A comprehensive, well executed surplus asset management strategy provides economic and operational advantages. Correctly managing surplus assets isn’t just the right thing to do, it can also have a significant, positive effect on employee morale and commitment.
BY RICHARD SMITH
With the development and implementation of energy-efficient technologies, information and communication technology (ICT) companies are understandably focused on the future. These technology improvements include the next-generation base stations (3G to 4G and on to 5G), software-defined network (SDN)/network function virtualization (NRV) development, power reduction initiatives, and switch grooming — exciting, innovative technologies and processes that will lead us to better, faster wireless data services and a more sustainable future.
But what about the past? How will we manage the unprecedented amount of decommissioned infrastructure equipment and e-waste that is left behind as result of these upgrades? The following information addresses the growing need for cost-efficient, environmentally responsible handling of this avalanche of decommissioned and surplus equipment. To protect our environment, the goal for the disposal of this surplus equipment must be 100 percent land fill avoidance.
The abundance of displaced material and increased environment and regulatory scrutiny has created increasingly complex challenges for those responsible for surplus equipment disposal. Those challenges include diminishing resale opportunities as an increasing percentage of surplus is scrapped and recycled. They involve more hidden and stranded assets as a result of consolidation and mergers. There is increased scrutiny and potential liability for scrapping and recycling methods and processes. Regulatory changes, including Sarbanes Oxley, represent challenges regarding how surplus equipment is evaluated. Surplus inventory and disposal tracking requires increasingly complex accounting. Risk mitigation has replaced value return as the key motivation for disposal decisions.
The dynamics of asset management have evolved, but the fact remains that a well-functioning, fully integrated investment recovery process is often the missing link in productive supply chain management and comprehensive infrastructure sustainability programs. Alongside maximizing value, efficient reverse logistics and risk mitigation are increasingly important.
This unsexy component to sustainability may be implied, and many companies do a great job of managing their surplus assets, but often even the best efforts at asset management are derailed because of competing priorities and management indifference. A comprehensive investment recovery and disposal process is the primary means of supporting and monitoring environmental and sustainability initiatives for surplus assets. It also improves compliance with Sarbanes Oxley and other financial regulations and is essential for risk oversight.
The keys to success for surplus asset management include a corporate commitment and support for asset management processes as part of their environmental and sustainability initiatives including performance measurements and success acknowledgement. Also important is early Involvement with other corporate activities, such as capital projects, technology retrofits and change outs. A sophisticated part identification system identifies surplus assets and makes them visible to all concerned parties. Many traditional tracking systems are built for growth, not contraction. For example, parts that may have reuse and resale value are often not shown in cabinet configuration bills of materials.
Among the keys to success is an honest, realistic look at asset value and disposition costs with an acknowledgement that most equipment will need to be recycled or scrapped. Decommissioning and removal processes preserve the value of the displaced equipment and include detailed statements of work for decommissioning and equipment handling processes.
Another key is having qualified R2 certified recycling partners with strict guidelines for the disposal of scrapped equipment, hazardous material handling, reporting and audit trails. Increasingly complex issues regarding recycling require updated processes for disposing of surplus assets. For instance, shredding is the traditional method to erase sensitive data left on disposed assets, but shredding creates e-dust, what some environmentalists call today’s asbestos. Exposure to e-dust and similar lethal substances causes serious health issues to those exposed and failure-to-warn liability in the complete ownership chain. E-Scrap Resource Recovery 2.0 is the current standard for handling e-waste. (See Creighton Brillstein’s article in OSP March 2014 for a description of Resource Recovery 2.0.)
Sprint’s Network Vision is a good example of corporate commitment and involvement in developing and executing an end-to-end asset management program. Sprint’s nationwide upgrade of its cellular network resulted in displacing 38,000 CDMA and 40,000 iDEN cell sites and associated material. The business case for the upgrade included a comprehensive disposition strategy including detailed decommissioning, reuse and remarketing plans, and environmentally compliant scrapping support. Sprint engaged original equipment manufacturers and regional partners in all aspects of the removal, transportation, remarketing and disposal process including inventory tracking for reuse purposes and purchase avoidance. The progress and results were monitored and processes adjusted as the program went on. The result was a successful program that maximized the return on the displaced assets, contained costs and mitigated the environmental liabilities in the scrapping process.
Reuse, Remarketing and Recycling
There are several ways to deal with surplus assets generated from technology change outs and company consolidations and mergers. The primary asset recovery programs are the three R’s: reuse, remarketing and recycling. Each comes with benefits and costs. Circumstances will dictate the best method for specific products and situations.
