Edition 95
Elevating Recycling to the C-Suite
by Linda Li, Chief Strategy Officer, Li Tong Group

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Elevating Recycling to the C-Suite
While today’s accelerated pace of innovation is resulting in an unprecedented proliferation of technological devices, there is also a concurrent shrinking inventory of the raw materials required to make them. This unprecedented bottleneck of raw materials is becoming a crisis on a global scale and represents an opportunity for manufacturers to innovate their logistics and supply chain processes.

For electronics and high-tech Original Equipment Manufacturers (OEM), an approach known as Reverse Supply Chain Management (RSCM) uses cradle-to-cradle materials through closed-loop recycling. RSCM is changing how OEMs use and re-use old technology in a way that is both good for business and the planet.

Taking care of the logistical, compliance and industrial issues of deploying technology take-back initiatives can be a considerable barrier for brands seeking to do better. Leaders in Reverse Supply Chain Management (RSCM) provide technology brands with much-needed solutions to complex issues and help them turn cost centers into profit centers by dismantling obsolete technologies and re-purposing valuable components into new devices.

It is critical in today’s business environments that recycling and the advancements within Reverse Supply Chain Management are a top-tier priority for executive management and C-suite officers.

The Evolving Ownership Model
As the tech and telecommunications industries continue to evolve, we see a dramatic shift in the behaviors of its primary consumers: Mobile Internet consumers use more data than ever before. This increasing data usage fuels consumer demand for faster speeds that create more demand for newer, faster devices. This shift in consumer behavior shortens the lifespans of personal tech products and the telecoms network upgrade cycle.

On average, the typical lifespan of a mobile device varies between three to five years. Consumers, however, choose to change or upgrade their products after using them for a year and a half, even if the devices are still highly functional. This leads to a significant increase in product trade-ins and aftermarket/third party refurbishing businesses.

Previously, OEMs established return networks mainly as an obligation. Now, returns and a reverse supply chain approach are becoming an increasingly important vehicle to stimulate new sales.

For example, consumers currently own or lease smartphones and other devices. In the future, they may not own the device at all and instead use the phone for a year and return it back to the carrier, swapping it for a new device.

Instead of having to process the return or customer take-back as an end-of-life liability — something that the OEM is obligated to deal with — the return becomes an integrated part of the value chain as an asset. This returned asset and its components are now essential for stimulating new product sales and increased customer loyalty. It’s important for OEMs to have a very streamlined, efficient, high-service-level return take-back or after-market service platform.

The New Manufacturing Dynamic
Just five years ago, a product that finished its lifespan automatically became waste. That was a liability for OEMs as they are partially responsible for recycling their own products due to corporate social responsibility (CSR) initiatives and other environmental regulations. Today, OEMs see opportunity: Instead of letting second-hand products flood the market and cannibalize their primary market, OEMs use a process called closed-loop reverse supply chain management (RSCM) to leverage the shortened product lifespan and build long-standing relationships with customers, improve sustainability and increase bottom lines.

Main Stages of the Product Lifecycle in the Reverse Supply Chain
I. Consumer Take-back: The first stage in the RSCM process is to develop effective methods for taking products back from consumers.
II. Reverse Logistics: This stage optimizes and increases the efficiency of aftermarket processes for a device, such as pick-up, collection, transportation and warehousing.
III. Data Sanitization: This includes the erasure, degaussing and physical destruction of data both onsite and offsite. It is critical to safely and securely remove data to protect the product’s primary user.
IV. Testing/Refurbishing: Throughout this stage, components are tested to determine their value for harvesting and repair, if necessary, for use in the remanufacturing process.
V. Parts harvesting and Repurposing: The most important stage is parts harvesting and enabling component-level reuse and repurposing. This requires a high level of product knowledge and technical sophistication; once achieved, it can significantly prolong the lifecycle of the Bill of Materials (BOM) of the device and allow maximum reduction of the overall carbon footprint.
VI. Remarketing and Resell: In this stage, OEMs bring refurbished and new devices built with harvested components back to the market, or the harvested components are repurposed for an alternative application (i.e., using the LCD module harvested from a tablet to make the touch panel control of a home entertainment system.)
VII. Recycling and Reclamation: The final stage returns those components and devices to their raw material state, only if they cannot be repurposed or reused in the previous steps of the reverse lifecycle.



