In today’s podcast, Curtis Greve talks about Disposition Management and why it is the key to maximizing the value of assets flowing through your reverse logistics pipeline.

There are only six possible dispositions for any item in a return center, whether it is a can of soup or an expensive computer.  Do you know what they are?  Do you understand how the disposition of the item impacts the value received for an asset and how that determines the cost of processing?  You will after you listen to this podcast.

RLP #1 – Disposition Management

The Reverse Logistics Podcast

Your host is Curtis Greve.

Asset recovery is a disposition within a reverse logistics process that directs product segregation to categories that will in turn be sold on the the secondary market. The secondary market is the segment of retailers that sell product that did not sell in the primary sales channel. This includes a wide variety of sellers catering to many different levels of customers, everything from flea markets, to eBay, to Marshall’s, to pawn shops.

Asset recovery is a cash cow for many retailers and manufacturers.  In fact, when companies file for bankruptcy, they often keep their return centers operating simply because of the cash that is generated from asset recovery sales.  Due to the rise in imports and the push to develop sustainability programs, the percentage of total returns that is categorized as asset recovery and sold on the secondary market has grown significantly over the last ten years.

For most non-food retailers, half of the product flowing through their reverse logistics pipeline is sold on the secondary market.   Manufacturers also sell a significant amount of product on the secondary market.   An obvious sign of this is the explosion of outlet malls over the past few years. In 2009, total square footage of outlet mall space exceeded 58 million square feet. The vast majority of the space in these malls are occupied by name brand manufacturers.

Many of these manufacturers sell new goods, returned & refurbished goods, as well as recalled merchandise in these stores. Typically, these manufacturers also have well developed programs to sell to the larger secondary market retailers like Marshall’s, TJ Maxx, and Big Lots. These larger scaled secondary market retailers will buy large lots of single SKU’s that would be hard for a manufacturer to liquidate at a reasonable recovery rate.

In addition to the big named players there are many more salvage dealers that sell virtually anything, in any condition. Taken all together, the secondary market sales for the US is estimated to be in excess of $329 Billion, which is 2.3% of GDP. Clearly, the secondary market is BIG business and developing asset recovery processes and liquidation channels can have a major impact on a company’s cash flow and profitability.

The leading reverse logistics academic program is threatened by Nevada state budget cuts. Under the direction of Dr. Dale Rogers, the University of Nevada, Reno has built one of the best Supply Chain Management Programs in the country.

The program and Dr. Rogers has been recognized around the world for their quality and contributions to the supply chain management field. Organizations such as CSCMP, RLA, IWLA, and WERC have all recognized Dr. Rogers and his program for their thought leadership. In addition, to their leading programs UNR boasts of many graduates who are leading executives in their field throughout the world.

In spite of all of this, Dr. Rogers and his entire program is in jeopardy of being cut. Unbelievable but true! The SCM program, and maybe even the College of Business, could be casualties of the state budget crisis. This crisis means that the university can revoke the tenure status of faculty that are part of a discontinued program. That means that all of us in the SCM program: Dr. Carter, Dr. Lemke, Dr. Amato, and Dr. Rogers, may be forced to leave the university.

UNR President Milton Glick said in the Reno Gazette-Journal: “We have to make some vertical cuts,” he said. “We will probably eliminate a number of academic programs and probably one or two colleges … It’s better to maintain quality at the university than to degrade the quality of what we do.”

We need to help keep this vital program going. Everyone reading this, who has benefited from Dr. Rogers, the SCM school at UNR, or is better because of their work and their graduates should write and encourage UNR to keep this vital program alive. Write to:

Dr. Marc Johnson

Executive Vice president & Provost

University of Nevada

MS 0005 Clark Administration

1664 N. Virginia Street

Reno Nevada 89557-0005

Email: marc@unr.edu

Dr. Rogers, his staff, and students have helped many companies improve their reverse logistics programs and supply chains around the world. It is time for those of us who have benefited from this program to voice our support. Write today.