Reuse and the subsequent savings realized from purchase avoidance offers the highest value return for surplus assets. However, it is often impractical to rely on as a fulfillment strategy for needed spares and replacement equipment. Some factors that limit the effectiveness of using surplus assets for reuse include the limited visibility most companies have for surplus and stranded assets and limited access to the equipment by potential users. There is often an over-reliance on employees with pressing operational responsibilities to reconfigure, package and arrange for the shipment of assets needed for reuse, resulting in late deliveries and poor quality. When accounting and budget processes do not acknowledge and reward inter-company equipment transfers, it often often reduce the incentives for regions to cooperate with reuse requirements.
A few keys to successful reuse programs include a sophisticated parts tracking system to make stranded and surplus assets visible to all potential users and purchasers. Consolidation and mergers have resulted in confusing part number identification. Companies with wireless and wireline divisions sometimes have different identification numbers for the same part.
It’s also important to have coordinated systems and quality control processes. Decommissioning processes ensure reusability. Reconfiguration capabilities help to match new user requirements. Also vital are testing and quality control capabilities, and timely shipping.
Having corporate mandates and acknowledgements help to ensure inter-company cooperation. Look for opportunities to broaden definition of reuse, including using surplus equipment as an economical, time-efficient source for exchange parts to replace bench repair. Repurpose older models that have been decommissioned or that are surplus to current requirements. Are the feature upgrades of the latest models really necessary for all applications?
Remarketing has been the primary value recovery activity in the past, but resale opportunities are diminishing as the installed base of Legacy equipment continues to shrink. Reuse and repair are preferred over buying replacements or expansion parts. Carriers prefer operating expense over capital expense to support legacy equipment installed base requirements.
An over emphasis on book value can delay decisions to liquidate equipment that has little or no opportunity for reuse or resale. All too often, reselling assignments go to the first available executive with little experience in the secondary market. This rotation does not allow for the development of experienced remarketing management. There continues to be specific equipment with resale value, but companies need to have access to someone with knowledge of the secondary market and current installed base information to identify high value parts. This could be a dedicated person within the company responsible reselling surplus equipment, or a consultant or trusted reseller partner.
Recycling and scrapping is the ultimate destination for most surplus assets. The highest volume of surplus equipment will eventually be scrapped. Cost-benefit analyses for sell-or-scrap decisions must include risk mitigation as a value consideration. Inadequate recycling processes can result in substantial penalties. Oversight organizations are increasingly watchful because a large percentage of e-waste is disposed of illegally. Bad behavior in recycling processes, including dumping on the cheap into landfills, is the result of using companies that do not comply with current scrapping processes and regulations.
To mitigate liabilities use R2 and e-Steward certified recyclers. Do not use vendors that cannot provide the necessary audit information, including certificates of destruction and chain of ownership details. Verify R2, ISO 9000, ISO 1400, OHSAS 1800 and any other relevant certifications. Inspect and verify the recycler’s certificates, processes and facilities.
New regulations make it quite expensive to recycle properly. Cost management and containment is crucial to maximizing return. It is critical to monitor decommissioning, collection and transportation costs. For example, use regional collection facilities as triage centers to reduce transportation costs for equipment that will be scrapped.
Some recyclers have sophisticated material recovery processes that can increase the financial returns on recycled equipment by mining precious metals and chip value. In addition, the best recyclers further mitigate liabilities through advanced hazardous material separation, handling and disposal processes.
A successful asset management program includes a wide variety of skills and capabilities, such as inventory tracking and storage. It includes efficient reuse processes, such as reconfiguration; repair; testing; and packaging, transportation and logistics. For a successful program, it’s important to have market valuation skills and an experienced secondary market sales organization that support a broad variety of technologies. Having state-of-the-art recycling and scrapping services and reporting aids in achieving success. Another key is to have 3PL expertise for collection, database management, triage, storage, shipping and logistics.
Because of the disparate set of skills necessary to maximize asset management returns and efficiencies, it can be beneficial to explore the benefits of working with an independent asset management company with the skills necessary to execute the asset management strategy. Some carriers have had success in using a contractor model by working with a third-party company that has strong alliances with partners that can augment their core competency with additional value-added support services.
A comprehensive, well executed surplus asset management strategy provides economic benefits, liability and risk mitigation, and increased accounting and regulatory compliance and controls. Besides the operational benefits, a transparent, environmentally compliant strategy for dealing with the reuse, scrapping and recycling of decommissioned equipment is a visible demonstration of a company’s commitment to reduce its environmental impact across its complete supply chain. Besides being the right thing to do from an environmental and public relations perspective, the integration of corporate sustainability objectives to operational action often has a significant, positive effect on employee morale and commitment.
Richard Smith, vice president of supply and vendor relations for Tempest Telecom Solutions, has more than 30 years of technology sales, marketing and supply experience, specializing in the secondary market for telecom infrastructure equipment. During this time, he has worked with carriers around the world in developing and executing surplus equipment remarketing strategies and asset management and reuse programs.