as “rebuilt” and be priced lower than the original part.
9 For
some companies, rebuilding is an integral part of their business strategy. Xerox, for example, leases its copiers; at the
end of the lease period, Xerox rebuilds and resells them.
10
Option 2: Auction or discount sale. Auctioning generally
involves contracting with auction agencies that deal in a
particular type of product or service. Discount sales involve
offering returned goods at a heavy discount. A number of
companies specialize in auctions and discount sales, providing online marketplaces to sell surplus, salvaged, and
returned goods. Returned goods can also be sold to specialized firms in the secondary market after removing any telltale signs of the original brand.
Care must be taken that discount sales and auctioning do
not have an adverse impact on the brand perception of the
products. For instance, the existence of an alternate, cheaper way of buying a luxury brand could damage consumers’
perception of it as a premium product.
The financial motive for selecting this disposal strategy
would largely rest on the revenues to be gained from auction and discount sales. However, companies should also
consider the associated costs, such as handling, transportation, and administration. Those that handle discount sales
through factory outlet stores, of course, must also consider
the total cost of operating those stores.
There are several nonfinancial implications of this route.
Existing customers may feel let down when they find that
others have paid less for the same product. If discount sales
are frequent, then customers may wait for a discount sale to
buy the product. Also, brand reputation and market positioning will suffer if discount sales are conducted through
the primary (“A”) channel retail outlets.
Option 3: Disassemble and recycle. (Note: The term
“recycling” here includes all activities where the original
identity of the item is completely lost.)
Recycling returned goods helps to extract and recover
raw materials and parts for use in the production of new
parts or products. A strong push for recycling comes from
regulations like the previously mentioned European
Union’s WEEE directive. The need to comply with regulations like WEEE and the Restriction of the Use of Certain
Hazardous Substances in Electrical and Electronic
Equipment (RoHS) has made recycling the preferred disposition option for many product categories.
Financial considerations for recycling would comprise
the costs of the recycling process, including transportation,
handling, and administrative costs as well as the value that
can be reclaimed from the recycled material. Recycling electronic products, for instance, makes economic sense
because the cost of extraction of rare earth metals from
electronic waste is less than that for mining.
Nonfinancial considerations would include branding and
regulations. If branding as “recycled” gives a product a premium image, then a company should strongly consider
recycling.
Option 4: Redistribute. Sometimes goods are returned
due to delivery overages, or they may be unsold or discontinued items. In such cases, it makes sense to redirect the
shipments to other geographical areas where they might be
consumed.
For assets like containers, pallets, and packaging materials, redistributing—that is, introducing them to the forward supply chain—leads to better asset utilization.
Another consideration is that the cost of disposal for these
assets can be as high as their purchase price. Research has
shown that reusable assets are more economical in the long
run even though the purchase price is initially higher than
that for one-way counterparts.
11
There are several financial considerations that influence
the feasibility of this option. To begin with, the ability to
resell goods at the original prices without a deep discount is
important. Second, redistribution may incur some costs,
such as for transportation beyond state or national boundaries. These must be accounted for, along with customs
duties and other taxes. Companies should also add in any
costs incurred in making changes to the products and packaging before redirecting them, especially to other countries.
Examples include changing the language on products and
packaging, and adding new product labels and certifications required by the new destination’s regulations. For
transport packaging materials, the value of assets that can
be recovered and reused in the forward supply chain with
minimal expenditure is the important criterion.
With regard to nonfinancial considerations, the shelf-life
of the goods is an important factor, especially in the case of
food items. Various countries’ import regulations mandate
a minimum remaining shelf-life at the time of entry. In
addition, certain types of goods may be subject to
antidumping laws by the destination countries if those governments believe the goods are being sold at less than the
cost of production. There also are risks to the brand image
if only discontinued or older models or versions of a product are available, or if customers find out that that the company sells returned products as new.
Option 5: Donate. Donating returned goods can be
appropriate when the handling and transportation costs for
other disposal methods will be high and no value will be
derived from the sale of the goods. The potential tax savings
to be obtained from government and local authorities may
also make it an attractive option. There are a number of
organizations that facilitate charitable donations and assist
in obtaining tax breaks; just one example is the U.S.-based
