Improving Environmental Performance Through Reverse Logistics at

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1 Improving Environmental Performance Through Reverse Logistics at Ed Grenchus, Shirley Johnson, and Dan McDonnell Global Asset Recovery Services IBM Corporation Abstract: Environmental performance continues to be a focus item for many information technology companies. Regulations, laws, corporate and consumer awareness, as well as competitiveness, have companies initiating actions to reduce hazardous material, to take back their products, and to minimize product energy usage to name a few. To address these concerns and resultant performance measures, companies usually implement singular programs to address specific attributes within the spectrum of environmental activity. Sometimes even two or three programs are tied together, such as Design for Disassembly (DFD) and Design for the Environment (DFE). Rarely are multiple attributes addressed through one program. However, when examined closely, key aspects of the Reverse Logistics network can be linked and used to demonstrate how a company might use product end of life dispositioning to support its environmental activities and achieve financial success. This paper will highlight how the Global Asset Recovery Services (GARS) organization of IBM s Global Financing division has integrated some of the key components of its reverse logistics network to support and enhance environmental performance. Industry challenges and practices associated with retuming IT assets will be examined. IBM s approach to these challenges as well as current and planned activities within the scope of resale, reuse, remanufacturing, demanufacturing, and disposal of retumed computer and peripheral systems will be discussed. Where applicable, data will be used to indicate potential effectiveness, savings, or improvements. 1. Introduction In today s increasingly digital world, the need for continuous connectivity seems to be required in every aspect of our lives. Laptop computers, cell phones, and hand held systems are omnipresent. No longer is it only the business executive who is seen in the airport calling on a cell phone or working with a laptop, rather, even the youngest of children are somehow using these mobile instruments of information and connectivity. With this need, society demands more of technology. The demands are not only for smaller and lighter systems, but also for ones that provide more fbnction, capability, and power. Accordingly, the technology changes and improves and products become technically obsolete. [I] Personal computer life cycles, for instance, have been drastically reduced and some studies and reports indicate that the useful life of a personal computer is now in the sub- three year range. [2][3]This shrinking useful life in tum has resulted in an ever increasing amount of product reaching end of life and requiring some sort of disposal activity. One estimate highlights that by 2004, over 3 15 million systems will be ready for disposal as opposed to 21 million obsolete systems in 1998.[4] How the stakeholders, composed of governments, municipalities, manufacturers, and consumers respond to address this need will be a critical challenge in the upcoming years. In some cases, legislation is already dictating how product must be handled at end of life. In other cases, manufacturers are initiating activities to address their product. Programs which stress Design for the Environment or Disassembly are being implemented to minimize environmental impacts for next generation products. Similarly, product takeback schemes are being introduced to better manage a product waste stream and recover material and parts for future use. However, these efforts are usually singular in nature and deal with only a portion of the concem. To better address the entire problem of product end of life dispositioning, the entire system of reverse logistics should be examined for opportunities to improve environmental performance. This paper will highlight how the Global Asset Recovery Services (GARS) organization of the IBM Global Financing Division has integrated some of the key components of its mission to support and enhance environmental performance. 11. Reverse Logistics In the book, Going Backwards: Reverse Logistics Trends and Practices by Rogers and Tibben-Lembke, logistics (as defined by The Council of Logistics Management) is the process of planning, implementing and controlling the efficient, cost effective flow of raw materials, in process inventory, finished goods, and related information from the point of origin to the point of consumption for the purposes of conforming to customer requirements. [5] Figure 1 below shows this generic flow of forward logistics. In this case, outputs are deterministic and processes well defined and controlled. Improved environmental performance is typically gained at the process level with energy and material conservation. Future products are improved with changes driven through programs such as Design for the Environment, Design for Disassembly, and Life Cycle Analysis. Unfortunately, the positive impact of the product design changes with respect to material recovery, disassembly, or /01/$ IEEE 236

