This article originally appeared in the December 2017 issue of E-Scrap News. Subscribe today for access to all print content.
When it comes to IT asset disposition services, no two firms look exactly the same.
Some of the companies in the space are multinational giants that have traditionally focused on the scrap business but are now using their global resources to help large enterprise clients that need international solutions.
At the same time, small, regionally focused ITAD businesses are driving revenue by maintaining a laser-sharp focus on streams of quality material they know they can move back into the market.
Other business models blend those strategies with others.
At the E-Scrap 2017 Conference in Orlando in September, executives from four very different companies competing in ITAD took to the stage to discuss the specifics of their approaches and to offer insight into how the ITAD market may shift moving forward.
The conversation featured Eric Capps, senior manager of global compliance at Arrow Electronics; Miles Harter, CEO of Dynamic Recycling; Chris Ko, co-founder of ER2 and Revive IT; and Sean Magann, vice president of sales and marketing at Sims Recycling Solutions. Jerry Powell, E-scrap News executive editor, moderated the panel.
Below is an edited and condensed version of the on-stage discussion.
Jerry Powell: Could each of you give a basic overview of how you entered the ITAD space and what your general strategy is?
Sean Magann: Sims Metal Management [the parent company of Sims Recycling Solutions] is a ferrous and non-ferrous recycling company, so recycling is in our DNA. But we’ve been an ITAD company for a long time. The difference is that in the past, ITAD has been very ad hoc, so we’ve had ITAD programs to try to increase the value of the material, but most programs have been specific to one customer. One thing a lot of companies in our space have started doing is being proactive and showing customers how to do it instead of just figuring it out on the fly.
Miles Harter: We’ve over time expanded into several divisions and, for example, now go third party with our logistics and do hauling with our semis. With our ITAD division, we’ve rebranded as Dynamic ITAD. We started very humbly – taking stuff apart and seeing some good electronics. We worked with a lot of other ITAD firms and recyclers to begin with, but of course we saw there’s more value in going direct to that corporate side. ITAD is now a third of our revenue, and we have a lot of really big customers and a good supply chain.
Chris Ko: We really started in the reuse side. Our focus was more on “How can we build a really world-class refurbishing organization?” There weren’t as many recyclers out there for us to acquire gear from, and the end users were looking for a little more sophistication. So that’s when we started looking for a solution in terms of going to the end users to get material n the first place.
Eric Capps: Arrow got started in the ITAD industry through acquisition. We started looking at the leaders in the space about eight years ago and started acquiring them regionally to build out the ITAD part of Arrow that exists today. Recycling is a byproduct of what an ITAD company does – there are going to be devices that are damaged beyond repair. We help manage the end-of-life process for IT assets on behalf of the world’s leading brands.
What do your enterprise clients look for when they contract with you to handle material? Is it all about maximizing the value of their used equipment?
Capps: Our customers are seeing more and more pressure to reduce their overall IT operation cost, but data security is also a major concern. We’re seeing more and more breach scenarios in the news every year. One driving factor is value; the other is risk management and security.
Magann: Our customers definitely have what we call a healthy appetite for value recovery. But I also think the focus from the customer standpoint on ITAD comes from their feeling there is just so much interconnected stuff out there. The volume of material out there and risk associated with this data material out in the marketplace is significant. They are interested in ITAD because they have no choice. They need companies like us to help them manage it.
Harter: People want a return, and we try to do a lot of those things through our in-house processing and marketing of assets. But there are other things that customers need too, things like. data security, visibility, chain of custody, certifications, and nationwide and worldwide capabilities.
Company executives discussed the ins and outs of ITAD at E-Scrap 2017 in September. Pictured above are (from left) Eric Capps of Arrow Electronics, moderator Jerry Powell, Chris Ko of ER2 and Revive IT, and Sean Magann of Sims Recycling Solutions.
What single trend has most shaped ITAD over time?
