Article Written By: Clayton Arnold
Industrial and manufacturing professionals all face the same problem: finding a solution for managing surplus, obsolete and no-longer used assets so they can focus on their core business and other responsibilities. Whether that consists of idle assets no longer contributing to daily operations or an entire plant closure due to consolidation of operations that needs to have all assets inventoried, valued, and redeployed or sold; successfully managing surplus assets is an important component of a healthy supply chain.
Obsolete, no-longer-used and surplus MRO and spare parts don’t have to be a burden though. Instead of allowing assets to depreciate and take up inventory space, most commercial and industrial businesses have the option to sell their surplus MRO and spare parts on the secondary market and recoup a large portion of your initial capital investment.
Our guide explains the advantages of disadvantages of popular asset recovery solutions. In some cases, the benefits far outweigh the negatives, and vice-versa.
The Investment Recovery Association (IRA) estimates that 20 per cent of a business’s assets are surplus to its needs. In other words, one-fifth of an organization assets, such as maintenance, repair and overhaul (MRO) equipment and spare parts go unused, depreciate in value, and take up inventory space.
The costs of excess inventory and surplus MRO can be huge. Carrying cost, carrying cost of inventory or holding cost refers to the total cost of holding inventory. This includes warehousing costs such as rent, utilities and salaries, financial costs such as opportunity cost, and inventory costs related to maintenance, shrinkage (theft) and insurance. Steve Banker, a contributor for Forbes magazine, suggests that a 20 per cent inventory carrying cost is the standard estimate for commercial and industrial-sector organizations.
Further, Banker suggests most businesses significantly underestimate this cost driver, and that they should perform an in-depth inventory analysis to determine carrying costs, and determine asset recovery solutions and identify reverse supply chain opportunities.
In a 2015 survey, Industrial Maintenance & Plant Operation (IMPO) magazine found that managing surplus industrial assets and maximizing recovery value remains a critical priority for the vast majority industrial, manufacturing and asset recovery professionals. Further, while the carrying cost of keeping surplus MRO, spare parts and equipment is a significant motivator in equipment disposition, the method by which they are sold is critical to maximizing value.
Below, we explain the advantages and disadvantage of four popular asset recovery options to recover value from surplus MRO and industrial equipment.
While industrial auctions and liquidations have traditionally been hosted onsite, according to a 2015 study conducted by Liquidity Services, the majority of surplus buyers are looking for online bidding environments and marketplaces. Given interest from buyers, online industrial auctions are an excellent method of selling, especially for high-demand items.
Online industrial auctions grant sellers more control over their sale. They provide an opportunity for sellers to screen buyers by viewing their past bidding profiles and association prior to letting them bid in their auction. Sellers may also set reserves on select pieces of equipment to ensure their assets sell within a particular price range. Sellers can also dictate other terms, such as payments, removal or pickup.
For sellers, online industrial auctions are a cost-effective solution when compared to onsite liquidations. Traditional onsite auctions require a significant amount of planning and labor, and typically require working with a professional auctioneer, all of which drives up the cost for the seller. Online auctions, in comparison, can be setup quickly and independently. All a business needs to do is partner with an industrial auction platform.
The success of an onsite auction depends on the number of individuals it can attract to the event. Without many lots, its less likely to attract enough buyers for as successful sale. Since online auctions enable remote bidding, they provide sellers more flexibility in terms of the amount of equipment they want to sell. A small, but more targeted number of buyers, can still lead to a successful sale.
Online industrial auctions do not take place face-to-face which creates anonymous bidders. While sellers have access to bidding profiles, they cannot have a firm hold on who is participating in the bidding. This can lead to anonymity in identifying the bidders.
Although online industrial auctions enable remote participation, potential buyers still need to view and inspect any machinery, equipment and parts. Detailed explanations and quality images need to be provided when making a listing. This exact challenge can be lessened by working with a more involved auction marketplace.
If you’re interested in learning more about how industrial auctions can help meet your asset recovery goals, contact us today.
Depending on the exact agreement, the details of a consignment sale may vary slightly. In general, however, selling goods on consignment is described as a situation whereby goods are shipped to a dealer who pays you, the consignor, only for the merchandise which sells. The dealer, referred to as the consignee, may have the right to return to you the merchandise which does not sell and without obligation.
Asset recovery firms that offer consignment solutions typically understand the industry and know the market well – what’s in demand and where – and will generally have good, well fostered connections and selling channels and know how to market and sell your MRO and industrial equipment.
Consignment inventory are assets that are in the possession of the consignee but is still owned by the consignor. In other words, the consignor places their inventory in a consignee’s customer’s possession (in their store or warehouse) and allows them to sell or consume directly from their stock. Access to offsite warehousing and storage can significantly reduce carrying costs for a business.
Typically, consignees only get paid when the consignor’s surplus MRO and industrial equipment has sold. Due to this, the consignee will be motivated to sell the consignor’s assets – their profit will usually depend on it.
While your merchandise is being exposed on the shelves of a wholesaler or retailer, you get no money until they sell. As the manufacturer you must have enough cash on hand to wait extended periods for payments of merchandise sold.
A private treaty sale can take many forms, be it through selling a large quantity of MRO, spare parts and equipment to a machinery reseller at a fixed cost, or a a private transaction between a seller and a buyer.
Private treaty sales, in any form it may take, enables the seller to maintain more control when compared to other asset recovery solutions. Insofar as the seller’s choices do not inconvenience or deter potential buyers, in a private treaty sales, sellers retain control over pricing and terms of the sales agreement.
A private sale may suit businesses that are not in any particular rush to sell. Sellers can take their time in receiving offers and selecting the best potential buyer. Sellers can choose to extend the settlement period as well if the need arises thereby providing more flexibility to them.
Managing private treaty sales independently is resource intensive. A company will typically require dedicated staff to ensure that your surplus MRO and spare parts are not only sold, but that you’re continually maintaining and improving your supply channels, as well as any relevant industry contacts.
Unlike in an auction forced to make quick decisions, the slower pace of the private sale process many result in the process being drawn out as buyers consider other choices or wait for something better to come along.
Disposing of surplus MRO and industrial equipment typically involves sending equipment or machinery to a landfill or disposal facility, either operated by a a private waste management company or your locale’s government. Assets are typically destroyed, or in some cases, they are disassembled and broken down for scrap metal.
The primary benefit of equipment disposal is that it alleviates inventory space, and thereby carrying costs, almost immediately. If a business is in urgent need of recouping storage space or reducing inventory costs, disposal may make sense.
In some cases, disposing of inventory may produce scrap metal, so a business can regain some capital. The prices of scrap metal are constantly in flux, however, and not all equipment can be broken down. When equipment can not be broken down, a business will be required to pay a disposal fee, which will vary based on service, locality and asset type. The Scrap Metal Forum offers a wealth of information on recovery from disposal.
If MRO, spare parts and machinery cannot be broken down for scrap metal, then it will likely end up in a landfill. Depending on your business’ sustainability objectives, it may be counter-intuitive to dispose of surplus MRO and industrial equipment.
The sale of surplus MRO and equipment is a critical part of a successful strategy for industrial and commercial businesses. Rather than navigating the secondary market without a plan, we recommend engaging an asset recovery firm, or utilizing an online marketplace, that has dedicated buyers, comprehensive services, and a proven track record of success. Managing and selling surplus assets can add value and enhance innovation with a winning strategy.
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