Cover Story

Eco-Responsibility Is a Key Component of Reverse Logistics

RLM Staff Contributor

Reverse Logistics Magazine, Fall 2006

Today's major computer manufacturers are all faced with mounting reverse logistics issues, but one of the most interesting is how to use reverse logistics as a competitive weapon.

"Computer and information technology (IT) manufacturers compete for customers by constantly delivering more powerful, more efficient, and better computing and storage systems. The competition is fueled by the fact that business customers themselves need those advantages to compete in their markets. Business customers, especially enterprise-size IT staffs, need to keep their data centers filled with always-faster computers, called servers, to keep up.

As a result, computer manufacturers are in a race to render their own hardware products obsolete at a rapid pace.

Meanwhile, the pile of used computers grows mountainous. About 12 million computers a year end up as 'ewaste,' and a single computer can contain 700 distinct compounds -- some valuable, some toxic. Disposal and recycling for reuse are complex and expensive processes.

In this environment, reverse logistics rises to strategic importance.

Efficiency and the Lifecycle of Products

Fortunately, the industry has learned how to design modular computers that are increasingly easy to disassemble, repair, and recycle. Sun Microsystems in particular prides itself on delivering some of the industry's most powerful computers and storage systems that also lead in eco-friendly efficiencies.

"Looking for efficiency is in our corporate DNA," says David Douglas, Sun's Vice President of Eco-Responsibility. "Saving energy and reducing waste are not just good for the environment, they're good for business."

Eco-responsibility at Sun is a multi-layered approach and includes efficiencies targeted at the supply chain to help streamline and economize the reverse logistics process.

As a top-tier, broad-line IT manufacturer, Sun provides hardware, software, and services to corporations worldwide. Much of the company's hardware revenues come from high volume sales of servers -- the networked computers that process applications and deliver data to business and Internet users. Sun customers typically purchase hundreds or even thousands of VCR-sized servers at a time, stacked dozens high in racks and placed in secured, cooled, raised-floor rooms called data centers.

As an innovative, engineering-driven manufacturer, Sun has a history of designing information technology products that use less energy, occupy less space, and conserve resources -- all an advantage to its customers.

"Sun has some worthy competitors -- IBM, HP, Dell -- and efficiency is one of the ways we stay competitive, at many levels," says Douglas.

Sun has used its repair network as a competitive advantage for many years. In fact, Sun established its first reverse logistics network more than 20 years ago. "And it is constantly undergoing change," says Steve Simpson, Sun's Senior Director for its Service Supply Chain. "It becomes smarter, more efficient, and more eco-friendly at each step."

Douglas claims that now is the time for technology manufacturers to look at important reverse logistics changes on the horizon, and he offers some tips. First, network technology can extend the reach of your process and help it move more smoothly by delivering the right information to the right person wherever, whenever it's needed. Second, initial product design that anticipates product returns can significantly accelerate and economize reverse logistics. Third, energy efficient designs can expand the useful life of a product to both the customer and the manufacturer.

And finally, continue preparing for increasing environmental regulation in the areas of ewaste and hazardous substance management. Under the EU WEEE regulations, for example, manufacturers are responsible for the ultimate disposal of all electronic equipment they sell, and that paints a target directly on the reverse logistics organization.

Applied Technology Keeps Reverse Logistics Moving

"Our first advantage is that we manufacture much of the technology used in our logistics process, and we aggressively implement our own innovations," Douglas explains. "Our own hardware systems -- from inexpensive desktop 'virtual clients' and enterprise servers to huge storage area networks, are saving us money and improving our network capability as user demand grows. Java technology, which we invented, drives much of our software code and allows deep and diverse cross-platform compatibility with our supply chain, including handheld and embedded computing devices. We use our own operating system, Solaris OS, widely recognized as the most scalable, highest volume 64-bit UNIX platform available, our own enterprise infrastructure software platforms, and our own servers and storage."

As a result, Sun has developed a highly integrated reverse logistics network that offers endless opportunities to connect people, products, and information inexpensively. "Building future flexibility today through compatible, integrated, industry-standard systems is important," says Douglas.

If the Product Isn't Designed for Reverse Logistics, It's Not Designed Right

Sun has also learned over the years how to design computers and storage devices, from the desktop to the data center, that minimize the reverse logistics effort through the initial product design.

Extreme modularity is key. Computers that are designed to be disassembled quickly move through reverse logistics quicker. At the same time, extreme modularity also benefits Sun's IT customers, who often do instant, on-site modular component replacements themselves. Here, modularity and redundancy work together. Customers who need highly reliable, always-on computing power choose servers with a high number of "field-replaceable units," for example dual, hot-swappable power supplies, fans, and disk drives that can be removed and replaced without shutting the system down, thus, improving system uptime.

"Customers are always happy not to have to take a server offline because of a bad fan, and we're glad to receive just the fan, not the whole unit," adds Simpson.

In the reverse logistics system, the part instantly becomes a candidate for Sun's robust repair and remanufacturing programs.

"We have very active Trade-in and Remanufactured Systems programs," says Douglas. "It makes sense in a business where customers want to constantly upgrade units for the fastest technologies. But because enterprise customers have such a high need for extremely reliable equipment, even in used equipment, we build, test, and certify our systems to the quality standards of our new products and offer same-as-new warranties."

