Investment Recovery (IR), also called Surplus Asset Management, is defined as the practice of recovering the highest value of assets considered as surplus or no longer supporting the company’s operations. IR is does not appear in Michael Porter’ s Value Chain model, as this analysis focuses on one-way activities, from procurement and inbound logistics to the sales and service activities. For a reminder, Michael Porter, Harvard Business School Professor, identified in model the activities that create value for the company. These activities are categorized in primary activities and support activities in Porter’s model:
IR professionals consider their activity as the missing link of this value chain model by recovering the value of unused assets.
Through its primary and support activities, a company will buy assets, such as industrial equipment, fleet vehicles and other materials, with the ultimate goal to maintain and/or increase its margin. The procurement manager plays a key role in acquiring these items at the best rate and quality.
At a certain time, the company will change its equipment, fleet or other critical assets. We often forget what happens to this piece equipment no longer in use. The first reflex will be to either park it in the warehouse (high holding costs!), or if it is considered as obsolete, in the laydown yard, or worse, in the landfills. The company may not be aware of the intrinsic value of these idle assets.
IR professionals aim at recovering this hidden value that these assets represent. The support activity of procurement can be actually turned into a complementary financial stream for the company. The return can be surprisingly high. The last studies from Center for Advanced Purchasing Studies or Arizona University show that $1 spent in the investment recovery process at least brings $20 back to the bottom line, in terms of cost avoidance, cost reduction, employee productivity and proceeds of sales.
Surplus Asset Managers bring to their clients transparency and legibility of surplus assets through efficient practices. After identifying and evaluating the assets, the IR professionals and the company will choose the best option for each of them, with a clear audit trail.
These options are:
- Redeploying the asset to another branch of the company, avoiding the cost of purchasing a new unit;
- Marketing and selling it;
- Scrapping it;
- Donate it;
- And if any of these disposition methodologies cannot be applied, the asset is sent to a waste management company with the priority of preventing negative environmental impacts.
Learn more about these methodologies options: 7 Ways to Dispose of Your Surplus Equipment
A company that has a solid IR program will distinguish itself from its competitors, as the costs are better controlled, revenues from idle assets are maximized and environmental and corporate exposure risks are mitigated.
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Value Chain Model from http://www.partnerscreatingwealth.com