Interview with Tom Burton, Executive Vice President of Liquidity Services, President of Capital Assets Group
Many food manufacturers are looking to increase operational efficiencies while maintaining their sustainability efforts, which can pose a tough challenge. Food Manufacturing spoke with Tom Burton of Liquidity Services about how companies can utilize the “reverse supply chain” to help cut costs and improve their sustainability initiatives.
Q: What challenges do food manufacturers face when trying to cut business costs?
A: One of the primary challenges facing food manufacturers as they confront the sluggish U.S. economic growth is the cost of capital equipment. Traditionally, equipment lasted 15 or 20 years, but those numbers have decreased by 25 to 50 percent, primarily due to increasing innovation in products and product packaging, translating into more rapid changes in equipment for new packages and processes. This pressure to innovate to meet consumer packaging demands significantly narrows the options for food manufacturers to cut costs.
Many manufacturers are opting instead to purchase equipment through online marketplaces, such as Go-Dove.com, at a reduced cost rather than making large expenditures to purchase brand new equipment, which would have to be replaced in a number of years when needs change again. Food manufacturers also use the online marketplace for immediacy by buying good pre-owned equipment today rather than waiting up to 26 weeks for new equipment to be built at the OEM.
Q: What is the “reverse supply chain,” and why is it important for food companies’ operations?
A: The reverse supply chain encompasses all surplus inventory and assets for a business; traditionally, goods returned to retailers and shelf overstock, as well as short date food items. In our scope of work with leading organizations, we also define that to include assets, from employee computers to capital equipment, sitting idle in warehouses or nearing the end of their lifecycle. The bottom line for food company operations is that what they don’t know can hurt their business. Often, surplus assets and non-performing inventory are disposed of in landfills — a costly, unsustainable practice, which leaves a brand susceptible to risk. In other cases, assets are left sitting unused, taking up valuable storage space and accruing unnecessary maintenance and insurance costs — inefficiencies that negatively impact a company’s overall enterprise.
Q: How can companies repurpose items no longer used at their facilities to benefit their businesses?
A: Economic conditions have stalled leaders from implementing innovations meant to grow core business, but smart planning around surplus and idle assets can help sustain competitive edge. Before a manufacturer looks to dispose of an asset, it can look inside its enterprise to see if there is another internal need for that asset — either providing a different function in the same area or becoming a “new” asset to another department within the company.
Liquidity Services offers its clients a “hosted cloud platform” called AssetZone, which allows complete visibility of all surplus capital assets across the client’s entire global enterprise. This increases internal repurposing of assets, and saves time and cash flow for companies. The rule of thumb is that an item sitting unused in the back of a warehouse is accruing hidden costs; allowing it to sit idle is no longer a viable option.
Q: What role does sustainability play in the reverse supply chain and how a manufacturer manages its surplus assets?
A: Sustainability pressures are impacting companies across the board. There is an increased emphasis by company leaders, the market landscape and consumers to strive for a triple bottom line of people, planet and profit. Consumers are also taking note of a company’s sustainable practices, not just package labeling. Industry leaders need to meet this demand in a way that not only lessens environmental impact, but makes economic sense and works within their enterprise.
Operations teams can effectively move the needle on their sustainability scorecard by reassessing the manner in which they manage and dispose of assets and non-performing inventories. Through smart asset management, food manufacturers will decrease their carbon footprint, reducing waste streams, decreasing energy consumption and offsetting carbon that may have been used to create capital equipment that has been repurposed in their business.
For example, we helped one leading food manufacturer pursue a long-term sustainability plan, which included better utilization of its assets as well as disposition of idle and surplus assets through trusted, online marketplaces, putting them to use for another business. As a result, this food manufacturer has zero-waste models in more than 30 of their plants across the world, saving on landfill costs and capturing recovery value.
Q: What steps can a company take to make its surplus asset management more efficient?
A: In a true “virtuous cycle” of equipment, the prerogative for companies is moving idle equipment out to other locations where it can be utilized or disposing of it in a sustainable manner, converting it to cash that can go back into the business. Good Manufacturing Processes (GMPs) dictate for most food manufacturers that capital equipment must be properly maintained, even if it is sitting idle. Add in the storage and insurance costs to the maintenance price tag, and companies are looking at a drain to their bottom line. For many food manufacturers, this can make the difference in obtaining the right equipment they need to remain competitive and compliant with regulation.
The first step businesses can take is to examine how they are managing your surplus assets. If a manufacturer is using paper-based systems to track its assets, the company can digitize the asset information and load it into a web-based management tool, such as AssetZone, to track and manage its assets. With enterprise-wide visibility, teams can flag available assets and other locations and departments can request that asset, avoiding unnecessary maintenance costs and keeping it functional for the business.
The second step is to develop a more automated process for when an asset cannot be redeployed within a business, or if shipping costs outweigh the replacement cost. By disposing of the asset through a trusted online marketplace that complies with laws and regulations, businesses can connect their assets to a large buyer base and have the vendor manage other aspects of the transaction, which can be helpful in the case of specialized assets. We have seen recovery values 20 to 30 percent higher due to the number and quality of bidders in our marketplaces. That’s green for manufacturers’ bottom lines while helping keep the planet green.