This blog was written to capture some of the background information and links to resources shared by Neil Peters-Michaud at the October 8, 2007 e-scrap issue panel held at the Ritz-Carlton in Naples, Florida, sponsored by the Environmental Industry Association Women's Council.
The IT Asset Retirement industry may be relatively new, but its evolution is a reprise of a variety of other niche businesses in the more general waste disposal and processing industry.
Learning Lessons from Auto Scrap Businesses
Soon after the automobile was introduced, a secondary market emerged to service these vehicles during their use, and then manage them when the original owner was ready to pass on their vehicle to someone else, be it due to it becoming obsolete (to them) or unworkable (or at least not worth repairing themselves).
The lifecycle of the automobile involves a large number of players. The Original Equipment Manufacturers (OEMs) are fed components built from raw materials by global parts producers. These OEMs design the final products based on their perception of customer demand and value engineering and then assemble them into the final product. These cars and trucks then move to resale channels, including franchised consumer auto stores and direct fleet sales. Consumers, including individuals and institutions, purchase these vehicles, and sometime even trade-in their old cast-offs at the same time. They might finance the purchase through cash up-front, bank financing or a lease.
While in use, drivers take different care in operating and maintaining their vehicles. Some are reckless and may do little preventative maintenance, so that after a few years the vehicle has rapidly depreciated in value. Others may invest in preventative maintenance and careful road operation, and will find their vehicle is still valuable as they look to part with it. More importantly, they find this investment in the sound maintenance and operation of their vehicle reduces the time it is in the shop due to breakdowns and failures. To support the maintenance of vehicles, a large number of auto repair shops and supply houses provide the labor and equipment to keep cars running.
Once that vehicle is ready to be left behind by its owner, he or she can look to a variety of channels to “retire” it. This may be through a convenient but lower value trade-in. It may be through selling it directly through classified ads or eBay. It may be by getting an auto wrecker to salvage it for scrap. There are a lot of options and a huge network of brokers, auction houses, parts and vehicle refurbishers, and junk yards available to cascade these cast-offs to the next best spot in the supply chain.
If the vehicle is not reintroduced into the marketplace as a “pre-owned” vehicle or recovered part, it is typically recycled. Salvage yards pull out specific items with high value, such a platinum rich carburetors, and hazardous materials that can’t be shredded, such as mercury switches (or at least they should pull these out). Tires need to be removed, as well as some other materials not suitable for the shredder. The carcass is shredded and metals are segregated using various mechanical separation techniques. Unusable waste turns into fluff that is likely to be landfilled. Many recovered materials are then converted into raw materials that may end back up in new cars or other products.
The lifecycle for information technology equipment follows nearly the same model, with similar players in the supply chain. The five primary stages in the life of a typical IT device are illustrated in the figure below.
The lifecycle begins with the design and manufacture of the IT equipment, and continues to the purchase of the equipment in the marketplace, its use, and then retirement, where it follows one of four possible downstream options. In this diagram, the sizes of the arrows represent the general percentage breakdown of products moving between each stage.
Similar to the auto salvage industry, there are a variety of paths used IT equipment may go during the retirement stage. In the young IT Asset Retirement industry, there is little good information available to the users of IT equipment about which disposition channel to use, resulting in many firms choosing instead to store the equipment until they make a decision later or just throw it out and remove it from the productive lifecycle.
With this understanding, one can conclude that decisions made at retirement are critical to determining the optimal disposition strategy for each IT device, so that it is cascaded to its next best use, be it refurbishing and reuse as a whole unit, harvesting of parts for component recovery, processing for recycling or disposal.
It is at this stage where there is the greatest opportunity for development and investment to improve efficiencies and effectiveness of service providers to optimize retirement solutions for IT equipment.
Depending on who you talk to, IT asset retirement is a $2 billion to $11 billion industry. There are thousands of companies involved in all aspects of the business. Much of the talk of consolidation in the industry has yet to happen. Most major consolidation has taken place in the Salvage stage with Sims group adding mostly recycling and salvage operations into its fold in the United States, and only limited asset retirement triage and recovery capacity as a percentage of its total holdings. On the flip side, IBM Global Finance manages over $2 billion in retired IT assets each year, but a vast majority of these assets are run through independent service providers.
The Role of Waste Companies in the IT Asset Retirement Industry
One of the most significant opportunities to enhance the efficiency of the IT lifecycle flow is by improving the retirement supply chain. Waste haulers could have a significant role in this part of the industry. By leveraging their existing logistics supply chain to help make it as easy to responsibly dispose of an old IT device as it is to buy a new one, and to do this at a low cost to the consumer, waste haulers can help convert the 80% of old IT assets that either linger in the Retirement stage as stored devices or discarded improperly into more productive equipment continuing on in the IT lifecycle.
Whether through partnerships or by building internal capacity in retirement services, there is a lot opportunity to get in on the ground floor of this immature, high growth market segment.
It is important to also recognize there is a web of regulations related to state, federal and municipal environmental requirements, as well as federal and state privacy protection/data security issues. Companies need to understand their obligations under these various laws or ensure their partners are in compliance. Trade associations and government groups have done a good job outlining many of these issues and how to set up operations in compliance. The regulations also offer companies new opportunities to develop value added services to appeal to a wider market.
For waste companies looking to enter this industry, look to these following resource guides:
- E-Scrap Conference, hosted by Resource Recycling and E-Scrap News, taking place in Atlanta, GA from October 24 – 25: A great way to get introduced to the industry and meet many of the players. Last year’s show had more than 800 people in attendance.
- International Association of Electronics Recyclers: Their web site has a very thorough and validated directory of e-scrap processors and haulers, as well as other basic resources for the industry.
- WI Department of Natural Resources e-scrap web resource: A very nice collection of information on regulations as well as a checklist for evaluating processors.
US EPA e-scrap web resource: Links to detailed resource papers and tools for generators and processors of e-scrap.