UNIVERSITI TEKNOLOGI MARA

KOTA KINABALU

GROUP PROJECT:
A STUDY ON PLASTIC RECYCLING AT
UNITED PLASTIC RECOVERY SDN. BHD.

VALERIE SINTI
NORLIZA BT. DZULKIFLI
NORHISMAWATI BT. LOT
EMBA 4

MGT780

December 2014
 TABLE OF CONTENTS

Table of Contents ........i

Chapter One Company Background .....2
1.1 Background of Company .2
1.2 Objectives .2
1.3 Scope, Vision and Mission .3
1.4 Products 3
1.5 Community 4
1.6 Business Model 4
1.7 Business Process Flow ..5
1.8 Financial Performance 6
Chapter Two Methodology ..8
2.1 The Research Design .8
2.2 The Instrument for the Research ..8
2.3 The Fieldwork and Data Collection Method 9
Chapter Three Decision Analysis..10
3.1 Managerial Decision .10
3.2 Decision Analysis Steps ...10
References17

LIST OF FIGURES

Figure 1.Business Model

Figure 2.UPRs Decision Tree

LIST OF TABLES
Table 1.Business Process Flow
Table 2.The Financial Performance for the Year Ended 31 Dec 2011 31 Dec 2013
Table 3.List of Current Buyers/Debtors
Table 4.List of Current Suppliers
Table 5.Price of export PET Flake and Plastic Strap per Kilogram
Table 6.Estimated Production and Financial For PET Flakes and Plastic Strap
Table 7.Conditional Profits and Probabilities of UPR
Table 8.Decision Table with EMV and probabilities of UPR
Table 9.Decision Table by Expected Opportunity Loss (EOL) of UPR

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 CHAPTER ONE
COMPANY BACKGROUND

1.1 Background of Company

The United Plastic Recovery Sdn. Bhd. (UPR) was incorporated in 10 March
2011 with paid-up capital of RM100, 000.00. The key man of this company is Mr. Lee
Yun Ming as the Managing Director and supported by Mr. Liew Siew Ming and Mr.
Insan Bin Muslimin as the directors with huge experience in the business
environment. Due to the increasing demand for this product and to meet to the
requirements, UPR has moved from its original location in Tuaran to Kota Kinabalu
Industrial Park (KKIP) with an area of one acre since January 2013.

UPR also collects other types of plastic waste crushed and processed it,
due to the supply that comes does not only consist of PET plastic but other types as
well. The primary objective of the company is to create a viable business entity that
first and foremost generates sustainable long term profitability in capitalizing on the
current market potential. Secondly, the company will play its part in assisting and
contributing to the protection of the environment. They would like to share the
experience in this particular field of plastic recycling, effectively and efficiently
operate a viable recycling project. There are substantial initial investments involved
in this venture but more importantly, also very healthy returns on investment within a
short span of time. Their current supplies of raw PET plastics are from recycling
companies, individuals and manufacturing industries that produce this type of waste.
Most importantly from the source of the waste itself that in turn will reduce its
landfills.

1.2 Objectives

UPR is economically viable to recycle plastic waste if done with commitment

and application of the latest relevant technological methods of recycling. UPR will
assist in developing policies and procedures which to be adhered to and the
implementations of it, hence ensuring success and quality in delivery of the end

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 product. It is the company intention to form an entity to help eradicate the problem of
plastic waste disposal and to conduct the process of recycling plastic waste. When
recycling of garbage is implemented, the key benefits are as follows:

Reduction of destruction of habitat and degradation of biodiversity.

Reduction of transportation costs of the recycled plastic.
Significant reduction in burning.
Cleansing of rubbish streams, thereby minimizing use of landfills.
Recycling, can in a unique way contribute to the economic growth of the country.
Generate/create market value of plastic which is currently untapped in East
Malaysia.

1.3 Scope, Vision and Mission

The business scope of UPR is being set up primarily to collect and process
consumable PET (Polyethylene Terephthalate) bottles. These range from mineral
water/juice bottles, to cooking oil/sauce bottles. As pioneer in processing PET bottles
in Sabah, its vision is to be the biggest PET plastic processing plant in Sabah and
subsequently the largest in the country. The mission of the company is to achieve
efficiency and effectiveness in its recycling operations, by maximizing revenue and
managing costs, thereby generating healthy profits and proactively contributes to the
good of the environment and eliminating plastic waste in a safe manner.

