Dec. 21, 2004
Turn surplus corporate assets into bottom-line gold.

The saying "one man's trash is another man's treasure" certainly rings true in the growing field of investment recovery, where industrial concerns sell off unused equipment, byproducts, and returned materials -- making growing contributions to the corporation's bottom line. In fact the Investment Recovery Assn. just published findings of a study of their members showing that companies with active recovery programs generate an average of $11 million per year from surplus and idle assets, with one company reporting $150 million in an exceptional year. The study concludes that companies that systematically work to maximize the return on surplus/idle assets realize a $15 return on every one dollar of investment in the activity -- that's money that goes straight to the bottom line. "What do you do when you get a basement, attic, or garage full of stuff that is good, that you can't use?" asks Richard Cuniberti, supply manager of resource recovery, BASF Corp., North America, Mount Olive, N.J. "One of two things happen. You give it to a friend or relative who can use it, or you have a garage sale. What we do is take that philosophy and apply it to a corporation. We either redeploy within the company where a need exists, or we sell equipment outside and recover monetary value, which we return to the bottom line of the company." Equipment becomes available for investment recovery through acquisition of new companies, changing technology, new regulations, and organizational restructuring or downsizing. Spare parts, surplus raw material, returned materials, and obsolete stock are other sources to mine for recovery gold. "We estimate that at any given time, up to 10% of the assets on our books could be surplus," says Cuniberti. "We are trying to get a bigger percentage of that as we go, but because of the vastness of the company and all the places these things are hidden, in bone yards and old warehouses, we may only be touching 1% to 2% of that." At BASF that amounts to between $2 million to $11 million annually form investment recovery with a full-time staff of three operating in North America only. Live auctions and dot.coms are becoming more popular as ways to actually move goods, many of which are sold to smaller, noncompetitive companies in similar industries. A vast network of brokers and dealers buy and sell the goods, or also may bundle packages of equipment from different companies that might find a home in Third-World countries, including China. In addition, many companies with smaller items for sale, such as circuit boards or other electronics, offer their surplus via their own marketing program, often over the Web. The investment-recovery professional brings at least two key skills to the table: the ability to establish fair market value on the goods available, and contacts/experience with a network of interested parties so transactions can be accomplished in a timely fashion. "Early on, it was up to the purchasing group to find a home for the surplus equipment," says Dennis Kuntz, director, investment recovery, Weyerhaeuser Co., Federal Way, Wash. "It was a secondary role for them, so they weren't focused as much as they could have been on extracting value. Often they would dispose of things at book value, which wasn't even close to being fair market value. That's how we got started." With five zone managers throughout the U.S., Weyerhaeuser is harvesting $12 million to $20 million in surplus equipment annually from a capital investment base of $330 million to $340 million. Prior to its focused investment-recovery initiative, the company was only getting $1 million to $2 million. Sale of byproducts, internal recycling of materials, and idle-equipment sales and redeployment add up to nearly $60 million of resource recovery value annually for the 3M Corp., St. Paul, according to Gary Colgrove, manager, investment recovery. Of that, polypropylene and adhesives from tape manufacture, Post-it note scrap, and vinyl electrical tape scrap generate close to $20 million, with gold recovered from 3M manufacturing processes accounting for another $10 million. Also within the scope of the investment-recovery function, 3M is working on moving returned, obsolete, and damaged goods back into the supply chain -- sans the 3M labeling -- into second markets where performance of the products is still acceptable. For companies wishing to begin or improve their investment-recovery efforts, professionals offer the following best practices:

  • "It is important for the executives of the company to show visible support of the investment-recovery function," says Weyerhaeuser's Kuntz.
  • Likewise, the function itself must develop an accurate reporting system that clearly demonstrates its value to the corporation. "Companies that do a poor job at reporting [find] a lack of sponsorship even when the group is making a good contribution to the corporation," advises 3M's Colgrove.
  • Don't assume that manufacturing management will approach your function for help. "The investment-recovery professional must be proactive and help identify opportunities," says Colgrove.
  • "Don't hire some semiretired fellow to come in and do the investment-recovery function," offers Kuntz. "This is a profession, so hire a professional if you want maximum return. Almost all of my staff are certified appraisers through the American Society of Appraisers. They bring real value to the company by being able to establish fair market value based on their discipline in that area."
    For more information on investment recovery, certification programs, and membership, contact the Investment Recovery Assn., Mission, Kan., 913/262-4597. This organization is holding its semiannual conference and trade show, Apr. 17-19 in Savannah, Ga. Tim Stevens is an IndustryWeek senior editor based in Cleveland.
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