Originally published - February 5, 2007
The Realities of Manufacturing Today
Nowadays manufacturers are increasingly subject to massive pressures due to the need for driving down costs and increasing efficiency. What makes things worse is that with product life cycles decreasing, manufacturing and distribution are increasing in complexity. This, for the manufacturer, translates into a need to better manage customer demands and expectations and to respond accordingly. Furthermore, manufacturers of electrical and electronics equipment must comply with a growing array of strict environmental regulations, many of which have already been implemented in the European Union (EU) and the United States (US). More regulations are pending in Japan, China, and other countries. As in many other industries, the cost of compliance can be high, but the cost of noncompliance can be far greater. Thus, the industry winners have to gain the capabilities they need to adapt their businesses to meet regulatory requirements—from product design to compliance reporting, and from sourcing and procurement to service and repair—so that they can avoid costly penalties and product recalls, optimize processes to comply with changing regulations, build trusted brands, and protect shareholder value.
Such manufacturers will have to turn somewhere to comply with these high-tech and electronic industries' significant and stringent environmental policies. Specialized, private marketplace service providers that offer auction platforms to off-load a company's excess and obsolete (E&O) inventory are the logical outlets for manufacturers to use in order to ensure compliance with these new regulations. Ideally, these providers should have an established number of treatment recycling and transportation management company partnerships. An environmental policy came into effect in August of 2005 for member states of the EU. The Waste Electrical and Electronics Equipment (WEEE) Directive 2006/96/EC sets recycling and reuse standards across a variety of industries from home appliances to computer products. The WEEE directive holds the manufacturer (producer) ultimately accountable for recovering products and for recycling up to 75 percent of the material content by weight. Failure to comply results in the manufacturer paying a penalty of 2 percent of its annual revenue. In other words, the WEEE directive establishes rules for the collection, treatment, recycling, and recovery of electronic waste in the EU. It states that electronics manufacturers and importers must manage and pay for the recycling of electrical and electronics waste.
In addition, the WEEE legislation's directive states that electronic product manufacturers, excluding retailers and distributors, are responsible for providing take-back programs for all electrical and electronic equipment sold in the EU's member states, as well as in Norway and Switzerland. The directive defines, prescribes actions, and sets regulatory milestones for the collection, treatment, recovery, and financing of discarded electrical and electronic equipment across ten product categories. These ten categories range from information technology (IT) and telecommunications equipment, large and small appliances, and tools to toys and leisure equipment. Naturally, product reuse (that is, the resale or reuse of whole appliances for their original intended function) is to be given priority over recycling. For IT equipment, telecommunications, and consumer electronics that do not have a whole product reuse option, 75 percent of the product weight must be proven to be recycled. New products must be marked with "do not trash" symbols, and information on product disassembly must be provided by manufacturers. The target date for commencement of these programs was August 13, 2005. Since then, the EU member states have been obliged to provide for the financing of the collection, treatment, recovery, and environmentally sound disposal of waste electrical and electronic equipment. They have had to set up separate collection systems to eliminate the disposal of such products into municipal waste. To that end, distributors must ensure that waste of the electronics equipment can be returned to them free of charge, and manufacturers must set up and operate individual or collective take-back systems.
Since December 31, 2006, EU member countries have had to meet WEEE recycling targets in that the rate of recovery for IT, telecommunications, and consumer equipment is at least 75 percent, which is measured in terms of average weight. Manufacturers must now state the weight of the electrical and electronic waste entering and leaving treatment and recovery or recycling facilities. Member states must draw up a register of manufacturers along with the quantities and categories of electrical and electronic equipment placed on the market, collected, recycled, and recovered in their territory. Each member state must also transpose the WEEE legislation into local law, which is where local differences create WEEE compliance reporting issues even though there is general adherence to the EU level directive. The task of monitoring manufacturers' sales in volumes to each country (for the purpose of establishing recycling quotas) will fall to a member state's agency working under the direction of its national Office of the Environment as the managing authority for WEEE. On their side, manufacturers must register up front with each country's authority for the purpose of reporting recovery and recycling results. The initial recycle quota is set at a relatively low bar of 4 kilograms per capita per year, although countries such as the Netherlands have had established programs that exceed this volume for years.
Although the WEEE directive has jurisdiction only over the EU, most multinational electronics and telecommunications companies will implement the infrastructure and IT necessary to manage compliance processes on a global basis. They do this in anticipation of similar legislation in other regions and to maintain worldwide process standardization. With legislation like WEEE, supply chain management (SCM) and product lifecycle management (PLM) have become cradle-to-grave endeavors with significant depth and complexity added to the reverse logistics process. But an even bigger burden might be the requirement for manufacturers to recycle a portion of electrical and electronic waste made way back when, which seems a daunting task, and the specifics of how it will work exactly are still largely unknown.
