Executive Briefings

GTE, 3M Reap Multiple Benefits From Asset-Recovery Operations

GTE's in-house recovery operation is so successful that it now handles reverse logistics services for other companies. Likewise, 3M turned to its own logistics and manufacturing groups to recover useable by-products - and lots of money.

Whether it's called reverse logistics, asset recovery or resource reallocation, growing numbers of companies now capitalize on recyclers and other secondary markets to sell

"All of our processing centers are like individual businesses - we select people with entrepreneurial skills and technical backgrounds." - Richard J. (Dick) Antus of GTE

excess or obsolete equipment as well as by-products of their manufacturing processes. The dividends of this activity, as demonstrated here by GTE Corp. and 3M, can be measured in the millions of dollars.

Richard J. (Dick) Antus, manager of recovery operations for GTE Supply, handles asset disposal for GTE and its affiliates. GTE Supply is a logistics/inventory management provider for GTE Corp. and all 20 GTE affiliates, and the recovery operation is part of the corporate support function for affiliates. "We also sell the same investment recovery and reverse logistics services to companies outside of GTE," says Antus.

Though GTE already had some asset-recovery programs in place, the principal thrust to create an organized, centralized reverse logistics program came in 1993. Antus, then a 26-year veteran of the telecommunications industry, had just completed a six-month project at GTE when he was assigned the asset-recovery operation.

"When we first started out, a lot of companies like GTE didn't have formal processes for asset disposal," says Antus. "As a result, many of our local operations got into deals where they essentially were paying a contractor to take away things that had value." Another problem stemmed from loose controls on some of the disposal contracts that GTE did have in place. For example, GTE affiliates would send bulk shipments of returned or recovered products and materials to one primary contractor who was only to receive certain types of materials. As a result, the contractor was performing - and charging - for the sortation, weeding from bulk shipments just the materials it was authorized to receive.

"My job was to centralize an asset-recovery program and manage it," says Antus. "We don't give anything away to anybody any more. We even pull cardboard out of the trash and resell it."

Moreover, Antus figures that the organized recovery program saved GTE more than $2.3m in handling fees alone within the first nine months by more carefully administering existing contracts between the corporation and third-party contractors. "Now we have processes in place where we sort and test items before anyone outside GTE touches them, and the contractor only gets what he is supposed to get."

The asset recovery operation has six processing centers spread across the contiguous 48 states and Hawaii: on the island of Oahu; in Arlington, Wash.; Riverside, Calif.; Dallas, Tex.; Noblesville, Ind.; and Tampa, Fla. Each center has a GTE manager and assistant to handle administrative functions relating to facility management, material flow and sales. Contract labor is used to perform the sorting functions.

"All of our processing centers are like individual businesses - we select people with entrepreneurial skills and technical backgrounds," says Antus. Center managers are empowered to adopt ideas and implement processes to trim expenses and return greater value to the corporation, and this freedom has resulted in the implementation of barcoding, programs to monitor the flow of material and who owned it, and numerous other measures to streamline the process. "Those things may not sound like much, but when you start adding up time and money, we can reduce a lot of the cost in a single process," Antus points out.

Each processing center is logistically positioned to fit into GTE's transportation network, so supply trucks taking material out to the affiliates can backhaul disposed assets to the processing center. Each center receives five to 15 truckloads a week, with the bulk of material coming from GTE operations involving wireless communications, AirFone service, networking, telephone operations and government systems.

"We don't manufacture products at GTE," explains Antus. "We are a service provider, and we buy products for the end user. When those materials are returned, or any of the internal switching networks, transmission data equipment or fiber optics at a GTE installation becomes obsolete and/or is being removed and replaced with new technology, we get the old systems and materials, except where a contract specifically states that returned materials must be sent directly to the manufacturer for disposal or refurbishment."

At the installation site, authorized personnel fill out the appropriate forms and attach them to the items being funneled to the recovery operation. Supply trucks bringing new products and materials to the site backhaul the older parts and materials to the local supply location. There are dedicated staging locations at all GTE supply locations as well as at some customer locations specifically for materials bound for the processing centers. As shipment volumes reach pre-established thresholds, the loads are dispatched to the appropriate processing center. An intranet connection facilitates communications between the processing centers, supply centers and customer locations.

