Online Extra: Cutting an Ecological Rug
It's simply a fact of physics that to manufacture something, you'll need to put energy and materials into it. Interface (IFSIA ), a maker of modular carpet tiles, is perhaps the most forward-thinking company around when it comes to exactly where that energy and those materials are coming from. Stuart Jones, vice-president for sustainable development, says Interface wants to "unhook from the oil well." In other words, the company seeks to free itself of having to buy new oil to make its goods.
That makes for a pretty ambitious goal, considering the back half of Interface's carpet tiles consist of vinyl, a petroleum-based product, and that the energy to fire its factories has to come from somewhere. But the Atlanta-based company has made meaningful progress and managed to stay profitable while doing so.
At the center of its efforts lies an extremely robust campaign to make use of recycling and remanufacturing—reclaiming used materials and putting them back into the production cycle. Interface recently launched a process it calls Cool Blue, which allows almost all of the carpet backing to use reclaimed materials.
THE 10% PROBLEM.
Still, the challenges for Interface are many, starting with the business environment. Interface gets 90% of its revenue—which totaled $986 million in the last fiscal year—from the commercial carpet market. That's a cyclical business; Interface, like many peers, sank into the red as office spending evaporated after the dot-com slump.
Second, Interface's goal to reduce waste and employ recycling puts it at a cost disadvantage to rivals that use traditional manufacturing means. Factoring in all of the costs to reclaim, inspect, and process the used materials, Interface's tiles actually cost 10% more to manufacture than news ones made from virgin material, according to Jones. However, he says: "As we're ramping up, as the volumes get greater, so do the economies of scale."
So, understandably, the company is always looking for ways to operate more efficiently. Those efforts start with the logistical puzzle of getting used carpet back in a cost-effective way. "The transportation is the most expensive piece of any reverse logistics scheme, and this was a very big issue for us," says Jones. "We really struggled with how we were going to fund this—you've got to have the scale to make it economical, and you can't have that without the infrastructure."
"PROVING OURSELVES WRONG."
Interface had tried using a lease model, in which clients would "rent" carpet and simply rely on Interface to replace worn tiles. But Jones says the state-by-state complications of drawing up leasing arrangements became a drag. As did, no doubt, customers sending back tiles after the first coffee spill. Now, though, with most customers simply purchasing the carpet outright, it's up to Interface to track it down.
Interface has workers whose only job is to go find carpet to feed back to the factory in Lagrange, Ga. They'll even reclaim competitors' product. According to Jones, Interface was prepared to spend $1 million on transport alone last year to haul back 8 million pounds of used carpet. But Jones says that it cost less than a third of that, thanks to intense client relationships. "We kind of set out with the knowledge that it's impossible to do this and make money at it," he muses. "And we've actually had fun proving ourselves wrong at this over the years."
As the commercial market has swung back in its favor, Interface is expected to turn a profit this year. On average, analysts who cover Interface estimate $32.6 million in net income, on sales of $1.06 billion, for the current year. Matthew McCall, an analyst at BB&T Capital Markets, said in a recent research note that he expects the modest moves into the residential market will eventually help smooth earnings volatility.
The hope at Interface is that all of its environmentally friendly steps will smooth volatility as well, since they will reduce the company's exposure to ever-swinging energy prices. "We did a deal with the city of Lagrange, and we've capped the landfill [there] and piped the methane to our plant," Jones says. "We fire our boilers with landfill gas. So we've unhooked our process heat and our raw material input—at least for the backing material—from the oil well. This is a very significant step."
By Brian Hindo