Reap the rewards of hardware recycling

In late 2000, Union Bank of California concluded that it was time to refresh its desktop PCs every four years, based on findings from a PC Total Cost of Ownership Study. This meant that 200 PCs would have to be retired every month. Unfortunately, there was no strategy in place for the task, or even a designated person or department to manage the systems.

"Until then, there was no process for disposing of PCs," says Julie LeDuc, IT group purchasing manager at Union Bank. "Each department would do its own thing, either storing them in warehouses, saving them for contingency purposes or simply disposing of them."

With a mandated company policy of environmental friendliness and the rumblings of the Sarbanes-Oxley and Gramm-Leach-Bliley acts, LeDuc knew the company couldn't simply have the machines shipped to the local junkyard where anyone could harvest them for sensitive data. It was time for a corporate asset-recovery strategy to ensure that the machines were retired in a secure and eco-friendly manner.

After considering several alternatives, Union Bank chose Intechra Inc., a growing national asset-disposition firm, and continues to enlist its services today. "They handle everything from our PCs to notebooks, printers, servers, monitors, telephones, scanners and projectors," LeDuc says.

After Union Bank does a preliminary disk wipe, Intechra's logistics team comes out to shrink-wrap and pack the equipment onto pallets and ship everything to its facilities, where it performs several subsequent disk wipes and tests everything. Usable PCs are made available for reuse to Union Bank employees, or they're donated to charity, or they're refurbished and sold on the market. Unusable equipment is disassembled for whatever parts can be sold, and the rest is recycled where possible so the materials can be used in other products.

Waking up to e-waste

Union Bank's asset-recovery awakening is typical of many larger companies today. "We see a new interest in e-waste recovery, thanks to all the recent debates about climate change and global warming," says IDC analyst David Daoud. "Large corporations have decided that it's to their interest to tackle environmental e-waste issues and are competing with each other to reduce their environmental footprint."

The e-waste problem is big and growing. According to IDC, the U.S. installed base of PCs is expected to grow from 280 million in 2006 to 404 million in 2010, with 237.5 million PCs expected to be retired between 2005 and 2010. In 2006 alone, 30.7 million commercial PCs, or 70% of the total commercial installed base, were retired.

Yet IDC estimates that only 33% of U.S. companies, mostly large corporations, have made use of the asset disposal industry. In the European Union, the number is closer to 40%.

PCs and monitors, especially old ones, contain a multitude of hazardous substances: lead, which can cause brain and kidney damage in children; mercury, which can cause nervous system and kidney damage; as well as cadmium, BFRs (brominated flame retardants) and PVC (polyvinyl chloride), which are known to cause health problems such as cancer, respiratory illness and reproductive damage, and are able to accumulate in the human body and travel long distances through air and water when not disposed of properly.

Legislators have been taking steps to rein in e-waste, which gives companies further cause to embrace IT asset recovery practices. The European Union has taken the lead on the federal level with its WEEE (The Waste Electrical and Electronic Equipment) and RoHS (Restriction of Hazardous Substances) regulations, which require electronic manufacturers to take on the ecologically responsible disposition of the equipment they sell.

Further, the laws require companies to eliminate several environmentally hazardous substances. Moreover, a proposed REACH policy (Registration, Evaluation, and Authorization of Chemicals) would create an even tougher regulatory framework for chemicals if it is passed.

Regulations regarding e-waste disposal have also passed in several states, including California, Washington, Maine, and Maryland, and more are in the works in Massachusetts, Nebraska, New Hampshire, New Jersey, New York, Vermont and Wisconsin.

Hand in hand with environmental concerns of e-waste disposal are security and privacy issues. "When we got into this business, companies were spending thousands of dollars on firewalls but giving away their PCs," says Intechra CEO Chip Slack.

Several federal and state regulations now make it the corporate user's responsibility to protect the privacy of customer data at every stage, including during the disposal process. Laws in more than 20 states mandate that all the affected clients and consumers must be notified if any customer information gets outside of the custody or control of a company. Along with proper environmental disposal of systems, many companies, particularly in the financial and health fields, now have to prove that all sensitive customer or patient data is eradicated according to strict state and federal requirements.

What goes around, comes around

Asset recovery providers range in the U.S. from the principal system vendors -- including Hewlett-Packard Co., IBM, Dell Inc. and Sun Microsystems Inc. -- to scores of local specialty providers, to an emerging class of regional, national and global providers, such as Redemtech Inc., Intechra, TechTurn Inc. and NextPhase.

The latter companies have been on a buying binge, acquiring local providers to expand their reach. In many cases, the major system vendors partner with various local and regional providers to broaden their reach as well, as one of the most expensive parts of the disposal process is transport. For example, LeDuc claims that Union Bank's recovery costs were reduced by 25% when Intechra opened a facility in Phoenix, and PCs no longer had to be shipped from California to Columbus, Ohio.