A Return of Manufacturing to North America
For the past few decades, OEMs based in the U.S. have had many good reasons to ship the bulk of their manufacturing and supply chain jobs to other countries, mostly because it dramatically reduced costs. But other benefits include less stringent regulations and greater convenience. The massive supply chain network they have built around the world, especially in the Asia-Pacific (APAC) region, is a triumph of modern globalization.

However, this trend began its reversal a few years ago when President Barack Obama proposed tax incentives meant to encourage companies to bring jobs back to the U.S. Furthermore, Obama proposed ending or severely reducing tax breaks for businesses continuing to move jobs out of the U.S. Other factors contributing to the movement of jobs from Asia to the U.S. was the increase in labor costs and the consistent pricing of raw materials, which previously were more affordable in Asian countries.

Apple’s move to invest $100 million in U.S.-based manufacturing remains a high-profile example of this trend. But other businesses are following the tech icon’s lead. As manufacturing returns to the U.S., a part of its supply chain network also returns; however, it’s critical that a robust RSCM infrastructure be accessible so excess, obsolete and defective parts and products are handled in an environmentally friendly and cost-effective way.

As of today, that infrastructure is not in place because the decades-long exodus of manufacturing rendered it unnecessary. There was hardly a domestic market for repurposing disposed parts and products in the U.S. Instead, it focused primarily on raw materials recycling and simple waste management.

Outside of the APAC region, which already had strict EHS standards in place, there was a lack in RSCM expertise and services globally. This was problematic, and includes major important concerns for manufacturers outside of the APAC region returning to the U.S. First, regulations are complex and require expertise. Manufacturers must comply with detailed regulations in the areas of environmental health and safety, recycling and more.

The second is that consumers in the U.S. take an active approach to holding corporations environmentally accountable. Consumers in the U.S. want to know what’s happening with their products post disposal, taking both the environment and data security and privacy concerns in mind.

Many of the manufacturers returning all, or part, of their operations to the U.S. will need to work with a trusted partner to ensure the expectations of both regulators and consumers are met. Managed correctly, the RSCM function can generate a positive financial return and become a sustainable business function instead of just an obligation and liability.

The Impact of IoT on E-waste
Because IoT devices are so highly integrated, they are very difficult, if not impossible, to take apart. If the device is broken or defective, the whole thing has to be taken back.

When appropriately managing a reverse supply chain or reverse logistic service for IoT devices, it’s important to note most IoT device manufacturers are smaller OEMs and it’s costly for small manufacturers to design and deploy their own RSCM programs. It is not economical or efficient for small OEMs to build their own reverse logistics network. I’d strongly suggest that smaller OEMs partner with established RSCM providers and leverage their knowledge, experience, and existing omnichannel take-back platform.

A good RSCM partnership allows the IoT device OEM to focus on what they do best — designing innovative products and getting them out the door — while also fulfilling compliance obligations and delivering a return service demanded by customers.

Rather than return devices directly to their raw material state, a proactive approach to both Post Industrial Recycling (PIR) and Post-Consumer Recycling (PCR) efforts called closed-loop reverse supply chain management can dramatically increase the value of end-of-life components.

Traditionally, electronics and high-tech manufacturers used conventional recycling methods as a means to dispose of end-of-life technology. These methods of recycling are called cradle-to-grave, or down-cycling, where the process degrades the quality of materials over time, eventually resulting in waste. This process, while effective for returning technology to its raw material state, is environmentally taxing and can be a burden on the bottom line.

Closed-loop recycling reduces the demands for raw materials to produce a new product by using cradle-to-cradle or reusable materials harvested from end-of-life assets/surplus inventory and strategically introducing them into the forward supply chain.



The Complexity of Raw Materials
If a company’s recycling efforts are to harvest the gold or other precious metals out of electronic devices, the raw material value is small and the carbon footprint impact is huge.

Whereas if a company can harvest and repurpose a display module, a memory chip or a camera and give it a second life to be used in something else, the financial-value recovery is 10 times greater and the carbon footprint savings and reduced environmental impact is much more significant.

Even the plastic in CE devices isn’t generic plastic, it contains such elements as glass fiber, and if these plastics end up in a generic plastic recycler, they’re unable to break down.

OEMs realize having their own solution is a critical weapon for selling new products. This is particularly the case for companies that launch a new flagship product or device each year; not all consumers are motivated to upgrade annually, and so manufacturers can stage trade or takeback programs to minimize environmental impact and secure consumer loyalty.