Ko: The reporting aspect of the business has evolved a lot. In the past, it was people asking for maybe an itemized list. Now it’s more integrated – they need to get the asset off their books but are also really building that chain of custody. Before it was “Just get rid of it”; now it’s “I need to know exactly what was sent to you.”
Capps: The business now is really focused on data security and understanding how that’s applied to new technology. It was interesting to see what was important around data security as the technology went from magnetic hard drive to solid state and as things got smaller. We’re still seeing a lot of changes from that perspective.
Magann: For us, it’s been the idea of global. Before, ITAD was sort of regional. Americans would take care of stuff in the U.S. Brazilians would take care of stuff in Brazil, and so on. Now we’re seeing more and more companies saying they need a global solution. Those companies know they might have, say, the U.S., the U.K. and Singapore buttoned down, but they still might have exposure in Ecuador or the Philippines. I know that we, like Arrow, have spent a ton of money trying to vet and create networks around the world.
Harter: The biggest trend to me is that every year things get more competitive. We tell our team we need to get more efficient. And in business development, we have to keep adding services like reporting, visibility and chain of custody. It’s a free market enterprise and everyone’s trying to stay at the top.
Let’s talk a little more about data security. Are you finding customers who say they don’t want devices wiped, that they want everything shredded?
Capps: We’re seeing both sides of that. Data erasure, when done right, is as effective as shredding.
But can you sell that concept to customers?
Capps: Absolutely. There are a lot of customers out there who are focused on reuse, and you can’t reuse a shredded drive. Additionally, Arrow’s certified wipe processes and tools provide assurance that no data is ever left on wiped devices.
Magann: At the end of the day, it seems like the risk card kind of overshadows everything else. We get a lot of movement and questions about the value of material and everyone gets all excited. But then the risk management guy says, “That’s all great, now go destroy it.”
What’s your principal channel for reselling refurbished material?
Harter: As a rule of thumb the higher end units we try to retail direct, on the mid-level it can go either way, and the lower end we typically wholesale. Also we have a subsidiary called Minnesota Computers that we move a lot of product to as well. They sell a lot of parts for laptops, desktops, servers and so on. You have to remember that retail isn’t all positive either. You’ve got to deal with warranty, reshipping, returns, listing. Just because a product sells for $120 in retail and $80 somewhere else doesn’t mean you’ve made $40 extra going the retail route.
Capps: We do both a lot of wholesale and a lot of retail. We have our own site and we also use a lot of other retail platforms. If you have access to all those options, you can pick and choose as needed to really add value.
Ko: Because we’re focused on being able to handle anything that comes in and having end user marketplaces for it all, we really don’t do a lot of wholesale. We do a lot of direct to the consumer and small businesses and schools. And we have a retail store. We offer one- and three-year warranties, we do on-site services, we do imaging and deployment.
Magann: We try to take a multi-channel approach. The biggest problem we have in terms of our own store is trying to get people to it. You spend a lot of money trying to get people to your own store versus the eBays, Walmarts and Amazons of the world. So the key is having a tool that allows you to list items on multiple channels. Because if you’re spending $5 to list on Amazon, $5 to list on Walmart and so on, you’re going to drive all your profit out of the material.
Miles Harter (second from left) runs Dynamic Recycling, which started as a company focused on recycling but has since created a separate ITAD division.
How does having an ITAD focus change how an operation trains and hires employees?
Ko: You want to find people that are far more technically oriented. A lot of our team members have some kind of interest in the IT world. We really treat them all as technicians no matter what they do for our organization. At the same time, we’re all about building an incredible process and bringing in incredible people. You ultimately train for the skills but hire for the people and whether they’ll be a cultural fit in the organization.
Harter: When it comes to e-recycling, there are standard steps to taking things apart and we’re just looking at best practices and pure work ethic. On the ITAD side, someone with a technical mind is going to have an easier time, kind of like a duck in water. At the same time, you’re going to want standard operating procedures, and probably 75 percent of the work involves taking the same things apart and following certain steps.
Magann: We’ve changed our footprint with fewer plants and lower headcounts. During that transition, we’ve been able to take some of the workers – unfortunately not all of them – and upgrade their skills to be more on the ITAD side.