"We have a database of approximately 1,500 buyers, and we lump together buyers of certain classes of materials," says Antus. "When the trucks arrive at the processing centers, we sort through the material, categorize it by buyers, then notify the appropriate buyers that we will be placing the material up for silent bid." Each lot of material is placed on the company's web site (along with a description of the lot). The lots generally remain up for bid for five days, and the winning bidder typically gets an additional five days to pay for and pick up the material. Buyers are responsible for transport.

Several of the processing centers also include company stores, where GTE employees can shop among the computers, furniture, telephone sets and other items that make the journey through the processing center and are determined by site managers to have purchase appeal.

GTE tracks materials inbound and through the sortation, bid, sale and release process with its in-house program, Centralized Investment Recovery Accounting System (CIRAS). All cash collected from sales is sent by the buyer to a central clearinghouse, which authorizes release of the material and performs all the reporting, accounting and reconciliation activity.

"In 1998 we netted back more than $30m for GTE from GTE operations alone," says Antus.

Two years ago GTE decided to offer its asset-recovery services to select companies and now provides those reverse logistics services to 29 external customers, including Ericsson, NEC America, Citizens Communication and Cincinnati Bell Telephone. For the non-affiliated companies, GTE primarily sells their surplus inventories and obsolete materials, says Antus. The exceptions are fleet vehicles and hazardous materials.

The terms of the arrangement differ from company to company, with each individual contract specifying duties and responsibilities relative to notification, transportation and revenue-sharing terms. All external service contracts are based on a revenue-sharing agreement concerning the proceeds from GTE's disposal activities. "We split the gross revenue according to terms of our agreement, and the expenses come out of the GTE side," says Antus. "We can keep the revenue share fairly equitable because their involvement helps lower our overall cost." He declined to discuss any specifics of the revenue gained from providing these services to outside companies.

Minnesota Mining & Manufacturing approaches reverse logistics/asset recovery on two levels. In the post-production environment, product returns from customers and distributors are handled by two contractors with assigned territories, and product disposition is handled in accordance with a network of decision matrices set forth by 3M. GENCO operates a return center for 3M in Illinois for the bulk of the company's U.S. returns.

However, 3M also has an extensive network of pollution prevention and product life cycle management programs throughout its worldwide manufacturing operations. The company in 1975 initiated its 3P program (Pollution Prevention Pays), an effort that incorporates product reformulation, process modification, equipment redesign and recovery and reuse of waste materials to minimize the introduction into the environment of non-usable waste. Since 1990, 3M has reduced its generation of waste by one-third through 3P and other company programs with a policy hierarchy of waste prevention, reuse and recycling.

While the company's logistics division oversees the product return operation, asset recovery during the production process falls to the company's manufacturing group. "We handle the material that has fallen out of the system prior to getting to the customers," explains Gary Colgrave, manager of resource recovery for 3M.
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"At 3M, we are attempting to manage what we call surplus assets, which includes the by-product, used equipment and waste streams that have value in the marketplace." The company re-uses virtually anything - materials and equipment - that can be recycled for internal use, which amounts to $10m to $15m worth of material annually. Another $40m to $50m annually is generated from the sale of equipment and materials to entities outside the 3M corporate umbrella.

Asset recovery dates back more than 30 years at 3M, says Colgrave. For decades the company recycled paper products and materials, and asset recovery expanded in the 1960s to cover some of the materials used in hard-goods manufacture, such as nuts, bolts, screws and some spare parts.

"When petroleum prices rose dramatically in the 1970s, the price of solvents and plastics suddenly became very important to consider, and 3M tried to reduce manufacturing costs by getting value out of those used materials," says Colgrave.

Other commodities and materials gradually were added to the mix, and now 3M has a central staff of six specialists overseeing various commodity groups: paper and natural fibers; metals and ceramics; chemicals and solvents; equipment; plastics; and trademarked goods. The resource recovery operation also has its own web presence (www.mmm.com/surplus).

With the exception of centralized handling of equipment, which consists mostly of manufacturing machines and some fleet vehicles, recovery and recycling operations are handled on a local basis by plant personnel. The company maintains approximately 50 manufacturing plants in the U.S. and Canada.

"One of the big barriers to effective recycling is the actual cost of recycling, and one of the primary components of that cost is transportation," says Colgrave. "We try to minimize transportation by finding recycling outlets to which the plants can ship directly." Each plant has waste coordinators to help ride herd on the material side, while plant-engineering groups make decisions on equipment.

Unlike some companies that use highly specialized and expensive machinery in their harvesting and production operations, 3M focuses more on the materials side of resource recovery rather than equipment. The company has many similar product lines, says Colgrave, as probably half of 3M's products involve coating specialized material on a layer of film. "We have many opportunities to recover assets in the materials area, and 3M has some very aggressive goals in terms of trying to minimize any type of environmental impact."

