waste” materials. To investigate this, we would seek to do on-the-ground surveys and product demonstrations to assess consumers’ potential objections.

• Appropriate Plastic Scrap Availability: as (also) addressed in the previous risks

section, our estimates of plastic scrap flow may not be accurate. We need to assess our estimates through on-the-ground research into the volume and quality of plastic scrap available. There is no doubt that plastic scrap and other waste is a significant problem in urban areas of India. Nonetheless, we must conduct testing with the actual waste available to confirm that it can be agglomerated into material with the same characteristics as our prototypes (which, incidentally have been made from US produced consumer plastic bags – predominantly, of higher quality and in good condition).


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7. Investment Highlights • Low capital costs. Given the low-technology machinery required for the MELD

plastic agglomeration process, a single shop can be equipped with 5 machines for a total capital investment of 67,500 rupees (or $1500 USD). Excluding fixed corporate G&A, this capital investment can generate 253,000 rupees of net income per year.

• Scalable model. Because capital costs are low and material costs are effectively

variable labor costs (paid to the rag pickers), the small manufacturing MELD shops can be easily set-up without significant up-front costs or complex operations. Shops can even be opened with only one machine, with the option to expand incrementally with the purchase of additional machinery and the hiring of additional rag pickers and machine operators. Hence, the scalability of the model also provides for increased incremental employment opportunities as the business grows.

• Unlimited range of possible product applications. Because the MELD process

innovation is really that of creating a new material, the potential product applications for the material are endless. The MELD process can be used to provide low-cost building and roofing materials, to replace expensive materials in existing consumer products (to reduce the cost and make these products accessible to poor customers), and to develop new products made especially for the rural poor in India.

• Positive Environmental Impact. Finally, the MELD business model involves

addressing a significant environmental problem in urban India. Street waste is not only aesthetically a problem (discouraging tourism), but also a health hazard for urban residents. Therefore, any business that reduces the amount of plastic waste on the streets should have a positive environmental impact for the community. To achieve this positive environmental impact, the MELD business model seeks to transform the current “use and discard” cycle for plastic bags into a “use, collect, re-task and re-use” cycle.


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Appendix 1. Team Biographies Oscar Mascarenhas (MS Engineering Stanford '99, PhD candidate Management Science and Engineering) has worked at ARCO, Webvan and Oracle in engineering and product management. Oscar is currently conducting research at Stanford on energy technology strategy and policy in industry and government. He is particularly interested in technology applied to social benefit, particularly information / communications technologies and new distributed energy technologies, both of which hold great promise for sustainable growth in the developing world. Oscar's volunteer experience includes working with ASHA, an organization that funds development projects in India and with the Palo Alto Junior Chamber of Commerce. In 2003, Oscar started a social venture, addressing the problem of food wastage, which was entered in the Social Entrepreneur Challenge at Stanford University. James Monsees is eternally interested in things. He is currently a Masters Candidate in the Joint Program in Product Design at Stanford University. Prior to Stanford, James worked as an industrial designer. James has dual degrees in Physics and Art from Kenyon College. Elinor Mertz is a second year MBA student at the Stanford Graduate School of Business, concurrently pursuing a Master of International Affairs at Columbia University’s School of International and Public Affairs (SIPA). Elinor became interested in water supply and sanitation issues last year at the GSB while conducting independent research into cost models for improved water supply and sanitation solutions for developing countries. Prior to graduate school, she worked in investment banking, and graduated with her BA and MA from Stanford in Science, Technology and Society, and History and Philosophy of Science, respectively. Yves Vanden Hende is a second year MBA Candidate at the Stanford Graduate School of Business. Prior to graduate school, Yves worked in industrial sales and business development in Europe. He also worked as a strategy consultant for Arthur D. Little. Yves has a technical background, having earned a Masters degree in Mechanical Engineering. He spent last summer working for IDE (International Development Enterprises) in India, analyzing its current water storage systems.

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