Edition 51
Innovating to Unlock Value in the Reverse Supply Chain
by Bill Angrick, Chairman and CEO, Liquidity Services, Inc.

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Overview of the Reverse Supply Chain

The reverse supply chain - or the process for managing, evaluating, and disposing of surplus or idle assets for organizations - has historically been considered to be a cost of doing business and has received little attention as a source of competitive advantage by corporations. A company’s approach to managing returned goods and surplus and idle assets can impact its total supply chain costs, brand image, and sustainability efforts. Leading organizations across all sectors from business to government now have available to them trusted and proven solutions with the focus and market data to more efficiently manage this “non-core” aspect of their operations in lieu of spending additional employee time and expense.

Retailers and manufacturers from various industries all generate surplus and idle assets and have key opportunities to differentiate themselves from competitors through their use of best-in-class reverse logistics strategies. For example, we have implemented sustainable surplus initiatives that have enabled retailers, manufacturers, and government agencies to move to a zero-waste model; a powerful statement in an economy that encourages green growth. To date, we have deterred more than 2 billion pounds of scrap material from landfills through our client solutions.

The Upside to Surplus Inventory for Retailers and OEMs

Overstock and returned inventory sitting on store shelves or in warehouses means dollars lost to the bottom line for retailers. Similarly, many OEMs who end up with surplus product - either through returns from retailer partners or through their own sales channels - experience a drag on profitability due to lack of data and effective strategies for proactively managing surplus and returned goods. However, the introduction of technology and multi-channel sales strategies is changing the game and retailers and OEMs are beginning to embrace innovation in the area of reverse logistics as a strategic imperative. Players throughout the supply chain can take advantage of solutions that return value through increased recovery while also protecting their brand and reputation. In many cases, clients actually improved consumers’ perception of their overall brand image by centralizing and improving their management of how goods move through the secondary marketplace. These gains can have a profound impact on overall enterprise value.

Case Study: Large OEM

A large OEM discovered nearly $500M of their consumer electronics product was selling on eBay through third party sellers. The company’s resources were wholly dedicated to selling new merchandise to retailers and realized that designing and executing a plan to manage the resale of refurbished and returned product, was not in their breadth of expertise. The OEM’s historical sale of their products on secondary marketplaces without centralized oversight, customer engagement, or controls was a noticeable risk to brand perception. In working with this client, we were able to utilize our expertise in running online secondary marketplaces for resale to set up and manage a branded eBay Store for the OEM. As part of this solution, we took the returned and refurbished inventory off the client’s hands and into our warehouse network for maximum velocity and quality assurance. While many retailers and OEMs have not historically seen a need to focus on consumer engagement in these secondary markets, with the advent of social media as a resource for customers, this buying experience has equal importance with traditional retail channels. We provided dedicated customer service for any customer inquiries from their eBay Store, customizing each step of the solution to fit their needs.

In order to boost the success of the store, it was important to have an increase in customer growth, awareness, and engagement from the launch of the new online channel. We were able to successfully launch in a short 15-day timeframe to be ready for the holiday peak season and achieved “Top Rated Seller” status at a record pace. Thanks to this well-supported online sales channel for returned and refurbished products, the OEM is seeing an increase in overall brand perception that is lifting sales even in their primary marketplaces and furthering sustainability efforts.

Making the Most of Capital Assets for Manufacturers and Leading Companies

Similar to retailers and OEMs, who have an opportunity to turn a burden on their bottom line into a silver lining; manufacturers across all sectors and any company or government agency with equipment and assets, can innovate through the reverse supply chain. The automotive industry, for instance, utilizes large and specialized equipment that will eventually reach the end of its useful life or may remain idle following its primary use. Setting this capital intensive equipment aside in storage or disposing of it in a landfill is not only inefficient, but can provide great risk to the company’s brand or cost valuable revenue that may have been gained in effective asset disposition planning. Searching for buyers for niche equipment is a poor use of employee time, when there are companies that specialize in reverse supply chain planning and have a large base of buyers looking to purchase a range of capital assets. Additionally, when companies are considering selling off unique assets, or even relocating plants and equipment and assessing their market worthiness to make decisions; receiving expert valuations from a company with timely and relevant market information on the value of assets is a key factor for long-term business planning. By working with trusted professional providers of asset remarketing services backed by liquid marketplaces and global valuation data, corporations obtain greater transparency, security, and compliance throughout the sales process, which is particularly important for energy, health care, and aerospace industries, as well as the public sector.

Case Study: Consumer Packaged Goods Manufacturer

The beer industry may have leveled off but the craft beer segment - which comprises 6% of the industry - continues to grow at 13% on a yearly basis. This bodes well for the future of beverage companies building upon this trend, but it does not provide stable indicators on the value of craft brewer equipment. When a U.S.-based craft beer brewer purchased a brewhouse from Europe, it confronted this lack of information in the effort to better measure the value of the asset.

The craft brewer engaged our team with GoIndustry DoveBid, a marketplace that provides asset valuation and sales solutions to multi-national corporations, financial institutions, and asset-based lenders throughout the world. With our global valuations team, we tapped our database of buyers and transaction data to provide a comprehensive view of the buyer market for a brewhouse and the asset’s value. The brewer received an in-depth understanding of the brewhouse’s actual market value; including a complete background on the factors that contributed to that overall valuation number (e.g. shipping the asset from Germany to the U.S. increased its value). To replace a full facility of that magnitude with the specialized equipment and filtration system in place would have been capital-intensive. As a result of this valuations work, the buyer completed the transaction and today the brewhouse is a valuable asset for the craft brewer’s business, helping them to expand their business in a high growth market.

Conclusion:

The reverse supply chain has received little attention as a source of competitive advantage. There are clear opportunities to transform your supply chain, improve your brand image, and support sustainability programs through more effective management of your reverse supply chain with the right partners. Focused providers have invested in global marketplaces and professionally managed, data-driven services to manage, value, and sell every imaginable type of surplus equipment and inventory. By centralizing this historically fragmented and undermanaged process, Fortune 1000 corporations and government agencies have improved the image of their brand; which increases the value of their core business. In this manner, best-in-class companies have avoided the trap of being penny wise and pound foolish in the management of their reverse supply chain.
RLM
Bill Angrick co-founded Liquidity Services, Inc. and has served as the Chairman of the Board of Directors and Chief Executive Officer of Liquidity Services since January 2000. Mr. Angrick holds an M.B.A. from the Kellogg Graduate School of Management at Northwestern University and a B.B.A. with honors from the University of Notre Dame. He earned his CPA certificate in 1990.For information on Liquidity Services, visit Liquidityservicesinc.com.

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