Abstract: Investment Recovery is the management of the reuse and disposal of the surplus materials, equipment and product which are generated by an enterprise in the pursuance of its primary business(es). Such management involved many of the techniques for evaluation and decision making used by practitioners of Operations Research and Management Science.  This paper reviews the history of Investment Recovery, summarized its practice at Union Carbide Corporation, and forecasts the future for this emerging management strategy.


Business decisions aimed at improving profit leave behind surplus assets and/or inventories, just as a snow plow leaves behind piles of snow. Most surplus has some recovery or reuse value. When that value is not recovered, a loss occurs and write-offs are higher than they should be. These routine losses are frequently ignored by managers. They do, after all, occur in small piles often on individual plant balance sheets. Many organizations make no attempt to seek relief; the losses are taken for granted and no overview is thought to be required. The history of the development of the Investment Recovery function, by whatever name, has usually hinged on the awaking of someone in the enterprise to the realization that an overview is required. 

Investment What???? In the early 60’s, plant expansions and modernizations were commonplace and techniques for disposing of old plants, equipment and inventories were much in the business news. In 1964, Union Carbide decided that reuse and disposal of surplus assets needed corporate management. The newly appointed manager, Walter W. Baker, coined the name Investment Recovery. The manufacturing plants responded well to the new Investment Recovery Department, and by the end of 1964, seven months after its formation, 710 items of machinery and equipment worth $2.8 million had been relocated within the corporation, and 186 items had been sold for an income of over $300,000. That recovery of $3.1 million for the corporation had cost only $74,000. 

By 1968 the program was well ensconced in the corporation; recovery from capital equipment had reached $10 million. In that year the management reinforced its commitment to centralized surplus disposal by adding the Chemical Salvage Group from the Chemicals Division to the Investment Recovery Department where it could service all the divisions of the Corporation. 

Other opportunities for Investment Recovery grew out of need: plant dismantlements, a scrap metal program and the reuse and sale of surplus stores, materials and supplies. The growth of recovery from these programs is shown in Figure 1. While Investment Recovery was developing at Union Carbide, industry in general was showing increased interest in recovery from surplus assets. Changes in the Internal Revenue laws in 1961 and 1969 made the tax benefits from donating assets virtually nonexistent. In 1966, the Accounting Principals Board of the American Institute of Certified Public Accountants decided that losses or gains from disposition of assets should be reported to the shareholders as a factor in current earnings. Accordingly, techniques to evaluate and to recover as much as possible were getting considerable attention. 

One practitioner included recovery in his book on Materials Management. Financial managers and engineering directors were being exposed to procedures for improving their recovery; the techniques reported would today be considered facets of OR/ MS (Operations Research and Management Science). In 1975 the American Management Association recognized Investment Recovery, and began offering instruction; in 1976 they published a “Management Briefing” on the subject. 

How It Works 

How Investment Recovery is practiced in any given enterprise depends on the accounting systems and on the company’s philosophies regarding engineering and product management. At Union Carbide, disposing of surplus is divided into three businesses: equipment, materials and products. These Investment Recovery businesses operate with essentially the same sequence of steps, which are shown in Figure 2 (next page.) The same decision trees and evaluations are used regardless of type of surplus asset. The decision to declare an asset surplus is entirely up to the operating component. The Investment Recovery department’s assignment is to search out and implement the best potential recovery period. The results of the recovery, however, accrue to the operating component; Investment Recovery is operated as a service, not as a profit center. 