1.4 Products

UPR primarily collects and process recycled PET bottles. The process will
involve sorting, crushing, removing of label, compacting and washing to become PET
flakes. Then the end product will be sold to West Malaysia as well as China on large
volume based. The nature of the business cycle is regular. Whereby the product are
in PET flakes, raw materials used to make threads/PET fibber in turn used to
manufacture clothing, blanket, carpet, curtain and etc.

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1.5 Community

It is the intention of the organization to be actively involved in educating the

communities to recycle waste, and activities to protect the fragile environment and
mother earth.

1.6 Business Model

Plastic recycling is the process of recovering scrap or waste plastic and

reprocessing the material into useful products, sometimes completely different in
form from their original state. Bottles made of PET are recycled to reuse the material
out of which they are made and to reduce the amount of waste going to landfills.
Currently, the following are the services currently by UPR: collecting and processing
of consumables PET bottles (Ranges from mineral water/juice bottles, cooking oils
and sauce bottles).

Figure 1.Business Model

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1.7 Business Process Flow

Table 1.Business Process Flow

PROCESS DETAILS
Raw Materials: Clean/Dry

The empty PET packaging is discarded by the consumer

after use and becomes PET waste.

Sorting (Segregation)
The collected post-consumer PET is taken to UPR where
it is sorted and separated from other materials such as
metal, objects made out of other rigid plastics such as
PVC, HDPE, polypropylene, flexible plastics such as those
used for bags (generally low density polyethylene), drink
cartons, glass, and anything else which is not made out of
PET.

Post-consumer PET is often sorted into different colour

fractions: transparent or uncoloured PET, blue and green
coloured PET, and the remainder into a mixed colours
fraction. The emergence of new colours (such as amber
for plastic bottles) further complicates the sorting process
for the recycling industry.

Pressed/Compact/Crushing/
Sales
This sorted post-consumer PET waste is crushed, pressed
into bales and offered for sale to clients. Colourless/light
blue post-consumer PET attracts higher sales prices
compared to the darker blue and green fractions. The
mixed colour fraction is the least valuable.

The Further treatment process includes crushing,

washing, separating and drying. Buyers will further treat
the post-consumer PET by shredding the material into
small fragments. These fragments still contain residues of
the original content, shredded paper labels and plastic
caps. These are removed by different processes, resulting
in pure PET fragments, or PET flakes.

PET flakes are used as the raw material for a range of

products that would otherwise be made of polyester.
Examples include polyester fibres (a base material for the
production of clothing, pillows, carpets, etc.), polyester
sheets, strapping, or back into PET bottles etc.

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 UPR can increase the output capacity up to 100 tonnes (minimum) per
month. Currently, these machines will process 800 kilogram per hour and will sell
with the price of RM2,600 per ton. Existing machineries/equipment of UPR as
follows:

1. One (1) unit of delabelling machine

2. One (1) unit of compactor
3. One (1) unit of crusher
4. One (1) unit of conveyor belt
5. One (1) unit of conveyor belt dryer
6. One (1) unit of recycling machine (water tank, separator, washer)
7. One (1) unit of press/compressor machine
8. One (1) unit of forklift

1.8 Financial Performance

UPR was incorporated in 10 March 2011 with paid-up capital of RM100,000.

UPR started its operations slowly in 2011 with monthly output was low which is
between 20-40 tons and inconsistent due to current inefficient workflow/processes
and manual production equipment/machineries. However, after acquiring reliable and
efficient machineries to make total revamp of the plant work at the end of 2011, UPR
succeed to increase monthly output between 100-200 tons in 2012 and improve its
financial performance as shown in Table 2.