During January and February, reverse supply chains are maxed out.  Volume can be three or four times greater than during the sunny days of summer.  Many reverse logistics operations get backed up because they cannot ship enough to create the space needed to process more inbound product.  The bottleneck in shipping is usually driven by two primary drivers.  One driver is waiting for shipping authorization and arrangements to another warehouse, like the vendor, or another return center, or back to the factory where the product will be reworked.  The second cause for clogging up a returns facility is waiting for the secondary market buyer to pick up the goods.

Shipping product within a company’s supply chain or to another facility waiting to extend the process, can be slowed down during peak months.  However, while this issue can significantly impact the returns facility,  with focus and discipline, you can get the goods flowing.  To control this, the return center simply tracks outbound shipments waiting for authorization daily and agressively follows up on both the larger shipments and those that are behind in providing authorization or making transportation arrangements.

The second cause of return center inventory ballooning is often caused by the secondary market.  The secondary market buyer, otherwise know as the company that bought your salvage, will often buy goods and then delay making transportation arrangements.  Some asset recovery buyers will go out of their way to avoid picking up goods, that in many cases, they have paid for weeks earlier.  Why?  Because it is the first quarter and their sales have dropped off just like the rest of the retail world.

Remember, the secondary market is driven by two things: Cash and customer demand.  In January and February, salvage buyers are flush with cash and they want the great goods coming from the return center but there is NO demand.

Salvage buyers typically have limited storage and sell product either directly to the consumer or one level above the consumer.  A slow down in consumer demand has a direct impact on salvage buyer’s cash flow and holding capacity.  Salvage buyers have to balance the need for inventory in March and April with the steady drop of cash during the first quarter.  Combined with the fact that most salvage buyers don’t actually pay for goods until they pick them up, salvage buyers will leave product they’ve “purchased” in your return center as long as you will let them get away with it.

There are two thing that can be done to ensure this doesn’t cause you a problem.  First, in the salvage buyer’s terms and conditions, you should specify that product is to be picked up within a specific time limit after they have been notified.  A good general rule of thumb is five business days.  If the buyer doesn’t pick the good up, you have the right to put them back on the market and/or charge them a holding fee.  If you charge a penalty, make sure you have the controls in place to ensure you collect the fee before they are allowed to pick up the goods.

The second thing you should do is to build in a disciplined process where outbound salvage goods are aged and tracked by lot and buyer.  There should be one person responsible for updating the list everyday and one person should call the salvage buyers that are behind in pickup, everyday.  It is best that the person calling the salvage buyer is part of the group that is responsible for selling the goods.  This will give the caller leverage to get the salvage buyer to act.  As in most things, the squeaky wheel gets the oil.  This is an area where disciplined follow through will really pay off.

As we near black Friday, supply chain managers across the globe are trying to catch their breath. For the most part, the biggest bulk of the importing and manufacturing for this year is completed. Retail distribution is working to the fill the retail stock rooms and but even their work is starting to tail off.

The next big event for many supply chains is to process returns and stale goods left over from the Christmas season. (Yes Mr. President, that’s CHRISTMAS).

Today, half of all goods returned after the Christmas season ends up being sold on the secondary market for a percentage of the “original retail” price. Interesting, there are three terms used for the secondary market; Asset Recovery, Salvage, and Liquidation.

As with most things, Google does a great job of defining these terms. If you Google Asset Recovery, the first page is full of companies that specialize in retrieval, repairing and selling “end of life” computer equipment. These are the guys who will take away the old PC’s when your lease is up or you are buying new computer equipment. They will ensure the data is cleansed and you will get some type of revenue from the resale of the refurbished unit or parts harvesting.

If you Google Salvage, you get a completely different set of providers in an entirely different industry. This search shows specialist in auto salvage of parts and buildings. Specialized in every way but clearly different from the Asset Recovery guys.