2 reuse might not be realized for years. As a consequence, there is generally limited real-time linkage with end of life recovery and disposal operations and opportunities to expand into the area of reverse logistics and identify the potential reuse of parts, for instance, are limited. that mutually benefit the environment. Figure 3 shows where some of the linkage can occur when the supply chain is fully integrated. IntegrabedSupplyChain Figure 1 On the other hand, reverse logistics is described as the process of moving goods from their final destination for the purpose of capturing value or proper disposal. [6] Figure 2 below shows this flow. Normally, this area deals with the here and now of retuming product. Almost all input stream characteristics (vintage. arrival rate, product condition, usability, etc.) are stochastic in nature. Processes involve remanufacturing, and demanufacturing and activities center around collection, sortation, refurbishment, recycling, material reclamation, and landfill or incineration. Connection with forward logistic processes is generally reduced and opportunities to improve environmental performance through supply of non-used or used machines, parts, and material to manufacturing and field service support groups, as an example, are not exploited. Ill. Global Asset Recovery Services and Reverse Logistics In late 1998, IBM established, as part of its Global Financing division, the Global Asset Recovery Services (GARS) organization whose mission is to provide a single, global focus for managing the disposition of returned, surplus, and excess computer and related hardware inventory. [7] With approimately 10,000 preowned computers being returned each week at the end of corporate lease agreements, and product ranging from PCs to servers, [8] the concept to centralize efforts is a key decision. By optimizing the recovery and use of systems and parts, GARS is able to help IBM lower cost, increase profit, and improve service to the customer while enhancing and supplementing its environmental programs. [9] Major aspects of the mission are to: 1. Provide management of excess materials in order to optimize asset recovery and utilization. 2. Develop and implement disposition criteria and decisions. 3. Management of returns inventory including parts balancing initiatives. I WdLifei&pWui~ I Figure 2 The problem then is how to link the areas of forward and reverse logistics to capitalize on positive business opportunities 4. Development, coordination, and execution of secondary channel sales. 5. Development and management of remanufacturing, refurbishment, and demanufacturing processes, including related information systems. 237

3 ~ The responsibility also includes deployment of the integrated returns process to support the required dispositioning processes. This aspect relies heavily on timely and efficient execution of reverse logistics operations and affects environmental performance directly. GARS manages theses reverse logistics operations by focusing on two critical items. The first item involves the actual physical aspects of the process. This involves the transportation of material to designated centers, receipting the returns into inventory, and dispositioning the material for either remanufacturing or demanufacturing. The second item involves gathering and utilizing the information needed to actually manage the physical activities to recover maximum value. [ 101 From an organizational perspective, the mission is executed through the three distinct units described below. 1. Logistics Operations - this unit has responsibilities for: A. Remanufacturing and Demanufacturing processes B. Fulfillment C. Service and sales development offerings D. The Asset Recovery Center in Endicott, NY This unit focuses on the physical aspects of the reverse logistic processes, As process owner, Logistics Operations provides oversight and guidance to over 20 remanufacturing and demanufacturing operations worldwide with processes closely scrutinized and controlled for expense minimization, asset protection, process efficiencies, and proper environmental disposal. Workshops have been conducted in the past to share knowledge on best practices and been supplemented with worldwide teleconferences to address common problems. The unit also has a strong linkage to the forward logistic processes. Its remanufacturing and demanufacturing operations performs the fulfillment function to supply either refurbished machines or saved parts to both internal and external customers. Environmentally, the group ties in closely with IBM s Engineering Center for Environmentally Conscious Products and provides real time information to the Center on Design for the Environment and Design for Disassembly issues or concerns.[ 1 I][ 121 This allows the Center to pass critical information to the designers for improvement in future products. Additionally, the unit assists operations in developing environmentally sound dispositioning criteria and maintains a focus on minimizing material being land filled. Most recently, GARS introduced the Asset Disposition and Support Services offering to help customers dispose of systems and peripherals at end of life. The offering provides environmentally safe disposal, one stop disposition support, sale of marketable assets, warehousing and inventory capability, asset testing, and product search features. A key part of the organization in the United States is the Asset Recovery Center in Endicott, NY. This Center, which was established in 1994, has processed over 210 million pounds of equipment and material through year end Being the largest demanufacturing operation in IBM, it has seen a broad scope of both IBM and OEM returns. Consequently, the data and knowledge gained from its dismantle and recovery processes have been key to both demanufacturing productivity improvements and landfill reduction. From a productivity standpoint, the organization has shown a three times improvement as measured in pounds processed per person since Additional environmental benefit is gained through the use of extensive recycling and reclamation vendors for residual commodity and material disposal after processing. As a result, the dispositioning of material to the landfill has decreased from approximately 10% to under 2.5%. [I31 2. Business ODerations - this unit has the responsibilities for: A. Global parts management B. Supply / Demand and Inventory management C. Business plans and controls D. Information systems This unit is focused on the informational aspect and systems needed to actually perform the reverse logistic process. Critical data on available returns is analyzed for probable machine content or configuration and matched to the GARS inventory. Supply versus demand is analyzed and appropriate fulfillment orders generated. In some cases, direction is given to the Logistic Operations unit for fulfillment within its remanufacturing or demanufacturing operations. In other cases, IBM sites or business units are engaged to utilize their excess or surplus inventory internally or as brokerable parts. From an information systems perspective, the unit has established a critical link to e-business capability through use of the Interactive Offer System (10s) website. This web site provides lists of available products complete with descriptions, part numbers, and digital photographs and allows IBM resellers to bid on and purchase excess inventory in an efficient manner.[ 141 Additionally, this unit is responsible for the deployment of SAP throughout the GARS organization which will insure end to end coverage of acquiring and fulfilling assets. These activities expand reverse logistics coverage into the forward logistics area by supplying internal field and service programs or external customers with machines (refurbished or not used) and reusable parts and help fulfill the integrated supply chain. Environmentally, this rebalancing and reuse activity e:xtends product life cycles by giving a second life to parts, assemblies, and machines and recovers value for the business at a higher level. 3. Sales and Marketing - this unit has the responsibility for sales. As such, it identifies and selects customers, understands customer needs, and inputs customer requirements to the other two units for fulfillment. Understanding the dynamics of the market from both a buy and sell perspective, the value of 238

