May 19, 2010

Set-top box builders' long life cycle problem

In today's blog, we'll take a look at the reverse logistics of the set-top box market.

From my perspective, there is plenty of room for improvement in the return process for set-top box builders. Achieving improvements in the returns process is actually not difficult when you implement life cycle planning principles. In this blog, I'll touch upon the issues of managing the long life cycle of these materials.

Set-top boxes are widely used and recognized in the consumer market. These are the cable and satellite boxes used with televisions and found in most households in many shapes, sizes and configurations. They have a very long life cycle, staying in homes for years after initial installation. But the life cycle itself is not the core of the problem. The real issue is the core commodities (memory, storage drives, etc.) in each set-top box that reach end-of-life while the box is still in use. This creates a problem for set-top box manufacturers, who have to ensure that they have a supply of materials to properly service and repair equipment that has been in the field for a significant amount of time. This ultimately leads to manufacturers making substantial last time buys (LTB) to handle end-of-life component issues – thus inflating their overall service parts inventory – or finding engineering solutions for the products to utilize other replacement materials.

Compounding this situation is the fact that legacy storage devices have been rapidly moving to the newer models and configurations in the hard drive industry over the past few years. In response, set-top box manufacturers have moved to newer architectures and discontinued the use of older technology. But this response raises several issues: Vendors can't get an ample supply of materials or support older architectures, or if they can, it's at significant cost. The end result is that manufacturers are forced to choose between two options: either negotiate for LTB (significantly increasing service spare inventory levels) or find an in-house engineering solution. It's a risky business proposition in both cases.

The third option that I recommend is to more closely evaluate the manufacturers' return stream, meaning boxes or parts that come back from service calls in the field. Typically, when these parts are returned, they are an afterthought and end up ultimately being recycled or liquidated for pennies on the dollar. These materials are usually stored for long periods before disposition and are not factored into the forward supply chain. In this example, the manufacturer or the service provider might be receiving significant numbers of no-trouble-found components from the return stream, or reverse supply chain, that they just don't realize they have.

The valuable parts inside the returned set-top boxes could be harvested to be reused or remarketed back to the service supply chain, removing the need to purchase large quantities of LTB components. However, this option is usually not considered. And rightly so, because teardown is generally not a core competency for most manufacturers and is considered a cost center.

Utilizing the skills of a third-party service provider can remove this roadblock. Third-party reverse supply chain organizations, such as Converge, are highly skilled in tear-down, testing, kitting, packaging and shipping materials back to the manufacturer or service provider for reuse in their service spares inventory. A third party can also properly recycle materials or save any valuable components that meet testing requirements for future use.

This solution is environmentally friendly because it minimizes waste while maximizing reuse. It is also cost-effective because it produces a stream of service materials that are already owned by the manufacturer while removing the need for costly LTB. And it doesn't cost as much as you would think. In fact, a service like this is essentially a net gain for the customer.

What are your thoughts on reusing tested and screened materials in the service environment?

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