As connectivity and data traffic continues to become a larger part of our everyday lives, the importance of keeping a telecommunications network operating efficiently and cost effectively continues to grow. The forward logistics of the network deployment has focus, but too often the recovery of assets does not. Companies are leaving hundreds of millions of dollars on the table by not spending the appropriate time and energy on the recovery and disposition of assets through re-use, re-sell, or recycle. There are many challenges with creating a high performance process such as identifying/locating and physically recovering the asset, plan to value realization, and finally, organizational alignment and governance. This article speaks to the challenges and often hidden opportunities of asset recovery.
As connectivity and data traffic continues to become a larger part of our everyday lives, the importance of keeping a telecommunications network operating efficiently and cost effectively continues to grow. Generally, there is considerable focus and mature capabilities to support the outbound deployment of assets. Yet too often, there is little energy and an unstructured approach to the actual recovery of used assets (decommissioned, disconnected, failed in need of repair, excess spares, etc.). Without question, the recovery and disposition of assets is the more challenging component of the asset lifecycle and an overlooked area to capture hidden value.
According to Accenture research, network operators deploy on average $135 million in capital per $1B in revenue and there is no reason to think this level of investment will not continue. Technology is changing rapidly, and while some network equipment is usable for extended periods of time, other components are removed from the network prior to the end of their economic life. The ratio of equipment deployed (outbound) to decommissions or disconnects (returns) can range from 3% to 10%. To put this in perspective, a $50 billion/year operator deploying $6.75 billion in capital per year would have up to $675 million worth of equipment that can be recovered from the network.
The lifecycle and evolution of the existing network technology will be a key factor in determining the potential opportunity, but the importance of successfully recovering and harvesting the returns does not wane. Once recovered, disposition of the assets can be a strategic advantage. There is significant financial opportunity for those that are equipped properly to disposition the reclaimed assets. Value is realized in a cascading series, the highest and best use is to utilize the asset elsewhere in the network. This is by far the most efficient return as it effectively avoids an otherwise capital expenditure for the current value of the item. If there is no current demand in the network, the next best use is to re-sell the asset, followed lastly by disposal. Below are typical value recovery rates across these three value levers:
• Re-use elsewhere in the network (80 – 100% of value realized),
• Re-sell to secondary market (5 – 15% of value realized),
• Recycle / dispose (<5% of value realized)
Physical Recovery: Recover to Restock
The simple action of identifying where the assets are physically located can be elusive due to lack of asset tracking capabilities and process adherence. Secondly, the physical recovery of the asset can be a challenge since they are often in remote areas to those responsible for reclamation. Assuming the assets can be located and physically returned to a central facility for storage and the asset management organization must triage the returned product to determine options for disposition. Furthermore, there are often challenges from an asset accounting perspective of being able to effectively share assets across entities. The key is an effective reverse logistics capability – centralized models are often the most effective at facilitating asset recovery.
Value Recovery: Plan to Value Realization
After physical recovery of the asset, there are more challenges that must be overcome in order to optimize the value recovery phase. A plan must be defined for how to best utilize the recovered assets. The first step has already been mentioned, inventory visibility, but there is more to it than visibility to assets in the field for recovery. A global view of all asset supply streams in the Supply Chain is required, meaning assets in the field, central warehouse, repair pipeline, and purchase pipeline. The global view of demand needs to be reconciled with the supply view in order to determine the appropriate re-use opportunity which is often times difficult due to regional visibility issues. Lastly, an influential and data driven excess and obsolete management program is required to properly disposition assets for re-sell and recycling.
Finally, organizational management incentives and accounting treatments often conflict with the goal of maximizing value in asset recovery. Efficient asset management is the responsibility of the entire company and should be a major priority for the most impacted organizations such as accounting, finance, network operations and supply chain. These organizations must be properly incented to share assets across geography and organizational boundaries in order to optimize asset recovery value. The group must create business rules related to the asset lifecycle management strategy such as what products should be re-used and what should end of life. Rules must be defined for when assets are to be re-used, repaired, or scrapped. The rules should be reviewed and may change based on demand, availability, and costs.
While challenges exist in building the right processes, establishing the correct set of policies and aligning teams on common metrics, the opportunity is clearly substantial. A comprehensive view of the asset management life cycle is fundamental – understanding that the reverse flow is as important as the forward flow is a start. From there, the gaps in capabilities described here become more apparent, but so does the path to drive value in network asset recovery.
Thomas Jones is a Senior Manager in Accenture’s Strategy practice with a focus in Communications, Media, and Technology. He has worked at multiple asset intensive clients focusing in the communications industry. He has significant experience in asset management, planning, supply chain transformation, inventory management, sales and operations planning, and network optimization. Based in Overland Park, he can be reached at firstname.lastname@example.org
Steve Ambo is a Managing Director in Accenture’s Communications, Media, and Technology practice. Steve has developed supply chain and business strategies for some of the leading communications companies in North America. He has extensive experience in asset based supply chains such as network infrastructure and customer premise equipment. Based in Atlanta, he can be reached at email@example.com