Cellular Telephone Reuse at ReCellular

ReCellular, Inc. was founded in 1991 in Ann Arbor, Michigan by Charles Newman to trade new, used and remanufactured cellular handsets. The business grew from a venture that provided cellular telephones for leasing, and alternative sources for handsets were required to reduce costs (hence the discovery of the used handset market). ReCellular is a trading operation that refurbishes cellular phones when necessary to add value for existing orders, and buys and sells wireless handsets of all technologies. In 2000 ReCellular estimated it had remanufactured over 1.3 million cellular phones. One of the goals of the company is to be the 'first in the second' in the wireless exchange plan. The company offers remanufactured (refurbished) products as a high-quality, cost-effective alternative to new cellular handsets. Customer services include grading and sorting, remanufacturing, repackaging, logistics, trading and product sourcing (all services are specific to cellular handsets and accessories). ReCellular operates globally with a presence in South America, the Far East, western Europe, Africa, the Middle East and North America. The company has plans to expand operations to provide better coverage throughout the world.

The cellular communications industry is a highly dynamic market where the demand for telephones changes daily. Demand may be influenced by the introduction of new technology (for example, digital and analog), price changes in cellular airtime, promotional campaigns, the opening of new markets, churn (customers leaving present airtime providers) and the number of new cellular telephones manufactured. Additionally, there is no worldwide standard technology (for example, Europe uses GSM, but the USA does not support this wireless technology) which necessitates dealing in a number of often dispar ate technologies and standards. These global differences make regional activities difficult since there may be no local market for certain types/models of phones, requiring a firm to manage global sales and procurement. Additionally, cellular airtime providers may limit the number of telephones supported by their system and the dropping of a phone model by a major carrier can greatly affect a local market. These factors make competition for an original equipment manufacturer challenging. However, a company offering used or remanufactured equipment faces numerous factors affecting the supply of used cellular phones. The same factors that complicate demand affect the availability of used handsets. Further, identifying and taking actions to reduce the uncertainties in the reverse flows as early as possible is an important issue in this business. The supply of used handsets is a volatile market, with volumes and prices in a constant state of flux. Supply uncertainty is not a complication faced by traditional OEMs.

Figure 40.4 A closed-loop supply chain for cellular telephones

In order to fully understand the nature of the market, both forward and reverse flows of materials must be considered. Figure 40.4 shows the supply chain system for cellular telephone re-use. The forward movement of materials consists of the traditional flows from suppliers to manufacturers, manufacturers to airtime providers (retailers in this case, since the sale of a cellular phone is tied to airtime activation) and airtime providers to the customers. The reverse flows are more complex. Remanufacturers of cellular telephones do not collect handsets directly from the end-user, but rather rely on airtime providers or a variety of third-party collectors (we discuss the specifics of product acquisition in the next section). Airtime providers and third-party collectors act as consolidators who then broker the units to remanufacturers. ReCellular then sorts and grades the handsets, and sells the handsets 'as is' or remanufactured to airtime providers and third-party dealers working with airtime providers. Some handsets may be obsolete or damaged beyond higher-order recovery and these products are sold to scrap dealers and recyclers (note that this flow may come from both remanufacturers and third-party collectors). Recyclers recover polymers and other materials in the handset assemblies, and base materials in batteries. Scrap dealers may separate the handsets into materials and resell individual parts for re-use in other applications and offer the other sorted materials to recyclers. Suppliers may then purchase the recycled materials for use in new products.

The acquisition of used telephones is central to the success of a remanufacturing firm. The nature of product acquisitions is driven by what future demands (unknown) will be for phones. The lead times for delivery after used phones have been purchased are often lengthy and subject to a large amount of variability. This has caused remanufacturers to have stocks on hand to compete for sales. ReCellular obtains used phones in bulk from a variety of sources, including cellular airtime providers and third-party collectors. Third-party collectors are often charitable foundations (for example, the Wireless Foundation: http://www.wirelessfoundation.org) that act as consolidators by collecting used handsets and accessories from individuals. Cellular airtime providers also act as consolidators by collecting used phones from customers who have returned the phones at the end of service agreements, or customers upgrading to newer technology. Both these and other sources worldwide may offer a variety of handsets and accessories in varying condition for a wide range of prices and quantities. Owing to the low cost (approximately $0.50 per phone using air transport) of bulk transport of phones, using a worldwide network of suppliers of used phones is practical and cost-efficient. No individual returns are accepted since the channels required for direct returns from the consumer have too high a cost to be effective at the present time. Obtaining the best grade of used products for the best price is one of the key tasks necessary for the success of ReCellular. Deciding on a fair price to offer for the used phones is a difficult and complex task. At present, the acquisition staff devotes much of its time to identifying reliable and reputable sources of used phones and establishing a working relation with these suppliers. New suppliers usually require a visit in person to ensure the quality of the used phones.

The value of a used handset is highly dependant on future market demand for that particular model either in remanufactured or 'as is' form. The present demand for a graded 'as is' used cellular phone or a remanufactured phone is known for that instant in time, but, owing to the highly dynamic nature of the industry, these prices are not stable. The market forces discussed earlier may cause the value of a particular model of phone to drop or rise with little warning. An additional factor is that the selling price for remanu-factured phones tends to drop over time, making the used phones a perishable product.

This nature of the product re-use market necessitates a fast, responsive supply chain that identifies sources of used phones for a fair price, and future buyers of these phones in either graded 'as is' or remanufactured condition. Additionally, the system must procure the phones in a timely manner, sort and grade the telephones, have the capability to remanufacture the phones rapidly to order and provide a fast accurate transport method to ensure timely delivery of the phones. ReCellular is developing an e-commerce site strictly for business to business in order to facilitate matching suppliers and buyers of equipment. The present e-commerce site shows the current stocks (model, price, grade and quantity) available and what models are needed (but not the prices offered). The site is being upgraded to allow real-time transactions by sales and procurement agents. Future considerations also include using the e-commerce site to facilitate on-line auctions for used and remanufactured products.

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