The Hard Drive Toward Compliance

The scrap recycling business is not your run-of-the-mill operation (pun intended). In fact, the secondary commodities industry employs a business model that is rarely seen in corporate America. While a majority of industries in the United States operate following a retail business model where a company provides goods or services in exchange for currency, the scrap recycling industry, on its “retail” level, is quite the opposite.

“In the scrap business, it is reverse retail. Somebody comes in and gives you cans or other metal and you give them money. It’s backwards,” notes George Kane, co-founder of 21st Century Programming, a scrap recycling software provider based in Long Beach, Calif. Kane adds that only a few other industries employ the reverse-retail model, providing blood banks as an example.

As a result, since the time personal computers (PCs) became available in the late 1980s, the scrap recycling industry has provided a niche market for software companies seeking to create and sell software catering to the specialized needs of scrap dealers.  

Joe Floam of Scrapware, Rockville, Md., says his company started marketing software to handle scrap recyclers’ needs when the company was established in 1989. “That’s basically around the time that the price of PCs really started to drop. They became affordable for your average business,” he says.

Numerous other companies were among the pioneers that made their first steps into the industry in the 1980s, including BuyBackPro. “We entered the scrap market in 1989 with our first DOS-based application, but, at that time, it was mostly the large yards that were computerized,” says Everett Duty, president of BuyBackPro, Woodland, Calif. “Starting about 10 years ago, Windows-based software applications became a ‘must have’ with most small- and medium-sized yards as well.”

Based on Duty’s assessment, it is not surprising that several software companies entered or expanded into the scale house software market throughout the mid-to-late 1990s. Many scale house software providers agree that the initial demand from scrap recyclers for their products was not driven by governmental or regulatory compliance but by an effort to improve the efficiency of their operations and to gain an advantage over their competitors.

SIMPLIFIED OPERATIONS
From the late 1980s through the 1990s, as software providers tried to break into the scrap metal recycling industry, several succeeded because they were able to demonstrate to their customers that their products could eliminate time and expense and simplify their business practices. However, that’s not to say they weren’t met with resistance on the part of scrap yard owners and managers.

“Often times the older generation, I call them the old-line scrap guys, they would say, ‘We do it by hand, I don’t trust these computers,” says Kane of the early days of scale house software. “But then the younger generation would come in and explain to their parents how they can do it.”

The key to getting “old-line scrap guys” to buy into new technologies is to design programs that are user friendly and do not require a great deal of technological expertise to use, according to Simon Hallam, software product manager for Fairmont, Minn.-based Avery Weigh-Tronix. While Avery Weigh-Tronix has provided scrap recyclers with automated scales for years, it has launched its Measurement Intelligence (MI) Payload scale house software program within the last two years.

“With my developers, I talk about the four simples of software,” says Hallam. “Software should be simple to install. It should be simple to use. It should be simple to support. And it should be simple for the customer to buy effectively. Most people make mistakes with software because they overcomplicate things.”

By designing programs that were user-friendly, software providers were able to overcome the initial skepticism they encountered from some yard owners, and by demonstrating the capability of the software to improve the efficiency of operations, they were able to capture their attention.

“It’s going to speed up the flow of peddler, industrial and dealer traffic through their yard,” says Perry Jacobs, executive vice president of Shared Logic based in Holland, Ohio. “With a few clicks of the mouse or touches on the screen, depending on what interface you have, everything is flowing. That data become everything from an inventory system to a supplier history to know from where and from whom you received the material.”

Prior to tailoring their software to meet legislative compliance, software providers indicated that their products were designed to simplify operations at the scale house by recording the type of commodity purchased, automatically reading the weight from the scale and issuing a weight tag and yard ticket in a matter of seconds. In addition to speeding up the transaction process, scrap recyclers experienced an added benefit as the information collected was uploaded and interfaced with accounting and inventory management software.

“By implementing scale house software, the customer has the ability to eliminate duplicate entry of data,” says Jackie Barlow, vice president of Paradigm Software based in Hunt Valley, Md. He says Paradigm’s software can interface with other applications recyclers may use, transferring data automatically and eliminating possible data entry errors. “In addition, the software provides an auditable trail of activity taking place in the scrap yard,” Barlow says.

The time and cost savings a company can gain by eliminating duplicate data entry can be significant depending on the size of the scrap yard, according to many software providers.

The initial demand for implementing software into scrap recycling operations was driven mainly by mid- to large-sized yards, while most of the smaller yards opted to continue operating with hand-written tickets, says Kane.
“They were handling larger volumes of product that gave them more risk. If you’re buying 40,000 pounds of material per day, you have a much higher risk in the market and in the amount of money that you’re expending. There’s more need to track that than if you are buying 5,000 pounds per day,” says Kane.

However, the record-high prices of secondary commodities experienced from 2006 through the third quarter of 2008 brought with them a staggering amount of metals thefts. As a result, scale house software providers have increasingly been installing their products in smaller scrap yards where owners depend on the software to meet the recording requirements of various local and state regulations that have been passed in an effort to reduce metal theft.

METAL MANDATES
Whether it is fair or not, as incidences of metals theft increased in response to surging commodity prices, local and state legislatures imposed many new regulations requiring scrap metal recyclers to collect various pieces of information to help deter metals theft and to catch those thieves that had sold stolen goods to scrap yards.

“Regulatory agencies want the scrap industry to assume the responsibility to police the thieves. Why is the scrap industry being penalized because the power company left the copper wire by the side of the road?” asks Duty.
While that question may not be easily or adequately answered by those drafting the regulations, the fact is that scrap metal recyclers are forced to comply with the new pieces of legislation if they wish to continue operations.

