The first step to higher profits starts inside the business
FOR many businesses in Sarawak, improving profitability has become increasingly challenging. Rising labour costs, higher energy prices, transportation expenses and fluctuating raw material costs continue to squeeze margins.
When profits come under pressure, the natural response is often to increase sales, introduce new products or expand into new markets.
However, before investing more resources into growth, business leaders should ask another important question: Where is money quietly being lost within the business?
This should be treated as a management and financial issue, not merely an environmental concern. Before pursuing expansion, businesses should first determine whether materials, energy, inventory and production processes are being used efficiently.
In many organisations, valuable materials, excess inventory, production by-products, energy and packaging are often accepted as unavoidable waste rather than recognised as business assets. Individually, these losses may appear insignificant, but together they can quietly erode profitability.
Improving financial performance does not always require selling more. Sometimes the greatest opportunity lies in making better use of resources already available.
Seeing waste as business value
An increasing number of businesses are rethinking how waste is managed. Instead of treating it purely as a disposal problem, they are exploring how unused materials can reduce costs, create new revenue streams and strengthen long-term competitiveness.
This is where the circular economy becomes relevant.
Rather than allowing valuable resources to leave the business after a single use, companies seek opportunities to recover, reuse, repurpose or commercialise them. The objective is not simply environmental sustainability but better business performance through more efficient resource utilisation.
A practical approach involves three steps: measure, recover and commercialise. First, measure the true financial cost of waste. Second, identify materials and resources that can be reduced, reused or recovered. Third, assess whether these resources can lower internal costs or generate additional income.
For business leaders, the discussion is therefore not about recycling alone. It is about improving productivity, strengthening resilience and increasing long-term profitability.
Sarawak already has the opportunity
Sarawak is well positioned to benefit because many of its key industries already generate valuable by-products.
The palm oil industry provides a clear example. Empty fruit bunches, palm kernel shells and palm oil mill effluent can be converted into biomass fuel, renewable energy, organic fertiliser and other value-added products. Materials once regarded as disposal costs can instead become productive inputs or new sources of revenue.
Similar opportunities exist across timber, manufacturing, agriculture and food processing. Wood offcuts can become engineered wood products or biomass fuel, while food-processing by-products can be converted into compost or animal feed. Manufacturing waste can often be recycled back into production, reducing dependence on new raw materials.
The opportunity is not simply to reduce waste but to unlock value already hidden within business operations.
The financial numbers tell the real story
From a management accounting perspective, waste represents an operational cost that often goes unmeasured.
Businesses carefully monitor sales, labour costs and production expenses, yet relatively few quantify the financial impact of wasted materials, inefficient processes or excess inventory. Without this information, management may overlook opportunities to improve profitability without increasing revenue.
For example, if a manufacturer spends RM500,000 annually on raw materials and loses 5 per cent through defects, excess usage or disposal, the hidden cost amounts to RM25,000 each year. Cutting that loss by half would improve profitability by RM12,500 without making a single additional sale.
Better resource utilisation can lower disposal costs, reduce material losses, improve inventory management, decrease energy consumption and enhance operational efficiency. Together, these improvements strengthen financial performance while reducing dependence on increasingly volatile raw material markets.
However, businesses should avoid pursuing every circular-economy initiative at once. Management should prioritise projects based on expected savings, investment requirements, operational feasibility, payback period and market demand.
As the saying goes, what gets measured gets managed.
From good ideas to business action
Moving towards a circular economy does not necessarily require major investment. It begins with better information and clearer accountability.
Businesses should first conduct a waste-cost audit to identify where materials, energy and inventory are being lost and estimate the financial impact of those losses. The audit should focus on the areas with the greatest financial impact rather than attempting to address every form of waste simultaneously.
Next, responsibility for resource efficiency should be assigned to a senior manager, with relevant indicators incorporated into key performance measures and regular management reports.
Businesses should also assess whether production by-products can be reused internally, sold to another organisation or developed into new products. These opportunities should form part of annual strategic and investment planning.
For SMEs, collaboration may be the most practical approach. By working with industry associations, universities, waste-processing companies or neighbouring firms, businesses can share collection, transport, technical expertise and infrastructure, making resource recovery commercially viable even where individual volumes are small.
Turning sustainability into competitive advantage
Customers, investors, financial institutions and international buyers are paying closer attention to how businesses manage resources.
For export-oriented industries such as palm oil, timber and manufacturing, demonstrating efficient resource management is becoming increasingly important for maintaining market access and competitiveness.
At the same time, the Sarawak Government’s emphasis on renewable energy, green technology and sustainable industrial development under the Post COVID-19 Development Strategy 2030 provides a supportive environment for businesses to improve resource efficiency and develop circular business models.
These initiatives create opportunities for businesses to innovate, improve productivity and remain competitive in an evolving global marketplace.
The first step starts inside the business
Business growth does not always begin with new customers, products or markets. Often, the first opportunity lies within existing operations.
Waste should no longer be viewed simply as something to dispose of. It may represent avoidable cost, reusable material, operational inefficiency or an untapped source of revenue.
The first step is straightforward: identify the three largest sources of material, energy or inventory loss, calculate their annual financial cost and determine which one can realistically be reduced within the next 12 months.
By taking that step, Sarawak businesses can improve profitability, strengthen resilience, and build a lasting competitive advantage.
● Wong Kai Lu, Lecturer, School of Business, Faculty of Business, Design and Arts, Swinburne University of Technology Sarawak Campus
DISCLAIMER: The views expressed here are those of the writer and do not necessarily represent the views of Sarawak Tribune. The writer can be reached at mvoon@swinburne.edu.my.