The services provided by the hardware vendors differ in subtle ways. IBM and HP run their asset-recovery services as part of their leasing and financing operations. Leasing can be a good solution for companies that want as little as possible to do with asset recovery, since it places responsibility for environmentally sound disposal with the vendor rather than the lessor, though the lessor retains responsibility for protecting user data. Both IBM and HP can build asset recovery into the leasing cost. Dell's asset recovery services are part of its managed services offering.

HP and IBM will take nonleased equipment and equipment purchased from other vendors, though HP will handle outside vendors' gear only as part of an upgrade to its own hardware. HP will apply what it considers the trade-in value of third-party equipment toward a new hardware purchase. Dell takes third-party equipment as well and will either cut a check for the value or apply the value to a new purchase. Sun takes only its own equipment and does so free of charge, with no value applied to a purchase.

Contract arrangements also vary. Most of the vendors work on fee-for-service as well as long-term contract bases. In some cases, such as with IBM Global Services, disposal can be part of a more comprehensive asset-management offering that helps the customer take inventory and determine appropriate refresh strategies.

Vendors then attempt to reap whatever commercial value they can out of the PCs they collect, either by refurbishing and selling them or disassembling them and selling the parts, sometimes through a broker. All will enter into a profit-sharing arrangement with the customer. Dell boasts that 90% of the sales profits go to the customer. Intechra gives a 60% figure. Other vendors are not so public about their sharing ratio.

Obviously, PCs that are refreshed on a regular two-, three- or even four-year schedule and immediately sent to the vendor are more likely to get some return than PCs are that five years old or more, or those that sit in a corporate warehouse for months or years first. All the vendors claim that they do not ship equipment, either PCs or parts, overseas unless they can verify that the gear is in working and saleable condition. The younger the PCs, the higher the possibility that recovery will end up being no-cost after profit sharing or might even result in an overall return for the customer.

All the system vendors and most of the larger third-party services provide the customer with serialized reporting on each and every asset, including whether and when it was resold or recycled, and certificates confirming data destruction. In most cases, the company recommends that the customer do at least one data wipe on its end and/or disable the disk with special utilities or by driving a nail through the hard drive. Then the company will transport the equipment to one of its own sites or partner sites and do subsequent wipes, including anywhere from three to seven wipes, according to customer and Department of Defense specifications.

However, vendors are also open to providing data wipe services on the customer site for an extra fee. IBM and HP have their own recovery and recycling capabilities but also partner with third parties in several locations.

Proceed with caution

It can be tempting to look at asset recovery as a cost and choose the least expensive vendor as an asset-recovery partner. However, experts agree that reducing risk should be the primary criterion when devising a strategy: the risk of fines, lawsuits or damaged reputation. That's why in large corporations, increasingly, responsibility for asset-recovery has moved beyond the department level and the IT division to the CXO level -- often to the CIO, chief financial officer or even CEO. It makes sense for companies to have a centralized recovery strategy so that one department doesn't get the entire organization in trouble with the law or the media.

Due diligence means coming up with your company's own set of requirements for asset recovery, based on company philosophy and standards, as well as relevant local, state and federal regulations. It then requires investigating whether your recovery partner and that partner's recovery partners meet those requirements. A global corporation will obviously have to consider policies and regulations abroad.

"You have to ask a provider questions like, 'How do you manage your partners and hold them accountable?'" says Joe Strathmann, Dell's senior manager of worldwide asset recovery. "What is your audit protocol for your partners and your partners' partners?" If the vendor has a high percentage of its own recovery and recycling facilities, that may be a key measure of comfort level.

It's also important to do your own checking. "We recommend that you go out and visit the providers and kick the tires," says James O'Grady, director of technology value solutions at HP. Even though Intechra has its own third-party auditor and auditing process, Union Bank does its own periodic audits, mostly for security purposes, to ensure that disks are being wiped properly.

Transportation is not only a cost, but a risk as well. It's important to understand what background checks are done on the persons driving the trucks the company uses. And it's worth checking what percentage of e-waste handled by your partner on average ends up as landfill. For example, IBM claims that number is .78%. Slack claims that Intechra's goal is zero-percent landfill and jokes that there's more waste from the company's lunchroom than from its asset-recovery process.

Another aspect to consider is the efforts your PC vendor puts in at the manufacturing end to make its equipment easy to disassemble and recycle. Among other things, this means using as few screws and plastics as possible.

Finally, little things can make a big difference. LeDuc was sold simply on the professionalism of the people Intechra sent to its 320 bank branches to pick up equipment, which is important for bank offices with a high public profile. "It shouldn't be like calling a moving company," LeDuc says.

Whatever approach your company ends up taking to IT asset recovery, the benefits are clear: Organizations stand to gain peace of mind that the data on their retired systems won't fall into the wrong hands, can realize a higher ROI on their hardware investments and will get a jump start on forthcoming e-waste legislation. The environmental benefits are green icing on the cake.

This story, "Reap the rewards of hardware recycling" was originally published by InfoWorld.

Copyright © 2007 IDG Communications, Inc.

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