By Clancy Pitsch, Consumers Energy
June 3, 2002 — The economic downturn of the past two years has taught companies a lot about being frugal and profitable. Sometimes painful lessons are the most meaningful: Learn to make the most of your company’s resources.
Investment recovery (IR) is the practice of minimizing costs from the disposal of waste and maximizing revenue from the sale of assets no longer needed in the operation of the business. IR departments identify surplus assets and work to reuse, sell or recycle them.
IR staffs account for only about 0.1 percent of the corporate work force, yet they generate (on average) nearly $10 million in annual revenue for their companies from surplus asset sales. Most of that revenue goes straight to the bottom line.
Boosting the bottom line
Investment recovery, often a lightly considered profit center, can reduce corporate liabilities and add revenue, which positively impacts public utilities’ earnings per share. How? It’s a simple matter of profitability. In addition to increasing revenue and reducing costs, IR is largely a fixed-cost department. As a result, a significant portion of IR profits can be translated to increased earnings per share for investors.
One dollar invested in investment recovery generates $18 in cost-benefit ROI (return on investment), according to the Investment Recovery Association’s 2000 benchmarking study, which surveyed IR departments at 74 corporations. Cost benefits include increased revenue and reduced expenses for storage, maintenance and insurance.
By redeploying equipment, corporations can save the cost of future purchases, as well as additional costs for parts, service and other expenses. Investment recovery departments have developed a sophisticated process for selling anything from computers to safety gloves, bucket trucks to airplanes. According to the study, IR employees average 247 transactions per year–about one transaction per employee for every business day.
Proactive utility IR departments minimize waste and its associated cost by collecting and recycling paper, cardboard and corrugated material. Some are even recycling shrink-wrap collected from warehousing operations. But, what about glass from streetlight lenses, porcelain from insulators, cross-link insulation from wire chopping and empty cable reels? These examples of waste were once a cost for disposal and now–through investment recovery practices–are either cost neutral or revenue streams for utility companies.
Stock up on IR
Utilities are well suited to investment recovery. Nearly two-thirds of the Investment Recovery Association’s member companies are utilities and are using the IR knowledge gained to benefit their companies. For example, an acquaintance at a southwestern utility recently sold a bucket truck through the company’s Internet site. The buyer flew down to purchase the truck and drove it back to his company.
A utility’s IR also helps international expansion. Over the past several years, utilities have extended global markets. Many of these new international plants, particularly in Third World countries, can benefit from redeployed surplus assets. What is obsolete equipment to us may be a significant upgrade for other plants.
Investment Recovery 102
The next wave of investment recovery will come as departments–such as facilities, purchasing and finance–join forces to manage equipment lifecycles and more tightly manage the supply chain. In the Association study, 41 percent of participants said they are involved in surplus asset reduction, typically by working with vendors on equipment returns and similar activities.
A growing number of companies are involving investment recovery in reverse logistics, reverse supply chain management or some other form of equipment lifecycle management that begins with the end in mind. At Consumers Energy, the investment recovery department participated in the purchase of a vehicle fleet. One of the things we focused on was which brand and model of vehicle would have the greatest resale value when the time came to replace the vehicles. Certainly, that wasn’t the only factor in making the decision, but it did influence the buying strategy.
As history has taught us, tomorrow’s investment recovery efforts will be influenced by government regulations. For example, California and other states are considering holding computer manufacturers responsible for the disposal of computer monitors, which contain lead and a variety of other environmentally hazardous material.
For years, corporate investment recovery departments have disposed of obsolete computers by selling, donating or recycling them. Landfills typically have charged a premium to dispose of monitors, so it motivated IR managers to properly dispose of them in other ways.
So, no matter what kind of economy we’re in, investment recovery professionals make use of every economic advantage. IR should get an A+ from employees, shareholders and consumers; it benefits us all.
About the Author: Clancy Pitsch is director of investment recovery operations at Consumers Energy in Jackson, Mich. He has worked in investment recovery for 18 years and is also a past president of the Investment Recovery Association.
This article is scheduled to appear in Electric Light & Power Magazine, June 2002. To read more, visit http://elp.pennnet.com/Articles/Print_TOC.cfm?Section=Articles&SubSection=CurrentIssue.