Reverse Logistics, Green Supply Chain

Trade-in (or buyback) programs for mobile phones and other consumer electronics are on the rise, spurred by Americans’ insatiable appetite for possessing the latest and greatest of any device. When combined with the desire to be sustainable and keep the planet “green,” it is the marketing equivalent of a slam dunk. A number of technologies and processes come together to create this new reverse logistics business model, which is still in its infancy. The landscape is changing fast, with opportunities at many stops along the supply chain.

The buyback market developed first around mobile phone hand sets – and for good reason. Four out of five Americans own a cell phone, and the global market is more than 1 billion units per year. The average “first life” of a cell phone in the U.S. is just 12 months. But as it gains momentum, the buyback movement is expanding to include MP3 players, digital cameras and other wireless units — and moving to absorb all small electronics. Charities were the first to successfully repurpose used units for specific causes (for example, for overseas soldiers or domestic abuse victims), and as could be expected, organizations like eBay consistently provide an active and steady market.

Today’s smartphones owe more to Bill Gates than to Alexander Graham Bell, and as small computers, they are subject to Moore’s Law. Basically, by the time it is out of the box, it’s obsolete. In the last 10 to 15 years, as the market has matured, manufacturers and marketers have collected the critical market intelligence necessary to gauge profitability in secondary markets. Entrepreneurs have jumped in to turn the data flow into cost-effective models that benefit all sides of the equation.

How It Works

There are multiple ways the transaction can play out, but the basic model is the same: the consumer returns a used item to a participating retailer or carrier. In exchange, he receives a cash value in the form of store credit or promotional card. With newly acquired capital, the consumer uses that credit to upgrade to a newer model, select another electronic device, or spends it elsewhere with the retailer. The transaction may occur in the store or online, depending on which promotional model the retailer or carrier has chosen.

The used devices are then picked up by a partner organization, such as Flipswap, which specializes in trading in mobile devices. The sets are wiped clean of any data, refurbished and resold in a secondary market, most likely overseas. Any waste is recycled responsibly. More on these back-end processes to follow in a minute.

Founded in 2005, Flipswap is one of the largest electronics trade-in companies, and it processed more than two million mobile phones in 2010 through its technology platform. Ray Young, Flipswap’s president of global services and chief technology officer, considers this the tip of the iceberg. “There are in excess of 150 million mobile devices on the used market, and the potential is tremendous,” he says.

The company, which recently secured a contract with one of the major U.S. carriers, uses its proprietary expertise to grade phones for refurbishment or recycle. “Approximately 10 percent go into recycle mode. The rest get reused,” says Young. “What we do is extend the life of a product and make it friendly to the environment.”

Flipswap’s software has the capability to integrate the point-of-sale system at purchase, so sales associates know exactly what to do – no snap judgments or time wasted searching for the unit’s value. The grading takes into account cosmetic as well as mechanical issues, while ensuring that retail partners are in compliance with laws regarding secondhand goods. There is no investment for the retailer other than the promotional costs.

The Supply Chain Side

The next part takes place behind the scenes. The backbone of any buyback program is an experienced returns management and repair partner with the means to implement global value chain strategies. Companies like Flipswap rely on solution providers, such as my company, ModusLink, to implement the reverse logistics process. They depend on a strong retail services platform, post-sale service optimization and a transparent green supply chain to fulfill their mission.

Once acquired through online or in-store channels, the phones are turned over to the partner to be inspected, cataloged and triaged. On average, 95 percent of the phones received at the processing facility are deemed usable. Those that are too old or otherwise nonoperational go directly to a certified recycling partner for proper disposal.

During inspection, the devices are checked to make sure all buttons, the keyboard and the LCD display are in working order and there is no water damage. All working components are harvested to ensure as little waste as possible. If the unit passes muster, it goes on to the next, and perhaps most critical, step – the automated data wipe. In some cases, if devices are not certified with the automated system, there is a manual data wipe.

The refurbished phones are then shipped to international wholesalers, who distribute them in secondary markets for further use.

Meanwhile, individuals waiting on their electronic refunds can contact a customer service center and get real-time access to the status of their payment.

Buyback experts assert that all these steps are best managed by one partner, a company that helps them create efficiencies and customer satisfaction. Integration assures there is added value at each level, from data management and streamlined product workflows to compliance reporting and a network of “green-approved” partners.

Market Implications

What does all this mean for the consumer electronics market? For retailers, it’s all about increased foot traffic, loyalty and a new source of revenue. There are no limits to the promotional creativity. Retailers can offer bonus cash as incentive to customers who turn in Brand A and use the credit to purchase Brand B. Retailers and manufacturers can work together to design a uniquely beneficial program, giving the manufacturer more control in the retail environment. Brands with their own retail outlets, such as Apple, are able to adjust their own retail infrastructure to promote conversion from an older model.

For customers, it’s about cold hard cash, so hard to come by in today’s economy. The transaction makes them feel good about disposing of their older unit responsibly, and enhances the value of their relationship with the manufacturer and retailer.

It’s also an effort for manufacturers and retailers to be proactive on the environment and even stay ahead of new recycling laws. Americans’ endless addiction to the latest gadget has left in its wake a trail of discarded units, often stashed in the consumers’ desk drawers – or worse, in landfills. It is more than wasteful, it is also inefficient. The New York Times reports that each phone contains about a dollar’s worth of gold and other precious metals. If that amount seems negligible to you, try multiplying it by several billion.

The Environmental Protection Agency estimates that in 2007 the U.S. generated more than 3 million tons of e-waste, and only 13.6 percent of that was collected for recycling. The other 86.4 percent went to landfills and incinerators. Since 2008, Flipswap alone has diverted more than 210 tons of e-waste from landfills in the U.S. by properly recycling and refurbishing devices to resell in secondary markets.

Now, new and tougher laws are coming online in U.S. states. Twenty-four states have passed legislation mandating statewide e-waste recycling, and several more are considering bills for 2011. According to the Electronics TakeBack Coalition, a watchdog group, 65 percent of Americans are now covered by a state e-waste recycling law. Specific requirements vary from state to state, but the message is clear: the entire supply chain must accept some responsibility in the recycling process.

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