Also, the company has learned to design products for higher recycling yields. Many manufacturers are working to reduce their returned-product landfill percentage from 35 percent down to approximately 25 percent of product. Sun's progressive product designs have helped cut ewaste down to under five percent. "We're able to put over half of the product back into use," says Douglas, "and can recycle almost all of the rest. Currently less than five percent ends up in the waste stream, and we have goals to drive that even lower."

Eco Legislation Is the New Reality - Plan on It

"We recognize a clear trend towards increasing regulatory complexity, from labeling and certification to energy efficiency and eco-safe disposal," warns Douglas. "For example, if you want to continue doing business with electronic products in Europe, you'll have to conform to WEEE regulations. That means planning how you'll eventually take back every bit of equipment you sell. It's a serious challenge and will get bigger as similar regulations are adopted elsewhere around the world."

And that's just one example. "Manufacturers should also expect a series of escalations in hazardous substance regulations, limiting the use of toxic chemicals and regulating their disposal," says Douglas. "Just as we've seen strict laws regarding mercury disposal throughout the world, we can expect to see other chemicals receive similar treatment. For example, the EU's RoHS regulations place restrictions on six chemicals, and we expect others to pass similar legislation in the next 12 months."

Each of these factors could cost you a lot in time, lost opportunities, fines, and finally, new process investments to get it right. But Douglas has some advice, from experience: "Start now to address these challenges, ahead of your competition. You'll certainly lower the risk to your own business, but may find that competitive opportunities may arise as a result as well. Since many of these regulations involve disposal as well as manufacturing, understanding the reverse logistics implications up front can lower risk and save money."

Now, Sun is actively involved in lobbying for uniformity and consistency within and between this cluster of directives and regulations. "Regulation uniformity and more predictability will help all manufacturers plan ahead and save on design costs," says Douglas.

Help Customers Cut Costs through Energy Efficiency and They Will Upgrade

One of Sun's website headlines says, "More computing power has always demanded more energy consumption." The subheadline echoes a Sun mantra, "Let's change this."

Noting that a large data center may house more than 10,000 servers and can consume the energy equivalent of 80 barrels of oil every day, Douglas claims, "We really can change this, and our customers are very interested in us doing so."

Picture this: The average house requires approximately 225 kWh/year (kilowatt-hours per year) of electricity. The typical corporate headquarters draws about 15 million kWh/year. Today's largest data centers can draw over 100 million kWh/year. That's enough power to run 400,000 homes, at a cost of around $10 million a year.

But you certainly don't need to have a large data center to benefit from energy-saving IT equipment. Sun's ultra-low power servers, powered by the Sun UltraSPARC T1 processor with CoolThreads Technology, have helped everyone to see what's possible. They have also improved Sun's supply of incoming legacy parts.

Product Upgrades: Good for Customers, Good for Sun, Good for Reverse Logistics

Introduced in 2005, the Sun Fire T1000 and T2000 servers use one-third the power of other servers in their class while delivering a 3x improvement in performance. That means you can get more compute power out of the same size room and still pay less in power costs, including air conditioning. One server can process up to 32 simultaneous threads, or process flows. For multi-threaded processing, no other system can pack as much performance in a rack of computers.

These servers are so energy efficient that they now earn a rebate for Pacific Gas and Electric (PG&E) customers in the Western U.S. As a first-of-its-kind program for PG&E, the California energy provider gives Sun customers a cash savings of $700 to $1000 per server when they replace old, inefficient servers with Sun Fire T1000 or T2000 servers.

"This is a growing trend," says Douglas. "Energy efficiency makes economic sense, and we take it seriously, as do our customers. It really does pay off."

For Sun and its customers, the benefits are multiple. Beyond cutting energy costs, a system that uses less power will produce less heat, and heat is the enemy of reliability. For most computers and their components, reducing the heat in the system improves the mean time between failures (MTBF). And that improves customer satisfaction.

And for the benefit of reverse logistics, product innovations such as these help entice customers to upgrade to newer servers, especially through trade-ins. When they do, it fills the reverse logistics pipeline with good, usable parts and material, which are used to service customers who need repairs on older equipment. "For repairs, I'd rather re-use what's already out there than buy new," says Simpson. "It's less expensive and better for the environment."

In this way, product innovations help reverse logistics become a cost-cutting competitive weapon. "I've always said every bit of legacy material I'll ever need is already deployed," says Simpson. "I just need a catalyst for customers to want me to take it off their hands. Now we've got one."

Just the Beginning

Douglas predicts that smarter design and manufacturing will help manufacturers deliver eco-responsible products and processes while reducing the cost of reverse logistics. At the same time, anticipating an environment of regulatory tightening can help you make changes at the design stage and reduce the need for retrofits.

Each is an opportunity to gain unique competitive advantages, no matter how big your competition is.

Steve Simpson, Senior Director, Services Supply Chain, Sun Microsystems, Inc.
Steve Simpson is responsible for Sun's global spare parts, repair, and logistics supply chain. Since joining Sun in 1999, Steve has led the creation, development, and implementation of key business transformations that have helped Sun stay on the frontier of the industry.

For more information, visit Sun Eco Center at www.sun.com/aboutsun/environment Sun Remanufactured Systems at www.sun.com/remanufactured

Reverse Logistics Magazine, Fall 2006