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Supplying Principles and Practices > USPS Supplying Practices Process Step 2: Evaluate Sources > Develop Preliminary Investment Recovery Plan
Develop Preliminary Investment Recovery Plan
Investment recovery is the identification, reuse, sale, or disposal of surplus or
idle assets. Investment recovery can generate significant revenue and create
cost savings, allowing the Postal Service to reduce waste and increase
revenue. It can also protect the Postal Service from social and economic
impacts associated with improper direct or secondary disposal of Postal
Service property. The preliminary investment recovery plan proactively outlines
future actions, preidentifies potential surplus and idle assets, and (based on
the product) decides what will be done with those assets. It is a dynamic
document that is revised and updated throughout the project life cycle.
The Client is responsible for developing the preliminary investment recovery
plan, which must illustrate how the surplus or idle assets will be addressed.
While investment recovery activities are not carried out until the Perform and
Manage Investment Recovery Activities task of Process Step 6: End of Life,
it is important to develop a preliminary investment recovery plan during
Process Step 2: Evaluate Sources, because recovery must be addressed in
conjunction with Develop Life Cycle Support Plan and must be addressed in
the request for proposals (RFP), when it will play a significant role in the
overall success of the purchase or have a large impact on the costs
associated with the project. Investment recovery should be addressed by
potential suppliers in proposals submitted in response to RFPs.
The Client, working with the Purchase/SCM Team develops the preliminary
investment recovery plan following specific steps:
• Identify surplus
• Assess potential environmental impacts
• Make preliminary decision
Surplus is any supply that will be:
• Discontinued
• No longer used
• No longer operating
• Excess inventory
Surplus results in or creates the following:
• Poor space utilization
• Tracking expenses
• Maintenance costs
• Insurance costs
• Inventory costs (in excess of regular extra inventory necessary to
have on hand to meet demand)
When a project enters into the final phase of its life cycle, these economic
and operational considerations are used to identify when the equipment no
longer effectively supports the original project or need. Because the
identification process requires an estimate, the Client must rely on
professional expertise and experience, as well as the professional expertise,
experiences, and advice of the entire Purchase/SCM Team.
When solicitations include Provision 2-8: Investment Recovery, proposals
must include an investment recovery plan to reuse the equipment or to
eliminate or reduce final disposal costs. Final disposition must be
environmentally responsible, eliminate or reduce landfill, and comply with all
Federal, state, and local laws and regulations. Proposals must address the
complete life cycle, including final disposition of the items being purchased.
The preliminary decision in the development of an investment recovery plan
is the determination of how to eliminate identified surplus materials at the
conclusion of the asset's useful life:
• Recycle (scrap)
• Reallocate (relocate and redeploy)
• Resell
• Remarket (reselling to the supplier)
• Return
• Remanufacture
• Remove
Recycling surplus reduces the impact of Postal Service operations on the
environment. The Client and Purchase/SCM Team will decide to recycle
(scrap) an asset when it can no longer perform its intended function, cannot
or should not be repaired, and cannot be sold as surplus. The value of the
scrap material collected is determined by the material itself, its volume, and
the geographical location of the scrap (relative to the proximity of dealers and
the ease and efficiency of the collection process). The following five factors
will determine the degree of success of a recycling (scrap) management
program:
• Current market for the particular material being scrapped and
recycled
• Type of scrap material (e.g., ferrous or nonferrous)
• Condition of the materials (e.g., whether it is mixed, sorted, or
clean)
• Quantity of the material
• Involvement of a knowledgeable process manager
The Postal Service will benefit from the expertise of the Supplier in the
decision of whether to recycle an asset; however, the plan to recycle does not
need to be incorporated into the RFP.
Reallocating identified surplus is the actual relocation and redeployment of a
material. Reallocating puts the material to work as part of its lifespan and
avoids the cost of purchasing. For example, Postal Service trucks that sit idle
in a warehouse in Arizona would be transferred to a California facility that can
use them immediately. Although a material may no longer fulfill the purpose
for which it was purchased, it still may fulfill other purposes pertinent to the
Postal Service. The Purchase/SCM Team will determine when and where
specific materials are fruitful to more than one project or use and convey this
information to the Client. For reallocation to become a successful reality, the
Purchase/SCM Team must communicate closely with any potentially
concerned parties. However, the plan to reallocate does not need to be
incorporated into the RFP.
Reselling surplus materials is the financial transaction of selling a material on
the open market. Reselling generates revenue that improves short-term cash
flow. Potential revenue will be determined through market research. Reselling
is also appropriate for a forward auction, the traditional auction used when
organizations want to sell off excess inventory, machinery, or equipment that
is no longer in use to maximize revenue, which is discussed in the Auction
topic of the Develop Sourcing Strategy task of Process Step 2: Evaluate
Sources. The plan to resell does not involve the supplier and does not need
to be included in the RFP. Data rights and intellectual property issues may
need to be considered in the resale of property such as computer software.