Then there is Liquidation. If you Google Liquidators you find a variety of companies that sell close out merchandise to both the B2B market and the B2C market. They buy in bulk and typically their products have never been sold to a consumer. They may be from last season, they may be ugly, or they may have been refurbished or re-manufactured to repair some flaw that prevented the primary market from buying them, but you can get a great deal.

The one thing every asset recovery seller, salvager, and liquidator has in common is that they have goods they sell below normal market values. Each has an niche and each will expect to make about 25% over the total cost of goods, transportation and processing.

One last thing. For the supply chain managers out there who have a corner of their facility that is holding damage product, now is the time to sell to your liquidators or salvage buyers of choice. Prices on the secondary market are best in September, October and November. If you wait until the first quarter of the year, you won’t get near the recovery value. Remember, the secondary market is ruled by the law of supply and demand.

The Sustainable Supply Chain Management Podcast is hosted by Dr. Dale Rogers and Curtis Greve. This podcast is focused on sustainable supply chain management issues and best practices.

Podcast #4 – Asset Recovery

Join Curtis Greve and Dr. Dale Rogers as they discuss basics of Asset Recovery in their fourth podcast. Whether you call it Asset Recovery, Liquidation, or Salvage Sales, it is an opportunity to increased profits for manufacturer and retailers alike.

Successful manufacturers such as Nike, Dell, HP, Adidas, Foxconn, and leading retailers such as Walmart, Kohl’s, Canadian Tire and Target successfully integrated a Strategic Asset Recovery Strategy into their Sustainable Supply Chain Management Strategy. This approach enables these companies to maximize the value of obsolete inventory while removing slow moving or dead inventory from the primary stream of commerce.  A Strategic Asset Recovery Strategy will increase customer satisfaction and increase profits.

If you took a good look at the average retailer’s inventory, you would find that roughly 6% of total sales gets returned by consumers. During my 20+ years in the business, I can tell you that half of all returns are not defective at all. They were returned for some excuse that was really a variation of buyer’s remorse.

Most retailers return half of all returns to the manufacturer and sell the other half on the secondary market. Some refer to this product as salvage, some call it liquidation, some call it asset recovery, but they all call it profitable.

Selling goods on the secondary market can literally turn trash into cash.

What many don’t realize is that there is a lot more product that is never sold to the consumers that is sold on the secondary market. This inventory comes from seasonal product that didn’t sell, over buys that can’t be returned, and product that is recalled by the maker or the retailer.  If you shop at a Marshalls, TJ Max, or Big Lots Odd Lots you know exactly what kind of stuff I’m talking about.

Regardless of why the product goes to the secondary market, there is a formula that salvage buyers use to figure out what they will pay for the product. That formula works like this:

(Retail X 75% X %Yield) / 2 – Transportation = Salvage Buyer Bid

There are some important variables involved but for the most part salvage buyers work on a 50% margin, assuming a certain amount (% Yield) of product that can be sold for roughly 75% of a brand new item.  From that, they subtract transportation, which is usually paid for by the salvage buyer, which leaves the amount the salvage buyer will pay for the returned or recalled product.

However, this the land of supply and demand. Depending on the situation, bids could fluctuate significantly. Other factors also impact demand and the price paid on the secondary market. A good example would be iPods. A year ago refurbished iPods were being sold on the secondary market for $100. Then Apple dropped the price of new iPods to $100 and the inventory that was in high demand had to be sold at a loss.

The secondary market is not for rookies. There is a wide network of really smart people who buy and sell product just like the guys on Wall Street buy and sell stocks. If you want to jump in the market, hire an expert, just like you would if you wanted to buy stock. Underestimate these pro’s at your peril.

Whether you are looking to get into the liquidation business or if you are thinking of turning your trash into cash, now you have an idea of how the secondary market works. Here’s to bigger profits and turning trash to cash!