Table 2.The Financial Performance for the Year Ended 31 Dec 2011 31 Dec 2013
Financial Year Ended 31-12-2011 31-12-2012 31-12-2013
Sales (RM) 24,811.00 1,111,641.00 1,988,485.71
Sales Growth (%) 0.00 4,380.44 78.88
Gross Profit (RM) -97,931.00 399,768.00 725,389.31
Gross Margin (%) -394.71 35.96 36.48
Net Profit (RM) -235,167.00 35,707.00 399,727.56
Net Profit Margin (%) -947.83 3.21 20.10
Paid Up Capital (RM) 100.00 100.00 100.00
Shareholders Funds (RM) -235,067.00 -199,360.00 200,367.56
Stock Turnover Period (Days) 148.09 73.15 48.61
Debtors Turnover Period (Days) 863.68 47.60 61.47
Creditors Turnover Period (Days) 2,693.91 532.55 253.48
Current Ratio (times) 0.14 0.33 0.54
Debt Service Cover (times) 17.45 -0.07 1.80
Gearing (times) based on total debts -0.37 -0.68 1.07
Gearing (times) based on total liabilities -4.22 -5.89 5.69

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 Based on the financial report, UPR obtained higher net profit for year ended
2013 as compared to for year ended 2012 and for year ended 2011. Shareholders
fund have shown positive increase of RM200,367 in 2013. Debtors Turnover Period
showing a decrease percentage performance which means the debt collection is
getting faster in the third year of UPR establishment. Since UPR started its operation
in March 2011, UPR only managed to secure 25% of its sales to China. However
with the continuation of growth, UPR is looking for opportunity to increase the volume
of sales in China and penetrate sales in Japan and Korea in near future.

Current buyers or debtors are shown in Table 3. Creditors Turnover Period

also showing a decrease percentage performance in 2013 which imply slower
payment to supplier by UPR. However this will only affect one supplier which involve
in credit payment. Current suppliers are shown in Table 4.

Table 3.List of Current Buyers/Debtors

Length of
Collection
Major Buyers % of Sales Product/Service sold Relationship
Terms (Day)
(Year)
Local 50 Processed 30 - 60 8
Peninsular 35 consumables PET 30 7
China 25 bottles 30 3

Table 4.List of Current Suppliers

Length of
Purchases Product/Service Payment
Major Suppliers Relationship
% bought Terms
(Year)
Beltron Industries
55 PET Bottles Credit 3
Sdn. Bhd.
Eifffel Plastic
45 Plastic bottles Cash 3
Industries Sdn. Bhd.

Analysis of UPR non-financial business performance indicates that UPR

began their international operations right at the establishment rate of their level of
innovation. Currently they are trying to strengthen their position in the China market
through acquiring new machineries which enable them to produce mass volume of
PET flakes, raw material used to make threads or PET fibre. Gaining new experience
and innovation would also enhance their corporate image.

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 CHAPTER TWO
METHODOLOGY

2.1 The Research Design

A research design can be defined as the framework or structure of a study.

Providing the consistency, a good research design holds the study project on the
right track. In order to find answers to research questions, it determines and explains
the method of collecting and analysing the data. According to Bryman (2001), there
are four types of research designs. For the purpose of this study, only two types of
research deigns are chosen:

1. Cross-sectional design
2. Case study design

In a cross sectional design, information are collected on different cases or

objects at a specific time and they are verified afterward to see the patterns of
association. In the case study design, researchers conduct on single or multiple
phenomena with an objective to create theory or to establish the validity of a theory.
The study topic guided the researchers to choose a case study with a quantitative
approach.

2.2 The Instrument for the Research

A quantitative method is used to analyse the statistical data (Bryman, 2001).

Casual relationships are investigated by the quantitative researches between the
events, whereas qualitative researches are aimed at interpreting events. The
researcher may also be emotionally involved in a quantitative research
(www.gifted.uconn.edu). Generally, in a quantitative case study, data are gathered
through interviews (Merriam, 1994), which is reflected in this study.

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2.3 The Fieldwork and Data Collection Method

There are mainly two types of data based on the sources of availability,
primary and secondary. Primary data are first hand data. They are the outcomes of
interviews, questionnaire, emails and phone calls (Gibaldi, 1999). On the other hand,
secondary data collected, stored and used before (Zikmund, 2000) and available in
books, articles, journals, other printed materials, internet and so on. Both kinds on
data are used in this study. As a lot of work has been done before on supply chain
efficiency or performance and the plastic recycle industry via UPR, some data from
secondary sources is expected to be collected. Rest of the case specific data were
collected as primary data through interviews, emails and telephone calls. UPR is the
case company. The following would be the data collection method:

1. Follow up interviews with UPR management either by telephone or meeting to

gather the process of purchasing plastic waste, transformation process to PET
Flakes, inventory and transportation to deliver PET Flakes to customers.