4 retuming machines, and recovery potential are critical factors in this part of the business. As seen in figure 4, GARS utilizes a fairly straightforward dispositioning hierarchy that is both environmentally friendly and economically sound.[ 151 Maximum value is returned to the business by remarketing and reselling. Environmentally, the resale or reuse of systems and parts extends product lifecycle by giving material a second useful life at approximately the same hnctionality. On the other hand, as product proceeds through the hierarchy, more and more material is pulled from the return stream and items requiring material / commodity disposal are reduced. V. Summary In summary, it can be seen that the IBM GARS business unit has been able to contribute to improving environmental performance by linking key elements of reverse logistics into the integrated supply chain. It has made a direct impact on the 3 R s by reusing systems and parts, by reducing the need purchase new parts, by reducing material dispositioned to the landfill, and by recycling commodities in the remanufacturing and demanufacturing areas where appropriate. It is also poised to leverage its expertise into e-business opportunities and expand its service offerings further into the OEM market. VI. BIBLIOGRAPHY [I] [ 131 E. Grenchus, R. Keene, and C. Nobs, The Quest for Environmental and Productivity Improvements at the Demanufacturing and Asset Recovery Center in IBM, IEEE International Symposium on Electronics and the Environment,, May 200 1, Denver, CO. [2] L.A. Greene, Recycling - No More Electronics Dumping in Massachusetts, Environmental Health Perspectives, vl08, n9, [3] D. Pescovitz, Please Dispose of Properly, Scientific american: Technology and Business, February 2000, [4] L. Bertagnoli, Computers Get a Second Chance, Crain s Chicago Business, v23, 10/02/2000. Figure 4 IV. Future Plans and Outlook In the upcoming months, extensive effort will continue to be applied to transform GARS into an e-business. Developing the processes to expand into parts remarketing for OEM customers is one aspect Providing a supply of industry standard parts or rehrbished parts instead of automatically purchasing new and generally more expensive parts is another aspect. Likewise, giving the customer the capability to obtain parts through a service contract rather than by owning inventory can provide customers with not only reduced inventory costs, but also reliability of supply within a committed cycle time.[l6] These activities capitalize on GARS expertise, established infrastructure and reverse logistics expertise and can help customers further integrate their supply chain and benefit the environment through increased systems and parts reuse. [5][6] D.S. Rogers and R.S. Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, pg.2, Reverse Logistics Executive Council, 1998Equipment Conference, October 1997, Deerfield Beach, Florida. [7] IBM Corporate Instruction, Manufacturing Number M&D 163, March [SI IBM Global Financing, Who kenw? IBM AS King Of The Scrap Heap, Feature stories, Perspectives, December 26,2000. [9] IBM Global Financing, Peter Matthews, General Manager, Global Asset Recovery Services, Meet the Executive, Issue 6, December [ 1 O][ 161 P. Matthews, Transforming GARS Into An e-business, GARS Global Update #6. [ 1 11 M. Dunnett, E. Grenchus, R. Keene, & L. Yehle, IBM Endicott Asset Recovery Center, Endicott NY & M. Jacques, M. Karlsson, J.R.Kirby, & D. Pitts, Evaluation of IBM End of Life Products: Measuring DFE Effectiveness, 1999 IEEE 239

5 lntemational Symposium on Electronics and the Environment,, May 1999, Boston Mass. [I21 E. Grenchus, R. Keene, & C. Nobs, IBM Endicott Asset Recovery Center, Endicott NY & A. Brinkley, J.R.Kirby, D. Pitts, & I. Wadehra, IBM Engineering Center for Environmentally Conscious Products, Research Triangle Park, NC, Linking Demanufacturing Operations With Product DFE Initiatives, 1998 leee International Symposium on Electronics and the Environment, May 1998, Chicago, 111. [ 141 IBM Global Financing, Metro Business Systems: Making the Most of IBM Surplus Inventory, Feature stories, December [15] E.Grenchus, R.Keene, and C.Nobs, Composition and Value of Returned Consumer and Industrial Technology Equipment, 2000 IEEE lntemational Symposium on Electronics and the Environment,, May 2000, San Francisco, CA. TRADEMARKS IBM is a trademark of lntemational Business Machines Corporation in the United States andor other countries. 240