However, resource recovery and disposal on secondary markets can get complicated when you start mixing plastics with plastics, or plastics with paper fibers. "When you do that, the asset-recovery solutions are much more difficult because a lot of the materials are pretty close to being our end product," says Colgrave.

For example, blown microfiber, used for insulation material in jackets or used as filter material for dust masks, is a well-known 3M product that itself can be used for a lot of other purposes. "We have to work very closely with our marketing department to make sure that any use our resource-recovery people can think of for that by-product doesn't in fact interfere with our own marketing efforts.

"By-product can fall out of the manufacturing process at any time, and sometimes it comes darn close to being the product itself," he adds. For example, the quality of product produced at the beginning of a machine run of a certain adhesive tape made of polypropylene may not be up to 3M's standards - although the actual substandard unit of the product looks exactly like a unit produced mid-run and in accord with 3M's specifications. Or perhaps there was a change of materials made during the run, and the units produced during the changeover were substandard.

Products like those, with 3M's name plastered on them, fall into the trademarked goods category - the most sensitive from a disposal perspective. "In those instances, it's critical to make sure our contractors dispose of those assets as per our agreement," says Colgrave. "Otherwise, if those products ended up on the market, not only would we be competing against ourselves but we would risk damage to our corporate image and unhappiness with the buyer." To thwart this, contractors typically would be required to remove the cardboard cores from the rolls, then grind the tape up and process the polypropylene back into plastic pellets that could be mixed with virgin material to produce other products.

"We have a lot of good people we work with, and it's in their best interests to follow the restrictions we put on the product," says Colgrave. "If we start to see them cheating, they no longer will have the opportunity to make money on the stuff we sell them."
Colgrave's operation doesn't pay contractors to dispose of assets targeted for recovery, and only rarely do materials change hands without a fee. Colgrave points out that generally "if you pay someone to haul it off, it's a load of waste" and the regulations are far more restrictive.

"At a minimum, we are passing it through at no cost, and that is the rare exception," he explains. "Everybody understands that if they can make use of it in their process and keep it in the economy, everybody is going to be better off because we will have less landfill and they will be able to reduce their raw material costs. And we are always looking for new opportunities as our product lines and processes change."

Whether it's called reverse logistics, asset recovery or resource reallocation, growing numbers of companies now capitalize on recyclers and other secondary markets to sell

"All of our processing centers are like individual businesses - we select people with entrepreneurial skills and technical backgrounds." - Richard J. (Dick) Antus of GTE

excess or obsolete equipment as well as by-products of their manufacturing processes. The dividends of this activity, as demonstrated here by GTE Corp. and 3M, can be measured in the millions of dollars.

Richard J. (Dick) Antus, manager of recovery operations for GTE Supply, handles asset disposal for GTE and its affiliates. GTE Supply is a logistics/inventory management provider for GTE Corp. and all 20 GTE affiliates, and the recovery operation is part of the corporate support function for affiliates. "We also sell the same investment recovery and reverse logistics services to companies outside of GTE," says Antus.

Though GTE already had some asset-recovery programs in place, the principal thrust to create an organized, centralized reverse logistics program came in 1993. Antus, then a 26-year veteran of the telecommunications industry, had just completed a six-month project at GTE when he was assigned the asset-recovery operation.

"When we first started out, a lot of companies like GTE didn't have formal processes for asset disposal," says Antus. "As a result, many of our local operations got into deals where they essentially were paying a contractor to take away things that had value." Another problem stemmed from loose controls on some of the disposal contracts that GTE did have in place. For example, GTE affiliates would send bulk shipments of returned or recovered products and materials to one primary contractor who was only to receive certain types of materials. As a result, the contractor was performing - and charging - for the sortation, weeding from bulk shipments just the materials it was authorized to receive.

"My job was to centralize an asset-recovery program and manage it," says Antus. "We don't give anything away to anybody any more. We even pull cardboard out of the trash and resell it."

Moreover, Antus figures that the organized recovery program saved GTE more than $2.3m in handling fees alone within the first nine months by more carefully administering existing contracts between the corporation and third-party contractors. "Now we have processes in place where we sort and test items before anyone outside GTE touches them, and the contractor only gets what he is supposed to get."