Potential Solution to the Problem?
Since reuse is the highest order of recycling, inventory asset liquidation customers of some specialized, private marketplace auction services providers are already practicing a WEEE-compliant form of recycling (that is, reuse) by selling excess, refurbished, and returned products through their auction platforms. The disposition of product for secondary use prolongs the useful life of the product, thereby deferring the costs of recycling and netting cash to a company's bottom line; profit recovery is maximized through competitive bidding. The audit trail of products listed, products sold, and registered bidders can be included in the tracking and reporting of take-back and recovery programs. However, ensuring complete WEEE compliance is essentially a network management problem. It entails managing the collection of products via licensed carriers and the coordination of sorting and disposing of products within authorized facilities. It also includes managing the resale of products to ensure the highest possible recovery rate and tracking treatment through certified recyclers. Most manufacturers, recognizing that their core competence lies in product design and marketing, will elect to outsource compliance management to a partner organization or third party logistics (3PL) provider. To that end, a manufacturer can do one of the following:
- Establish a private take-back program, which would involve a manufacturer establishing a product recovery network consisting of specified drop-off and pickup locations, collection and transport networks, and remarketing and recycling partners. The network management may be administered in house or be outsourced to a service provider such as the company's 3PL. As an example, Dell Computer is an early leader in private take-back programs with door-to-door, consumer-level pickup of waste equipment at the time of new product delivery.
- Join a consortium whereby groups of companies may elect to join together to establish branded take-back programs. The operational coverage is essentially the same as that in a private WEEE compliance program, with the difference being that the member companies fund a joint operational entity to manage the network. A prominent Paris, France-based consortium is that of Braun, Electrolux, HP, and Sony, known as the European Recycling Platform (ERP). ERP chose as general contractors CCR, a German company that has dealt with automotive waste such as scrap metal, and Geodis, a French company with experience in IT take-back. Each company will handle selected EU countries, together providing a pan-European recycling operation.
- Join a national take-back program that will provide consumer-accessible collection points where a variety of products can be returned. Recycling is managed for the group by an internally appointed office, and the cost of recycling is borne by the member organizations, prorated according to their country sales volume by weight. Some good examples include NVMP in the Netherlands, RECUPEL in Belgium, Alliance-Tics in France, and Gambica and Repic in the United Kingdom (UK).
Whichever option a manufacturer chooses, it can envision the following three-step process to ensure an integrated and compliant inventory asset recovery:
- Product Recovery, since manufacturers will be required to provide extensive networks for product recovery, from consumer drop-off to retailer, distributor, or municipal aggregation. As the manufacturer (or its agent) takes possession of the recovered product, the first capture of product category information should be completed, and related data stored in some appropriate WEEE compliance portal. The key tracking identifier in the portal would be the WEEE consignment note (WCN).
- Controlled Product Disposition, since, whether on-site, in channel, or at a recycling center, the next step in the process is sorting, where the product is directed for resale or reuse, recycling, partial harvesting, or destruction. As appropriate, the WCN should then be broken down into sub-notes to ensure complete traceability.
- Certified Destruction, whereby the product to be scrapped is routed to recyclers that are certified, registered members of the portal. As the product is disassembled and ground and components or materials recycled or salvaged, the relevant information would be recorded against the WCN(s). Certificates of destruction should then be stored within the database of the specialized, private marketplace auction services provider for auditing and reporting, whereby weight-in and weight-out transactions ensure data completeness to regulatory specifications.
As for proving compliance, compliance reporting of the required percentage of reuse and recycle will be aggregated by weight per time period. The provider of specialized, private marketplace auction services would store product weights cross-referenced to product categories for reporting and reconciliation. Whether reporting is aggregated by weight or detailed by product category, the compliance portal should capture the requisite source data in the three steps above. Combined reuse and recycling data would then be stored in the same database to simplify the reporting process and to ensure compliance with a minimum of overhead. The information generated should help the recycling company iron out collection inefficiencies in the short term, while on the other hand, it could affect product design in the long term for the manufacturer. One could imagine how useful feedback from the recycling facility could be, even if it is something as simple as a list of products that create the highest costs because they are hard to take apart.
Still, despite their existing solutions' fit, some private marketplace auction services providers have made the strategic decision to defer officially entering the WEEE space until the legislation is more clearly defined. In other words, they are taking a pause while the legislation evolves and the EU market matures, especially across the greater EU (let alone other, less environmentally friendly global regions). This is but a small reprieve for affected manufacturers and importers to "catch their breath." They should definitely start to devise strategies on how to comply at the end of the day, since it is only a matter of (not too long a) time before the WEEE legislation resolves any kinks it may currently have.