2. Interview by telephone, writing or meeting with relevant agencies that have

significant power towards governance and regulation to plastic recycle industry
such as Kota Kinabalu City Hall, environmental department, Ministry of Housing
and Local Government, Ministry of International Trade and Logistics to
understand regulation and business environment of the industry.

3. Observation of the transformation process from plastic waste into PET Flakes,
warehouse and transportation.

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 CHAPTER THREE
DECISION ANALYSIS

3.1 Managerial Decision

UPR also have identified the machine for producing PET Flake to become
plastic strap which could be exported at higher price in the market compare to PET
Flake. Plastic strap is a widely used packaging material. Strap PET (polyethylene
terephthalate strap also known as polyester strap) is often used where formerly steel
strap was applied. This is due to some very good properties of PET Strap. Not only is
this strap very strong due to its high tensile and tear resistance, but also very elastic
so that the reduction of the size can be accommodated. It is resistant to shocks and
bumps. Even in the long term this strap is extremely robust, and insensitive to UV
light. These properties remain valid, even at high temperatures. In addition Strap PET
is also much lighter than steel strap. The difference price of Pet Flake and Plastic
Strap is shown in Table 5.

Table 5.Price of export PET Flake and Plastic Strap per Kilogram
Item Price Per Kg
Pet Flake 2.60
Plastic Strap 12.00

3.2 Decision Analysis Steps

Step 1: Defining the Problem

Mr Insan, one of shareholder is optimist that purchasing a new machine to process

plastic strap would increase UPR revenue and able to expand their business.
However, this idea is considered as increasing business risk by the other two
shareholders since the cost of purchasing the new machine is RM500,000 would
require UPR to increase its bank loans. In addition, they are also uncertain if plastic
strap product can generate high revenue during favourable and unfavourable market
condition. Furthermore, UPR have to compete with stiff competitors in plastic strap
industry compare to pet flakes industry.

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UPR is considering whether to purchase the new machine to produce plastic strap for
business expansion or retain their current business to maximize the profit. In the
organization, there must be a constraint to achieve the objective of the company.

Step 2: Variables

The decision variables are:

1. To purchase new machine to produce plastic strap for business expansion.
2. To retain the current PET flakes business.

Uncontrollable variables are:

a) Favourable market condition
b) Unfavourable market condition

Step 3: Developing a Model

A suitable model that can be used is decisionmaking under risks model. Under this
model, there are several possible outcomes for each alternative and the decision
maker knows the probability of occurrence of each outcome. In this case, we know
the probability of buying the purchasing of machinery for favourable market condition
0.7 and for the unfavourable market condition is 0.3. In this decision theory model for
business environment typically has two equivalent criteria:

(1) Maximization of profit; and

(2) Minimization of expected opportunities loss.

If the favourable and unfavourable market were known, the environment would
change from uncertainty to risk. So, the decision making under risk model is suitable
for UPR as it can determine or estimate the expected profits for various combinations
of decisions and situations.

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 Step 4: Acquiring Input Data

Table 6.Estimated Production and Financial For PET Flakes and Plastic Strap
Pet Flakes Plastic Strap Plastic Strap
Favourable Market Unfavourable Market
Price Total Total Price Total Total Price Total Total
Per Output (RM) Per Output (RM) Per Output (RM)
Kg (Kg) Kg (Kg) Kg (Kg)
Production 2.60 432,000 12.00 120,000 12.00 120,000
Net Sales 2.60 432,000 1,123,200 12.00 120,000 1,440,000 12.00 70,000 840,000
Less:
Variable cost
Direct Labour (54,000) (54,000) (54,000)
Indirect
(19,200) (19,200) (19,200)
Labour
Raw material (450,000) (450,000) (450,000)
General
(24,000) (36,000) (36,000)
Expenses
Transportation (250,000) (250,000) (250,000)
Less:
Fixed Cost
Factory Rental (132,000) (132,000) (132,000)
Loan Payment (24,000) (72,000) (72,000)
Net
170,000 426,800 (173,200)
Profit/(loss)

As seen in Table 6, Given a favourable market, UPR estimates that the company will
earn profit of RM426,800 if they expand their business to sell plastic strap. However,
with an unfavourable market condition, UPR estimates that the company will loss
RM173,200 and have excess of inventory of 50,000 kg of plastic strap. We assume
that the probability of favourable market is 0.7 as the plastic industry has shown 5%
increase in the year of 2014.

