CFOs Unhappy With Redeployment Efforts
This high level of dissatisfaction presents the IR professional with an opportunity to help solve a problem recognized by CFO’s. The Investment Recovery Association’s ongoing Benchmarking studies show that redeployments represent a significant value-added service of the IR function; an average of 35% of the Investment Recovery’s added value ($4.5 million per year from the companies responding to the Benchmark survey) results from redeployment efforts.
Obstacles to Redeployment
Corporations routinely repair assets for the purpose of reuse. However, for many, the suggestion that excess or surplus equipment, repaired or not, from another part of the company should be used in lieu of buying new is strongly resisted. Lost to many in the desire for “new” is not only the fact that all equipment currently in use is used (!) but also that the so-called used or already owned assets were originally purchased to specific company specifications. If serviceable, these are valuable assets that have not realized their maximum potential Return on Investment (ROI).
- Ensuring that the Investment Recovery function is efficiently identifying, cataloging and communicating the existence of surplus assets throughout the entire organization.
- Obtaining the active (not tacit!) support of other senior managers and directors for the reuse of surplus assets.
- Publicly recognizing the financial benefits to the organization that arise from redeployment.
- Working to ensure that the financial issues of depreciation, refurbishing, equipment moving and installation are handled in an equitable manner for all departments, so that future redeployment efforts aren’t sabotaged by memories of previous bad experiences.
Redeployment is sound financial management of resources and, therefore, good financial stewardship and good business. The CFO can provide the key impetus for the permanent integration of a surplus asset reuse (“redeployment”) business process by:
- Making the case for redeployment at the highest management levels. This can be helped significantly by recordkeeping and regular reporting by the IR department.
- Providing incentives and recognition for managers and departments to utilize surplus as a “first choice option,” whenever possible.
- Ensuring that accounting policies provide an incentive to managers to utilize surplus.
- Supporting procurement policies that review internal existing assets prior to the purchase of new.
- Provide for adequate funding for Investment Recovery programs that help to properly identify and catalog assets.
1. Is Investment Recovery tracking and measuring the volume and value of the redeployment program? If not, why not? What information should be tracked that would be meaningful to management?
2. Is Investment Recovery involved in promoting asset redeployment? If not, why not? Are there limiting factors that need to be addressed so that redeployment is viewed as part of the materials management responsibilities of all operating managers?
3. Are we recapitalizing (through surplus asset sales) equipment and inventory assets that cannot be redeployed? If not, are we recovering only scrap value? What is the potential of value (cost savings from redeployment and assets sales) to our company?
4. How long do we retain non-revenue producing inventories and equipment? What are the “costs” associated with holding onto excess/surplus inventories and equipment? Hint: Inventory Carrying Costs range from 13% to 47%, with a median of 30% PER YEAR! (See article on Inventory Carrying Costs in a future Asset 2.0).