[LINK] packaging and rubish

[Deus Ex Machina]

Craig Sanders [cas at taz.net.au] wrote:
> On Wed, Aug 30, 2006 at 05:05:17PM +1000, Deus Ex Machina wrote:
> > a business can not survive unless it externalises all costs.
> 
> wrong. 'externalising costs' is NOT the same as 'passing costs on to the
> customer'. the latter is inevitable and necessary in any business that
> is going to survive...it is entirely reasonable and appropriate.
> 
> the former is dumping the costs on uninvolved third-parties. it is not
> at all reasonable or appropriate for business costs to be dumped on
> other parties who are not involved in the transaction.

we where talking about packaging craig.

business are flow throw mechanisms, they do not absorb any costs. all
costs are pushed out either back up the supply chain, down to the
customer or in fact anywhere else that is legal. 

here is a packaging example from unlink:

producer A creates a good for $100 including packaging.
producer B creates the same good, same quality same cost but takes back
packaging at a cost of $5. sells for $105.

buying from A the cost to the consumer is $100 + cost of eliminating
packaging. say its also $5.
buying from B the cost to the consumer is $105. identical.

A has externalised a cost of $5 to the consumer which only shows up on
the consumers books. B internalises the cost. neither B or A are better
or worst off. from the customers view point its neutral too. the costs
are $105 from either supplier.

say you now force A to internalise the cost. A can either increase costs
by $5 to match B or find some other way of externalising the costs or
some way of increasing efficiency by $5 (for example eliminating $5
worth of jobs) or lower the quality by $5 (etc) to stay in the game.

if A and B are sitting on the right risk adjusted return. then A must
raise the return or becoming economically unviable. the return does not
justify the risks that its capital is exposed to.

there is no way to force A to rationally accept a bad risk adjusted
return. it will either differentiate and shift the cost into another
aspect of its product, bringing its risk adjusted return back into line
or find a new line of products or the shareholders will sell up to someone
that thinks they can get better efficiencies  etc. etc.

risk adjusted return (or its variants) is the be all and end all of any
informed business.

Vic