Additional information on data rights can be found in the Clarify Data Rights
and Intellectual Property Issues topic of the Develop Sourcing Strategy task
of Process Step 2: Evaluate Sources.
Remarketing is the selling of surplus material back to the supplier. Suppliers
frequently buy back used equipment to protect proprietary technology and
prevent competition from being able to sell identical material. Potential
revenue realized by remarketing will be compared with potential revenue
realized by reselling. After a Price Analysis has been conducted, the results
will be communicated to the Client, and a plan will be selected. When
remarketing is part of the preliminary plan, Purchase/SCM teams must
ensure that Provision 2-8: Investment Recovery is included in the solicitation.
Returning identified surplus is a nonfinancial transaction of providing surplus
material (e.g., delivery and industrial equipment) to the supplier for a credit.
Provision 2-8: Investment Recovery requires suppliers to provide an
investment recovery plan in their proposals, therefore Purchase/SCM Teams
should include Provision 2-8 when an investment recovery plan is required.
Remanufacturing identified surplus is the use of components of a material
alone or combined with others to create a new material or product (e.g., mail
transportation equipment and spare parts). Except for locks, manufacturing is
not a core competency of the Postal Service, so remanufacture may be a
rare solution for the disposal of surplus and idle assets. Remanufacture
would be appropriate when an internal Postal Service project that has
decided to make a product has been identified by the Purchase/SCM Team,
and these surplus or idle assets can be leveraged to reduce the costs
associated with the new product or service. Because the decision to
remanufacture will lead to the utilization of surplus to strategically make
in-house another product at the Postal Service, as outlined in Conduct Make
vs. Buy Decision Analysis, it does not require supplier involvement and
should not be in the RFP.
Removal is the process of disposing of surplus material (e.g., old office
furniture). Disposal is often costly, but by giving the item away (to free space,
save on depreciation and tracking expenses, and cut maintenance and
insurance costs), the costs of disposal in the long run can be reduced or
negated. The Purchase/SCM Team should research whether such actions
would indeed negate disposal costs. Because removal by the Postal Service
is potentially costly and may require supplier involvement, solicitations for
contracts that contemplate removal must contain Provision 2-8: Investment
Recovery.
A quadrant approach classifies all Postal Service purchases into four
categories, depending on their impact on the Postal Service core
competencies (noncore versus core) and complexities (standard versus
custom). Because a preliminary investment recovery plan outlines what to do
at the end of the project lifespan and is developed before the completion of a
purchase, the Quadrant Approach should be leveraged by the Client to guide
the decision to recycle, reallocate, resell, remarket, return, remanufacture, or
remove, as shown in Figure 2.7.
Figure 2.7
Four Quadrants
Surplus and idle items in this quadrant will be recycled or reallocated and do
not need to be addressed by proposals because both are in-house activities.
The strategic approach regarding Quadrant I calls for supply continuity, and
these items should be used multiple times.
Surplus and idle items from Quadrant II will be recycled, reallocated, resold,
remarketed, or returned. Remarketing and return require supplier
collaboration and should be addressed by proposals. These items are vital to
the Postal Service's operations and therefore may necessitate recycling or
reallocation. They are also vital in the market, are of high value, and therefore
can warrant reselling, remarketing, or return. Note: These items are specific
to the Client's goals and strategies, but have been customized to the Client's
business function, so reselling or remarketing may be compromised.
Surplus and idle items in Quadrant III will be recycled, reallocated, resold, or
removed. Removal requires supplier collaboration and therefore should be
addressed by proposals. These items have many sources and many options
and provide low value to the end Client. Most of these items (e.g., office
supplies) should be recycled, reallocated, or removed. However, certain
items are desired by external organizations, have a resale value, and should
be resold (e.g., information technology).
Surplus and idle items in Quadrant IV have many alternatives and many
sources and are readily available in the marketplace. Items of this standard
nature can have various functions and therefore can be useful both internally
and externally. These items will be recycled, reallocated, resold, remarketed,
returned, remanufactured, or removed and should be addressed by
proposals because these disposal options require supplier collaboration.
Conduct Market Research and Benchmarking Analysis topic, Decide on
Make vs. Buy task, Process Step 1: Identify Needs
Clarify Data Rights and Intellectual Property Issues topic, Develop Sourcing
Strategy task, Process Step 2: Evaluate Sources
Finalize Investment Recovery Plan topic, Plan for Contract Management
task, Process Step 3: Select Suppliers
Implement Investment Recovery Plan topic, Manage Demand task, Process
Step 5: Measure and Manage Supply
Provision 2-8: Investment Recovery
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