The asset recovery operation has six processing centers spread across the contiguous 48 states and Hawaii: on the island of Oahu; in Arlington, Wash.; Riverside, Calif.; Dallas, Tex.; Noblesville, Ind.; and Tampa, Fla. Each center has a GTE manager and assistant to handle administrative functions relating to facility management, material flow and sales. Contract labor is used to perform the sorting functions.

"All of our processing centers are like individual businesses - we select people with entrepreneurial skills and technical backgrounds," says Antus. Center managers are empowered to adopt ideas and implement processes to trim expenses and return greater value to the corporation, and this freedom has resulted in the implementation of barcoding, programs to monitor the flow of material and who owned it, and numerous other measures to streamline the process. "Those things may not sound like much, but when you start adding up time and money, we can reduce a lot of the cost in a single process," Antus points out.

Each processing center is logistically positioned to fit into GTE's transportation network, so supply trucks taking material out to the affiliates can backhaul disposed assets to the processing center. Each center receives five to 15 truckloads a week, with the bulk of material coming from GTE operations involving wireless communications, AirFone service, networking, telephone operations and government systems.

"We don't manufacture products at GTE," explains Antus. "We are a service provider, and we buy products for the end user. When those materials are returned, or any of the internal switching networks, transmission data equipment or fiber optics at a GTE installation becomes obsolete and/or is being removed and replaced with new technology, we get the old systems and materials, except where a contract specifically states that returned materials must be sent directly to the manufacturer for disposal or refurbishment."

At the installation site, authorized personnel fill out the appropriate forms and attach them to the items being funneled to the recovery operation. Supply trucks bringing new products and materials to the site backhaul the older parts and materials to the local supply location. There are dedicated staging locations at all GTE supply locations as well as at some customer locations specifically for materials bound for the processing centers. As shipment volumes reach pre-established thresholds, the loads are dispatched to the appropriate processing center. An intranet connection facilitates communications between the processing centers, supply centers and customer locations.

"We have a database of approximately 1,500 buyers, and we lump together buyers of certain classes of materials," says Antus. "When the trucks arrive at the processing centers, we sort through the material, categorize it by buyers, then notify the appropriate buyers that we will be placing the material up for silent bid." Each lot of material is placed on the company's web site (along with a description of the lot). The lots generally remain up for bid for five days, and the winning bidder typically gets an additional five days to pay for and pick up the material. Buyers are responsible for transport.

Several of the processing centers also include company stores, where GTE employees can shop among the computers, furniture, telephone sets and other items that make the journey through the processing center and are determined by site managers to have purchase appeal.

GTE tracks materials inbound and through the sortation, bid, sale and release process with its in-house program, Centralized Investment Recovery Accounting System (CIRAS). All cash collected from sales is sent by the buyer to a central clearinghouse, which authorizes release of the material and performs all the reporting, accounting and reconciliation activity.

"In 1998 we netted back more than $30m for GTE from GTE operations alone," says Antus.

Two years ago GTE decided to offer its asset-recovery services to select companies and now provides those reverse logistics services to 29 external customers, including Ericsson, NEC America, Citizens Communication and Cincinnati Bell Telephone. For the non-affiliated companies, GTE primarily sells their surplus inventories and obsolete materials, says Antus. The exceptions are fleet vehicles and hazardous materials.

The terms of the arrangement differ from company to company, with each individual contract specifying duties and responsibilities relative to notification, transportation and revenue-sharing terms. All external service contracts are based on a revenue-sharing agreement concerning the proceeds from GTE's disposal activities. "We split the gross revenue according to terms of our agreement, and the expenses come out of the GTE side," says Antus. "We can keep the revenue share fairly equitable because their involvement helps lower our overall cost." He declined to discuss any specifics of the revenue gained from providing these services to outside companies.

Minnesota Mining & Manufacturing approaches reverse logistics/asset recovery on two levels. In the post-production environment, product returns from customers and distributors are handled by two contractors with assigned territories, and product disposition is handled in accordance with a network of decision matrices set forth by 3M. GENCO operates a return center for 3M in Illinois for the bulk of the company's U.S. returns.

However, 3M also has an extensive network of pollution prevention and product life cycle management programs throughout its worldwide manufacturing operations. The company in 1975 initiated its 3P program (Pollution Prevention Pays), an effort that incorporates product reformulation, process modification, equipment redesign and recovery and reuse of waste materials to minimize the introduction into the environment of non-usable waste. Since 1990, 3M has reduced its generation of waste by one-third through 3P and other company programs with a policy hierarchy of waste prevention, reuse and recycling.