Unfortunately, without adjusting their current business practices, the cost to comply for many scrap yards can be daunting.

“The difficulty that the metal recyclers are facing is they are looking for how they can comply with legislation without crippling their business,” says Hallam. “The last time I looked legislative reporting didn’t actually add to [a recycler’s] profits.”

Local and state legislatures across the country require scrap recyclers purchasing metal to collect various pieces of information, which may include a copy of the seller’s driver’s license, a photograph of the seller, a photograph of the seller’s vehicle, the vehicle’s license plate number, a photograph of the material purchased, a description of the material purchased, the seller’s address and the seller’s fingerprint. Additionally, many states are required to only make payment by check and to upload records of all transactions to a database that can be accessed by law enforcement via the Internet.

“The real boom in scale house software occurred with the onslaught of anti-theft legislation following the rise in metal prices in 2006,” says Phil Cuba, software developer of Scrap Dragon, a program offered by Transact based in St. Petersburg, Fla. “In some states it is virtually impossible to be in compliance without an industry-specific scale house application. Many scrap yards would not be automating without the need to comply with current legislation.”

One software provider reports that in Florida, scrap dealers may be required to obtain 37 specific pieces of information when purchasing material. As a result of these new regulations, software providers have been adding updates to their products to help quickly and easily meet the recording requirements for those scrap recyclers that already have their software installed. Additionally, those smaller yards that may not have previously been in the market for scale house software are now implementing it into their operations.

“I believe that without software to handle some of these new laws and regulations. it would be impossible for a scrap yard to be compliant and still make a profit,” says Duty.

According to Cuba, among the hardware devices that software providers offer metal recyclers to aid in compliance are thermal receipt printers, bar code readers, driver’s license scanners, document scanners, network cameras, video surveillance, wireless monitors, fingerprint readers, electronic signature pads and ATMs.

With the added demand for scale house technology, software providers provide a wide range of estimates as to the percentage of scrap metal recyclers that currently employ software at their yards from a low of less than 50 percent to a high of 80 percent. Most software providers also indicate there is a flat-fee annual update agreement after installation by which scrap recyclers can download updates to their system as the software is revised to reflect new legislation that has been passed or as new features are added to improve efficiency. 

“At least two or three times per month, we’ll do updates. They’re not always for compliance purposes. They might be for new reports, new features or things customers have requested,” says Jacobs.

The good news for scrap recyclers, legislators and the communities they serve is that incidences of metals theft have declined as these new regulations have taken effect and scrap dealers have adjusted their operations to comply. Whether this can be attributed more to legislative mandates or falling commodity prices is debatable.
However, when installing scale house software at their yards, software providers report that scrap dealers are realizing their products offer added benefits beyond legislative compliance.

When it comes to smaller companies that are handling relatively less money than their larger competitors, Kane says, “They’re looking at software as a way to comply and then they get added benefits that most of them don’t even realize.” He adds, “They get the reports coming out right away and can see what they spent on a given day and balance their cash registers. Those basic efficiency benefits are things they get when they really added the software for compliance.”

Additionally, implementing software can not only reduce metal theft in the community, but also can deter internal metal theft. “With the software, you can reduce internal theft. You may think that one of your scale people might be in cahoots with one of your vendors. He might be misidentifying material in order to pay more for a lesser quality material. Well, your cameras would basically act as a deterrent to that,” says Floam.

Finally, an added benefit for scrap recyclers is that many software providers are capable of aiding exporters in tracking containers, ensuring that a container is loaded according to specifications and preparing and printing the necessary documents, such as bills of lading, commercial invoices and Chinese customs inspection forms.

PREPARING FOR CHANGE
While federal metals anti-theft legislation has already been introduced in the U.S. Congress, it will not necessarily receive attention soon because of the declining incidences of metals theft and priorities such as health care and economic recovery dominating the federal government’s agenda. Therefore, in an effort to stay one step ahead of the local and state regulatory mandates that continue to be passed, many software providers are already developing features they say they believe will prove useful for scrap recyclers in the future.

BuyBackPro anticipates future mandates requiring cashless payment systems and thus has developed its Pay by Visa product. The system allows recyclers to pay peddlers with a debit card that may not be activated until after, say, a three-day waiting period. This can help in situations where a scale house operator has purchased scrap that the next day is found to be stolen or where regulations require deferred payment. The issued debit card can be frozen, preventing the cash payment from reaching the seller. It can also provide an auditable trail for investigating authorities.

“Pay by Visa allows you to eliminate cash altogether by giving the customer a Visa debit card, like a gift card,” says Duty. “They can spend this like they would cash, but we have an accounting of every dollar spent and a card balance via the Web. This will virtually eliminate theft and cash handling of any kind,” says Duty.

He adds that this new payment option is even available to scrap yards that don’t use BuyBackPro’s software.   
Floam adds that electronic reporting requirements will likely increase in the future. “It’s just a matter of time before our customers are going to have to electronically report cash transactions and create 1099s so the feds can cross-reference it to see that people are declaring that income on their taxes,” he says.

Finally, Cuba says in the future scrap yards may be required to consult an online database of stolen materials before every purchase, but he adds that new technology will provide improved solutions and new tools for efficient operating practices. “In the long term, improved technology will provide new tools to enter transactions in an even faster and more natural manner,” he says.

Considering the current compliance regulations and the prospect of future legislation, metal recyclers who have yet to upgrade their scale house software may be wise to act now to improve efficiencies, operate within the scope of the law and prepare their businesses for whatever technological improvements the future holds.

The author is assistant editor of Recycling Today and can be contacted at zlloyd@gie.net.