Asset Recovery Management 8803 Business and the Environment Beril Toktay College of Management Georgia Institute of Technology

Xerox Life Cycle Design  Infrastructure Development  Need to develop cost-effective regional recyclers  Need to develop a collection infrastructure  Markets for Recycled and Remanufactured Products  Market Acceptance Developing Slowly  Government Purchasing is Key  Cost-Effective Recycling of Raw Materials  Partnerships required  Industry-wide  Alliances with suppliers  Need to restructure thinking and organization

Manufacturer Product Recovery Strategies (PC example) Do nothing Promote marketGateway donation program Sponsor EOL event at Best Buy Long-term contractDell packs customer PCs and ships to contracted recyclers Joint venture with recyclerHP partnership with Micro Metallics for recycling facilities Industry consortiumEU, Japan Integrate into recoveryDell PC recycling facility IBM Asset recovery centers

Profitability of Recovery  We want to make recycling profitable:  Profit = Revenue – Cost  Revenues are obtained from:  High value (high demand), undamaged recovered reusable components.  Additional processing (cleaning, inspection, upgrading, reassembly, and redistribution) adds to costs.  High value, uncontaminated scrap materials.  Any contamination which reduces material properties depreciates the material value.  Energy recovered and sold from incineration or pyrolysis.  Lowest revenue of all.

Common Cost Factors  Buy back of product ($/product)  Dependent on condition and value of product type.  Transportation costs ($/km)  May also dependent on weight and damage tolerated.  Tip/storage fees ($/product), also for landfilled residue.  Strongly influenced by location of facility and local legislation.  Labor cost ($/hour)  Dependent on level of skills required and location.  Equipment investment cost ($)  Influenced by need for special (expensive) equipment.  Equipment operating cost ($/car, $/hr)  Time necessary to recover parts and materials (hr/product)  STRONGLY INFLUENCED BY PRODUCT DESIGN !

A Quick Costing Example  Recovery of a dashboard:  Removal of dashboard from car = 35 min.  Removal of dash components = 35 min.  At $20/hour, labor cost ­ $23  In order to break even with material recycling, more than 10 kg of copper (most valuable scrap material in table) would have to be recovered  Or, dash components (gauges, etc) would have to be sold for re-use. Big questions:  What is the market willing to pay for recovered dashboard components?  How much value would remanufacture add to recovered components? Typical 1990 vehicle material mix

Remanufacturing Today Remanufacturing is a $53 B industry in the US. e.g. motor vehicle parts, office furniture, engines, tires, copiers, cell phones, heavy equipment, PCs, toner cartridges, single- use cameras 73,000 firms, direct employment. Both OEMs and third parties remanufacture.

My Research  Forecasting product returns for Kodak single- use camera  Procurement for Kodak single-use camera  Joint pricing of new and remanufactured products  Effect of competition on recovery strategies  Taking into account diffusion effects in new product introductions

Manufacturer’s Decisions  Price evolution of both products  Capacity evolution of both products  Remanufacturability level  Capacity structure (flexible vs. dedicated)  Reverse channel responsiveness

Investing in Remanufacturability Optimal remanufacturability level q * Profit difference V  (q * )-V  (0)

Value of Flexibility Profit difference between flexible and dedicated capacity

Reverse Channel Responsiveness low disposal costhigh disposal cost Change in profits as a result of speeding up returns

Single sales peak Remanufacturing potential Dedicated capacity appropriate e.g. diesel engine Likely single sales peak Highest remanufacturing potential Remanufacturability most valuable e.g. copiers Some sales fluctuations Lowest remanufacturing potential Rapid returns most valuable e.g. high-tech cell phones Sales fluctuations Needs high capacity investment Flexible capacity most valuable e.g. radial tires low repeat purchase rate high repeat purchase rate slow diffusion fast diffusion Policy Implications