While the company's logistics division oversees the product return operation, asset recovery during the production process falls to the company's manufacturing group. "We handle the material that has fallen out of the system prior to getting to the customers," explains Gary Colgrave, manager of resource recovery for 3M.
|
"At 3M, we are attempting to manage what we call surplus assets, which includes the by-product, used equipment and waste streams that have value in the marketplace." The company re-uses virtually anything - materials and equipment - that can be recycled for internal use, which amounts to $10m to $15m worth of material annually. Another $40m to $50m annually is generated from the sale of equipment and materials to entities outside the 3M corporate umbrella.

Asset recovery dates back more than 30 years at 3M, says Colgrave. For decades the company recycled paper products and materials, and asset recovery expanded in the 1960s to cover some of the materials used in hard-goods manufacture, such as nuts, bolts, screws and some spare parts.

"When petroleum prices rose dramatically in the 1970s, the price of solvents and plastics suddenly became very important to consider, and 3M tried to reduce manufacturing costs by getting value out of those used materials," says Colgrave.

Other commodities and materials gradually were added to the mix, and now 3M has a central staff of six specialists overseeing various commodity groups: paper and natural fibers; metals and ceramics; chemicals and solvents; equipment; plastics; and trademarked goods. The resource recovery operation also has its own web presence (www.mmm.com/surplus).

With the exception of centralized handling of equipment, which consists mostly of manufacturing machines and some fleet vehicles, recovery and recycling operations are handled on a local basis by plant personnel. The company maintains approximately 50 manufacturing plants in the U.S. and Canada.

"One of the big barriers to effective recycling is the actual cost of recycling, and one of the primary components of that cost is transportation," says Colgrave. "We try to minimize transportation by finding recycling outlets to which the plants can ship directly." Each plant has waste coordinators to help ride herd on the material side, while plant-engineering groups make decisions on equipment.

Unlike some companies that use highly specialized and expensive machinery in their harvesting and production operations, 3M focuses more on the materials side of resource recovery rather than equipment. The company has many similar product lines, says Colgrave, as probably half of 3M's products involve coating specialized material on a layer of film. "We have many opportunities to recover assets in the materials area, and 3M has some very aggressive goals in terms of trying to minimize any type of environmental impact."

However, resource recovery and disposal on secondary markets can get complicated when you start mixing plastics with plastics, or plastics with paper fibers. "When you do that, the asset-recovery solutions are much more difficult because a lot of the materials are pretty close to being our end product," says Colgrave.

For example, blown microfiber, used for insulation material in jackets or used as filter material for dust masks, is a well-known 3M product that itself can be used for a lot of other purposes. "We have to work very closely with our marketing department to make sure that any use our resource-recovery people can think of for that by-product doesn't in fact interfere with our own marketing efforts.

"By-product can fall out of the manufacturing process at any time, and sometimes it comes darn close to being the product itself," he adds. For example, the quality of product produced at the beginning of a machine run of a certain adhesive tape made of polypropylene may not be up to 3M's standards - although the actual substandard unit of the product looks exactly like a unit produced mid-run and in accord with 3M's specifications. Or perhaps there was a change of materials made during the run, and the units produced during the changeover were substandard.

Products like those, with 3M's name plastered on them, fall into the trademarked goods category - the most sensitive from a disposal perspective. "In those instances, it's critical to make sure our contractors dispose of those assets as per our agreement," says Colgrave. "Otherwise, if those products ended up on the market, not only would we be competing against ourselves but we would risk damage to our corporate image and unhappiness with the buyer." To thwart this, contractors typically would be required to remove the cardboard cores from the rolls, then grind the tape up and process the polypropylene back into plastic pellets that could be mixed with virgin material to produce other products.

"We have a lot of good people we work with, and it's in their best interests to follow the restrictions we put on the product," says Colgrave. "If we start to see them cheating, they no longer will have the opportunity to make money on the stuff we sell them."
Colgrave's operation doesn't pay contractors to dispose of assets targeted for recovery, and only rarely do materials change hands without a fee. Colgrave points out that generally "if you pay someone to haul it off, it's a load of waste" and the regulations are far more restrictive.

"At a minimum, we are passing it through at no cost, and that is the rare exception," he explains. "Everybody understands that if they can make use of it in their process and keep it in the economy, everybody is going to be better off because we will have less landfill and they will be able to reduce their raw material costs. And we are always looking for new opportunities as our product lines and processes change."