Hi-tech manufacturers are under growing cost pressure from rising costs of rare earth metals. Many of these metals you have heard of such as gold, silver, and platinum. Some of these metals most of our readers have never heard of such as palladium, ionium, gallium, and other “ums”, all of which are used in cell phone, TVs, and PCs. The reserves for many of these metals will be used up over the next 20 years. To add to the inflation risks, 97% of these metals come from China.
In addition to the dramatically rising costs of metals, manufacturers are also facing increased costs and potential liability from product disposal. There are 17 states that have laws on the books that outlaw throwing e-waste in their landfills. In addition to these 17 states there are a number of other states that have similar laws working their way through their legislatures. All of this is in an attempt to do something to reduce the 400 million units of e-waste that are landfilled every year in the US.
This can have a significant impact on electronic manufacturers. When states, such as Rhode Island, decide they want e-waste cleaned out of their landfills, they charge the manufacturers. To be clear, consumers threw these items in the landfill, not the manufacturer.
The question is what can a manufacturer do to control the rising costs of metals and reduce the risks of having to clean up a landfill after their customers have finished using their products? The answer is to rethink the manufacturing process by incorporating reverse logistics processes that harvest parts and recycle returns and end of life goods.
Some wonder if trying to develop these capabilities are worth it. We argue that it is not only worth it but the way of the future. Did you know that one ton of mobile phones has more gold in it than 17 tons of gold ore?
Think about this – According to the Electronic Takeback Coalition every year there are about 1.2 billion cell phones sold worldwide. At any one time there are over 4 billion mobile phones in use around the world. Assume that for every phone purchased there is one that is thrown away. That is 1.2 billion cell phones or about 200,000 pounds of waist created every year. If the manufacturers were to extract just the gold, silver, palladium and copper from just one ton, or 6,000 of these phones, the metals alone would be worth over $48,000. That’s about $8 of value per unit at 2011 metal prices.
If only 50% were recycled and used in the manufacturing process, mobile phone manufacturers would be reusing $4.8 billion dollars of gold, silver, palladium and copper. This doesn’t include a number of other rare earth metals that could also be extracted and reused. In addition, the manufacturers would also greatly reduce their carbon footprint and their risk of liability from their goods going to a landfill.
This is just one example of the impact the integrating reverse logistics into the manufacturing process could have for a manufacturer. The same is true and impact greater for PCs, TVs, and other hi-tech electronics. The only question is why aren’t the manufacturers adopting this? Now that is a great question. The answer is that manufacturers have to rethink how they source their materials and manufacturer their products.
Note to Apple, Nokia, Google, Sony, Samsung, and others – do the right thing…profitably.
Aftermarket Services have been in high demand for a number of years now. With the explosive growth in consumer electronics and offshoring of many factories, Aftermarket Service providers have seen demand skyrocket. According to Livingston Partners, the Aftermarket Services sector has grown over 20% since 2006. Furthermore, they expect the Aftermarket Service sector to keep on this growth trajectory for the next five years. While demand for Aftermarket Services has been strong for quite a while, the service providers are still a fragmented lot with no dominate player emerging as the “Go-To” Aftermarket Service provider of choice.
Aftermarket Services traditionally include returns processing, repair and refurbishment services, and end-of-life services that include recall processing and product recycling services. Over the last few years, however, Aftermarket Services have expanded to include warranty management, customer service, and comprehensive reverse logistics programs.
Due to rising costs and pricing pressures retailers, distributors, and OEM’s have looked to outsourcing Aftermarket Services. They outsource because of a general lack of expertise in the services needed and to limit potential liabilities. There are other benefits but for the most part, companies outsource Aftermarket Services because the service providers can provide the services for a net lower cost, with lower capital requirements, and a higher quality result.
The question remains to be “Why hasn’t a dominate Aftermarket Service provider emerged?”
We think the answer is because of the wide variety of services and sectors that would be considered Aftermarket Services. There are a number of 3PL’s that offer returns processing but these services are often no more than gate keeping processes to receive and ship returned goods.
There are many companies that repair and refurbish aftermarket goods, but these companies are usually narrowly focused on a limited number of categories. Most repair and refurbishing companies operate on a local basis and do not have the infrastructure required to handle the large volumes that come with a comprehensive nation wide program.
Few reverse logistics companies understand end-of-life processes at all, much less have comprehensive solutions they can take to the market. Going beyond these three basic Aftermarket Services into the newer solutions such as warranty management, customer service, or comprehensive reverse logistics is a bridge to far for the Aftermarket Service providers of today.
There are a number of 3PL’s who are looking to expand their services and develop differentiating services. The market is looking for a service provider that can provide comprehensive Aftermarket Services. When the two intersect, growth and prosperity will abound for both. The question is “Is there any provider out there who has the vision and the capability to be the dominate Aftermarket Service provider?”