It also reduces the liability impact. OEMs realize that if device recycling is mishandled, the damage could be immense. If something ends in a landfill, or data is leaked because it’s sold on a gray market, it could potentially damage the brand.

Benefits of Closed-loop RSCM Processes
Environmental

There are limited processes for OEMs, historically speaking, when it comes to dealing with post-consumer and –industrial electronic devices recycling; none of them environmentally sustaining, including selling to less developed markets to recover value and minimize e-waste and recycling to recover raw materials where possible.

Closed-loop RSCM reduces the carbon footprint of manufacturing through the recovery, reuse and remanufacturing (3R) of end-of-life technology and its components. The 3R approach can reconcile consumer demand and the shrinking inventory of materials by linking reverse-supply chains with forward-supply networks. Transferable components can be re-programmed so they can have a second life in alternative applications. Remanufactured parts can either go back into the OEM’s original forward logistics supply chain, or sold or remarketed in another market.

Commercial
OEMs are releasing new products at a faster rate, and older models are subsequently reaching end of life at a quicker rate. On average, between five and seven percent of a typical OEM’s annual shipment volume becomes obsolete before it is sold or reaches the consumer. Through RSCM, OEMs can harvest parts and components from the obsolete and excess inventory and inject them into the manufacturing supply chain of new products—eliminating waste and reducing manufacturing costs.

Strategic
End-of-life technology does not have to be a burden on the bottom line of OEMs. In fact, by leveraging older products through trade-in programs and carefully planned reverse supply chain management, OEMs can build relationships with their customers and keep them coming back long after the initial transaction process.



One unique trend quickly gaining momentum among OEMs using closed-looped Reverse Supply Chain Management is incentivized post-consumer trade-in and take-back programs. Historically, many leading OEMs didn’t want to talk about these programs in terms of Corporate Social Responsibility (CSR). Many OEMs didn’t want to invest in programs because they were satisfied with meeting the basic minimum requirements. But that’s rapidly changing.

Many programs offer credit for old devices that can be applied to new ones – a key factor for consumers. If an OEM offers an incentive program, owners of mobile phones close to becoming obsolete can trade their phone in for credit toward the new model. In fact, the volume is 10 to 20 times higher than that experienced by programs not offering incentives.

These programs benefit the OEM. First, it helps focus the consumer’s attention on devices offered by that manufacturer rather than competitors. If a consumer can apply the value of the phone being used today toward a new phone tomorrow, the consumer is far less likely to shop for what other vendors offer. Second, an incentivized take-back program serves to prevent second-hand devices from being sold into the emerging markets that are strategically important for the OEM. Skillfully executed take-back programs help keep devices out of the unofficial channels that cannibalize new products and markets.

Finding the Right RSCM Partner
The leading technology brands on the planet succeed by providing their customers with a brand experience that extends beyond hardware, UX and support to what happens once the product needs to be replaced and recycled.

Well planned RSCM programs provide confidence to the brands and the consumer that the product will be taken care of responsibly and those valuable components will not be destroyed or sent to landfill, but re-used in a progressive and intelligent way.

Strong RSCM programs enable all companies to deepen their customer relationships, strengthen their organizational and culture initiatives, maintain the highest levels of compliance and even turn a profit. It’s a win-win for the brand, the customer and the environment.

Enabling standardized service in the U.S. and markets around the globe is critical for OEMs. They need to ensure the products moving through the reverse supply chain are handled and treated according to the same standards, while also complying with local laws and regulations. One of the best ways to achieve both goals is to engage with an RSCM service provider that has global coverage and facilities that maintain the same service standard for quality, security and compliance to the extent that both platform development and management capability are as strong as its technical processing capability worldwide.


RLM
Linda Li is an expert in the field of green supply chain management, Linda Li has more than ten years of experience in M&A strategy and corporate development in cleantech and TMT. As executive director and Chief Strategy Officer at Li Tong Group, Li pioneered the company’s world-leading, closed-loop recovery solution for mobile devices. She is also responsible for devising the company’s corporate growth strategies and leading global initiatives and implementations. Prior to her current appointment, she held senior positions in Fortune 100 electronics OEMs as well as in management consulting and private equity. Li earned a Master of Engineering in supply chain management from the Massachusetts Institute of Technology/ZLOG and a B.A.Sc. in biomedical engineering from the University of Toronto.

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