Which EH&S certifications do you all hold?
Capps: When you look at the certifications we hold, there’s a methodology. You have your ISO 9001 for quality, your ISO 14001 for environmental, ISO 18001 for health and safety, in addition to an R2 or e-Stewards and then ISO 27001 for data security. Having a very strong quality management system in place is important to ensure product output.
Harter: We have R2, ISO 14001, OHSAS 18001 and NAID AAA, and we’re ITAR certified for the defense material.
Ko: We hold six certifications: R2, RIOS, e-Stewards, ISO 9001, ISO 14001 and NAID AAAl.
Magann: We’re certified to R2, WEEELABEX in Europe, ISO 9001 and ISO 14001. Specifically for ITAD, we have ADISA in Europe and ISO 27001 here in the States.
“We’re seeing more and more companies saying they need a global [ITAD] solution. … We, like Arrow, have spent a ton of money trying to vet and create networks around the world.”
—Sean Magann, Sims Recycling Solutions
How do you approach display devices? Are you trying to avoid them at all costs?
Magann: We get displays in the normal course of business. But there’s not an appetite to pay for the recycling of these. A lot of these warehouses of stockpiled glass around the country show that people want to believe a fairytale sometimes. It’s hard for recyclers to monetize that when here’s downward pressure from some of the cheaters out there.
Ko: We love monitors honestly. Well, let me be clear: 20-inch flat panels. Back when I was in venture capital, there was lots of talk about shifts in technology in the internet age. Lots of people had projections about where things would go and people were thinking the smaller the better. One of the things I learned was that despite how rapidly technology changes, you still will never escape the human factor. We all have hands, and we all have eyes. Technology will be limited in terms of what we’re capable of doing. For us, it’s identifying what’s coming down the line that is going to remain continuous marketplace.
What is the margin number that drives a device into recycle? Will you retail a $10 item?
Ko: I will. And it’s in the volume perspective. We built a system that gives us the ability to do that at a very very low cost. We stock about 35,000 SKUs. We have a lot of different ways in which we can push stuff into different channels. And if a computer comes in that’s not going to give us what we need on its own, maybe it’s the parts, pieces and components that we can resell.
Harter: It varies substantially. If you can have automated testing of certain units, it changes your price point. We’re always trying to drive those costs down so that way we can reuse the most. But there’s also a hard line to make sure you don’t over-process material. We have several business analysts in our organization, and all they’re doing is plugging in numbers. If you don’t really understand your numbers it gets ugly fast.
Chris Ko, center, said he initially thought the ITAD sector would be ripe for a single large company dominating the space through acquisitions. But he noted a lack of consistency in terms of strategy across the sector has hindered the prospects of such a rollup.
Let’s talk about mergers and acquisitions. Is ITAD ready for a rollup, in which a couple of big players take huge market share by buying smaller entities?
Harter: Well, probably about every third week someone sends an email to us asking about this kind of possibility. But we’re in it for the long haul. Our families live humbly and we really like what we do.
Ko: Initially I would have thought, wow this is one of the most fragmented businesses out there. Why doesn’t someone just put a half billion dollars into this, roll it up and own the marketplace? What I realized quickly is that it’s a very relational business. It’s difficult to acquire many companies and have the same kind of processes and strategies in place. I think that it has the potential to get rolled up if someone wants to get really into it, but there’s also a lot of risk because there’s not a lot of organizations that have really cornered the entire process.
Magann: Our stated plan is streamline, optimize and grow. That’s the corporate mantra. We’ve passed streamline, we’ve passed optimization and now we’re in the growth phase. The question is just to your point. Do you grow by acquisition or do you grow by just opening another site? It’s uncertain as of right now.
Capps: I’ll just say be innovative in what you do. It’s good for a company like Arrow to see smaller ITAD companies that are bringing something new to the table.
Dan Leif is the managing editor of E-Scrap News and can be contacted at dan@resource-recycling.com.