Surplus Equipment includes all capital property, i.e., fixed assets costing more than $500. In addition, certain similar but lower cost items are included in this business, e.g.,  furniture, hand power tools, and small operating equipment. Descriptions of surplus equipment, submitted by the “contact” at each of the corporation’s 500 domestic locations, include age, original cost, undepreciated (book) value and condition. This equipment is advertised in a monthly publication called “Surplus Property For Transfer” which is mailed to all locations of Union Carbide in the continental US, Puerto Rico and Canada. An item requested by another facility is “uninstalled” at corporate expense, shipped at the requesting location’s expense, and transferred on the corporate property records. Behold, a “new” tool at no cost but freight. Equipment not requested by another location is advertised for sale outside the corporation in the monthly “Surplus For Sale” list. The “For Sale” list is also mailed to all corporate locations; thus, a second chance is given to reuse something before it is sold. Sale is made by bid only, F.O.B. plant site. When none of the bids meet expectation, a sales price is assigned and the item is listed a third time in a quarterly “Surplus Property Catalog.” If no buyer is found, a surplus machine is scrapped. 

Surplus Materials are the expendable items which are surplus to the needs of a plant, factory or office.  Such surplus covers a wide gamut of inventory items: raw materials, subassemblies, spare parts, containers, materials for maintenance or construction such as pipe and electrical supplies. The first approach to recovery from surplus inventories is to return the merchandise to the original vendor. The Investment Recovery Department provides purchasing agents with a periodically updated list of restocking charge limits. For example, 15% might be considered too high a charge for restocking metal plate and structural shapes, while 40% could be an acceptable charge for fasteners. When restocking charges are too high, better recovery can be obtained through Investment Recovery. To achieve that improved recovery, descriptions are published monthly in a “Surplus Materials List” which is sent to all corporate locations. Any single lot of surplus supplies worth more than $200 is considered worth relocating. A vehicle for transferring inventory from one location to another is a Purchase Order. This is the way Union Carbide records moving money from one pocket to another. To stimulate this movement, Investment Recovery pays the freight for all internal shipments. For the purpose of outside sales, surplus materials are divided into commodity categories so the “Invitation to Bid” can be directed to specific customers. If no one wants a lot of supplies the options are: scrap it, throw it away or give it away. Scrapping surplus materials sometimes brings proceeds, throwing things away costs money. People who empty dumpsters must be paid, and in turn they (or we) pay a landfill or incinerator charge. To avoid those charges, it is sometimes possible to give things away to people who will expend the labor to remove them; for example, electronic sub-assemblies can be dismantled by an electronics class to get the components and parts. 

Scrap metal is surplus material whose merchandising is complicated by cost/ quantity relations which seem backward. Most of us think in terms of buy more/ pay less, but in scrap disposable, the more we sell, the higher the unit price we obtain. To sell larger quantities of scrap it is often necessary to bypass the local yards and go to larger dealers or actual users, e.g., foundries, galvanizers or detinners. These large buyers are often remote and must be sought out. In order to negotiate the right sale price, the seller must know what the content of the scrap is, the cost of the required processing and what the ultimate user will pay. 

Surplus Products are things manufactured by a company which it doesn’t want, things that are not part of the marketing plans: discontinued products, overaged goods, by-products, waste materials recovered from effluent streams or off-specification products that are too expensive to rework. Internal Reuse is always evaluated first. This brings in other experts who have knowledge outside Investment Recovery. Purchasing knows what department buys the material that is surplus. Engineering may know if it can fit another production process. Energy and power people know if it is suitable for burning in one of the company’s heating devices. Users outside must be evaluated; it is possible that any particular surplus product is more valuable to company X than to us. Sooner or later the question of reprocessing must be addressed. “Can we use it or sell it better if it is cleaned, purified or converted?” If the answer is yes, then high recovery may hinge on finding a component compressor. Brokers are often an asset in selling surplus products. These businessmen sometimes specialize, for example, in plastics or in food goods; others handle a broad range of products. They are especially valuable in selling the mixed lots that occur in warehouses because of returned shipments or overaged goods. 

Some surplus products just can’t be used, sold or burned as fuel, so a safe means of disposal must be found. The problems must be defined. Is the stuff innocuous or has it a contaminant or hazard? What laws govern the hazard? Who is licensed to handle that hazard? What must be done? In these cases the job also involves the company’s environmental protections people, or they may handle it entirely.