The reverse logistics process enables companies to take materials and products that have depreciated over their life cycle, and ultimately dispose of them once they no longer serve a core function in the enterprise.
Supply management executives who properly implement asset and investment recovery initiatives can significantly boost their companies’ profit. From office gear to factories or office buildings, proper supply management plays a substantial role in their disposition and investment recovery.
This is leading many supply management executives to evaluate suppliers beyond the first tier. Consider the case of IT equipment, which has a life cycle of about three years. Rupert says in the past, obsolete IT equipment would often be turned over to a third party or, worse yet, be sent to a landfill because nothing was viewed as recyclable or usable beyond donating it. However, things are changing for the better. “Today, companies ensure that a source secures the hard-drive data by wiping it clean prior to disposition,” says Rupert. “The equipment is then recycled into new plastic, glass and metals.” And it’s all being done in a responsible way. Companies are now tracking where their assets are going to help prevent equipment from being shipped to third world countries, where residuals could contaminate a community stream or canal, explains Rupert. “Many recyclers are now being proactive to ensure that assets don’t leave the United States until they are inert and converted back into a raw glass or metal,” he says. “Thus, it prevents any reprocessing activities taking place overseas.”
Critical partnership: Supply management and investment recovery
Supply managers then evaluate the assets and determine if any can be redeployed within the enterprise before requesting a new replacement. By redeploying surplus assets, supply management achieves cost-avoidance goals and avoids unnecessary consumption of natural resources. “Supply
management is absolutely critical in reducing the amount of surplus assets that a corporation may ultimately have to disposition,” says Rupert.
How else is supply management adding value to investment recovery initiatives? The following are areas where the partnership between supply management and investment recovery can have the greatest impact.
However, Rogers adds that companies are overlooking the importance of asset recovery and the secondary market. “I think too often, the secondary market is an afterthought,” he says. “Senior management must communicate asset and investment recovery as a priority in corporations.” Rogers concedes that challenges exist in managing redeployed inventory; however, the secondary market is a profit stream that should not be ignored, nor should supply management’s ability to evaluate an asset’s value.
A similar directive is Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) — controversial legislation involving the production and use of chemical substances in electronics and other products. “While we’re starting to see similar legislation in the United States, many U.S. companies are embracing the concept of sustainability,” says Penfield. “Interface, Inc., a floor-covering company, established a mission to eliminate any negative impact it may have on the environment by 2020. And BP, a petroleum company, invested $20 million to reduce carbon emissions and generated a savings of $1.5 billion as a result of its efforts.” Thus, supply management can have a positive influence from the beginning to the end of an asset’s life cycle.
With a partnership established between supply management and investment recovery, the two groups can apply their core competencies toward the recovery and disposition of company assets. While an internal partnership is critical, there is also a unique opportunity within asset and investment recovery to collaborate with customers, suppliers and even competitors. Consider the following examples:
- Obsolete IT equipment and used office furniture can be offered to internal customers at a reduced cost.
- Suppliers may be willing to recover end-of-life assets or contribute to the cost of recycling in order to use the raw materials in future production processes. In the case of metals, for example, it may be more cost-effective to use recovered metals from the recycling process than purchasing directly from a raw materials supplier.
- For industries with assets in large volume, such as utilities and construction, collaborating with competitors on disposition strategies can be a win-win for all. For example, at American Electric Power, Rupert says the company was engaged in the disposition of large (6-feet-by-3-feetby- 5-feet) 4,000-pound modules used for scrubbing the exhaust gases from the company’s power plants. “In the past, our environmental group landfilled the modules because they could not find a method to remove the ceramic materials from the metals in the modules,” says Rupert. “When our asset recovery group evaluated the problem, we located buyers that could reuse some of the modules.
- For the nonusable modules, a car-shredding facility safely and environmentally shredded and removed the ceramic materials from the ferrous and nonferrous metals, which allowed for future recycling.” Rupert adds that not only was this an exercise in sustainability, it generated a significant cost savings. In the last year, American Electric Power avoided approximately $240,000 in landfill costs and generated nearly $400,000 in revenue.
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