Step 5: Developing a Solution

As seen in Table 7, the companys conditional profits in favourable market condition

for first alternative, to purchase new machine to produce plastic strap for business
expansion of RM426,800 is the highest and would be the best alternative to choose.

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 Table 7.Conditional Profits and Probabilities of UPR
Conditional Profits
Alternatives Favourable Unfavourable
Market Market
Condition Condition
Purchase new machine 426,800 (173,200)
Retain current business 170,000 170,000
Probabilities 0.7 0.3

Data
Favourable Unfavourable
Profit Market Market
Probability 0.699999988 0.300000012
Purchase new
machine 426800 -173200
Retain current
business 170000 170000

Step 6: Testing the Solution

Calculation of Expected Monetary Value (EMV) to test which alternative would give
UPR the best profits to achieve UPR objective to maximize profit as illustrated in
Table 8 and Table 9.

Table 8.Decision Table with EMV and probabilities of UPR

Profit
Favourable Unfavourable
Alternatives Maximum EMV
Market Market
Condition Condition
Purchase new machine 426,800 (173,200) 426,800 246,800
Retain current business 170,000 170,000 170,000 170,000
Probability 0.7 0.3

As can be seen, the best decision is to purchase new machine. The EMV for this
alternative is RM246,800.

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 Favourable Market Condition:

EVwPI = (Best profits for state of nature i )(Probability of state of nature i )

= RM426,800(0.7) + RM170,000(0.3)
= 349,760

EVPI = EVWPI Max EMV

= RM349,760 RM246,800
= RM102,960

Expected Value of Perfect

Information
Column best 426800 170000 349760 <-Expected value under certainty
246800 <-Best expected value
<-Expected value of perfect
102960 information
Results
EMV Minimum Maximum

246800 -173200 426800

170000 170000 170000
Maximum 246800 170000 426800

The opportunity loss table is shown here:

Table 9.Decision Table by Expected Opportunity Loss (EOL) of UPR

Profit
Alternatives Favourable Unfavourable Maximum EOL
Market Market
Condition Condition
Purchase new machine 0 343,200 343,200 102,960
Retain current business 256,800 0 256,800 179,760
Probability 0.7 0.3

EOL (purchase) = (0.7)(0) + (0.3)(343,200) = 102,960

EOL (retain) = (0.7)(256,800) + (0.3)(0) = 179,760

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Regret
Favourable Unfavourable
Market Market Expected Maximum
Probability 0.7 0.3
Purchase new
machine 0 343200 102960 343200
Retain current
business 256800 0 179760 256800
Minimum 102960 256800

The decision based on the EOL criterion would be to retain current business. Note
that the minimum EOL (RM102,960) is the same as the EVPI computed above. The
decision would be to retain current business since the maximum regret for this is
RM256,800, while the maximum regret for alternative to purchase new machine is
higher as shown in the opportunity loss table.

Figure 2.UPRs Decision Tree

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Step 7: Analysing the Results

The solution can result in different impacts on the company. There will be impact on
the cash flows of the company because there would be additional loan of RM500,000
to be paid according to the new loan agreement. Apart from that, UPR need to
consider extra space for excess inventory during the unfavourable market condition.
The profitability of the company is expected to increase along with general expenses
which comprises of utilities.

All cost remains unchanged because UPR have secure contract with their supplier
for raw material and transportation. Meanwhile there will be no additional manpower
until the plastic strap business is established. After all the work process is done by
machine. However, changes in the present contract will be revise as soon as the set-
up of the expansion of business is stabilize to ensure that the daily flow of business is
not distracted.

Step 8: Implementation

The implementation of the model results in purchasing of machinery and training of

manpower to use the new machine to carry out the expansion of business. Visibility
of business must be prepared for application of additional RM500,000 loan from SME
bank. A suitable team to implement the expansion of business has to be identified to
prepare all the necessary paper work including arranging contracts with customers to
buy plastic strap from UPR.

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