As good as new

While they have become well-established in more developed markets, refurbished systems, inspite of their obvious advantages, are yet to find a foothold in the Middle East. The prevailing scenario indicates that it might take a lot more than just maturing IT mindsets to effect a turnaround.
As good as new
By Sathya Mithra Ashok
Mon 20 Oct 2008 04:00 AM

While they have become well-established in more developed markets, refurbished systems, inspite of their obvious advantages, are yet to find a foothold in the Middle East. The prevailing scenario indicates that it might take a lot more than just maturing IT mindsets to effect a turnaround.

Refurbished systems are not a new phenomenon. Over the past decade, renewed information technology systems have been growing in relevance as viable alternatives to new equipment across the globe.

Systems that have been renewed have found an easy uptake among companies, especially in the more developed markets of the US and Europe, simply because of the many advantages that they bring.

If there is a market for the old product, it is remanufactured. If there is no market for the product, it is dismantled and used as spare parts. Up to 99.5% of a system is being re-used in one way or another.

"The biggest success with refurbished systems has been in Europe. But we support many countries, outside Europe and in the larger EMEA region, and the market for these systems is steadily growing across them," says Elias Tomaras, CEE and MEMA regions' business development and program manager at HP.

There are some obvious advantages to refurbished systems. To begin with, they come at a lower cost to their newer counterparts, and this difference in price can vary from the minimal to the significant.

"The difference between new and renewed is only the price. If it has to do with ProLiant servers it is 5% less when renewed. If it has to do with storage or business critical systems it is 10% or 15% less than the new systems," points out Tomaras.

"It depends on the market dynamics, where systems that were hot as new, are hot as refurbished, and systems that were not doing too good as new, are not doing too good on the used market. However, as a general rule, Sun tries to maintain a logical approach. Refurbished product pricing is lower than the equivalent systems sold as new (even if warranty and quality is the same). The older the product is, the lower the price will be compared to the original new price," states Iain Jardin, SEE systems practice manager at Sun Microsystems.

Most refurbished hardware, especially non-critical ones, if re-manufactured the right way, can provide the same quality and performance as their newer counterparts are capable of.

They can also prove to be a much ‘greener' choice in IT equipment than any of the new-fangled technology, according to ecological experts, since they reduce the overall environmental cost involved in the manufacture of new hardware and IT infrastructure.

As IT managers across developed markets try to cut costs, while continuing to increase productivity, these two critical factors have pushed refurbished systems to become an increasingly popular choice over the last five years.

Many global enterprises have invested in these systems for running or delivering non-business-critical applications, and also for options when setting up remote disaster recovery sites. The money saved on refurbished systems has then been channelled into other necessary projects for the organisation or for obtaining additional services from vendors.

Vendor speak

In response to the growing demand for these systems, especially in certain markets, vendors have come out with their own programmes to address this revenue-generating segment.

"As part of its global citizenship programme and its higher ecological consciousness drive, HP is involved in several initiatives. First, a customer can return old equipment to HP and we will replace it with bigger or newer systems. Second, we have a developed programme for recycling, where we collect equipment from China and the US. We are now expanding that to other regions. The third one involves return of systems for cash, which we do for smaller customers and home users. HP also makes it easy to donate used equipment for further use. The newest programme involves the refurbishment of certain systems, which are then marketed to customers across the globe," states Tomaras.

Refurbishing process

1. Used equipment is received by the recovery specialist who creates a specific inventory

2. At the factory, each unit is tested by personnel, and replaced and repaired as necessary to fit manufacturing specifications on these items

3. They are then cleaned and fit into their appropriate places in the overall IT equipment

4. They are checked across standards and specifications, depending on the country or region that they will be shipped to

5. These systems are then marketed and sold in the specified country that the system is meant for

How to buy a refurbished system

1. Focus - know what you are buying refurbished systems for. Despite their advantages, they will not fit every environment

2. Research - check out the refurbishing process of the vendor in question. Different companies handle this in different ways; finding out the details will help you understand what you can expect from these systems

3. Analyse certifications - look for certifications from independent providers attesting to the general quality of the vendor's refurbished systems

4. Licences - check what software licences come along with the systems

5. Warranty and support - many refurbished systems come with limited warranty provided by the vendors. However, this can be applicable only in certain geographic areas. Look into whether your area is covered by the warranty before investing

6. Buying route - try and buy refurbished systems from the manufacturer at all points in time. The reseller or partner should be a second choice

7. Return policy - check if your refurbished system investment comes with a well-laid out return policy, just in case you encounter problems later on, and require replacements

8. Conduct pilots - never, ever buy renewed systems based on promises alone. Bring them into your environment and run thorough tests in your production scenario to get an accurate idea of how the systems function

Jardin from Sun says, "Sun has developed a very structured process for old equipment that combines re-use and recycle. First, if there is a market for the old product, the product is remanufactured - this ensures the highest level of quality. It is then sold back as a refurbished system. If there is no market for this type of product anymore, the product is dismantled and elements of it will be used as spare parts for support of existing systems. Then, the next step is recycling, with a state of the art process that enables most metals and plastics that are in a computer to be selectively collected and put back into a manufacturing process of some sort. At the end, up to 99.5% of a system is being re-used in one way or another."

"In addition to local requirements, we have two major programmes. First, a trade-in programme that provides customers that upgrade existing equipment with significant financial trade-in value, as well as a free take back policy. Sun will pick up the equipment at the customers' door step. We also have a corporate take back programme. Customers can  send back their old equipment and Sun will recycle it for free. Customers are only responsible for shipping costs," he adds.

"Cisco does have a take-back programme designed for customers that have Cisco products which are no longer eligible for trade-in credit or customers who have no plans to purchase new products before trade-in values expire. The Cisco takeback and recycle programme provides customers with an environmentally responsible solution for the return and recycling of technology assets that is compliant with current and forthcoming regional regulations," says Mo Sabri, area sales manager, re-marketing for MEA at Cisco.

By offering these products, the partners can address one more market segment and thus expand their business.

While some of the vendors do not have a proper refurbish policy or refurbishing ecosystem, they do tend to accept old hardware and systems from customers for effective recycling or efficient disposal.

Most companies follow a rigorous process for refurbishing in their factories, which are, for the most part, located in Europe and the US. One such example of the process is provided by Cisco's Sabri.

"The process starts early in the cycle of product receipt. Cisco obtains products for remarketing via end of lease agreements, trade-in programmes, returns, unopened stock rotation from our distribution partners and Cisco manufacturing overstock. The company then checks the equipment into its ISO9001 and 14001 certified remanufacturing facilities, where quantities are validated and all items are scanned into an automated inventory-tracking system, which logs every step of the remanufacturing process," he says.

He adds, "From there, Cisco performs its prescreening unit inspection for damage, serial number verification and application of proprietary Cisco data to detect counterfeits. Any rejected items that cannot be repaired are disposed of in an eco-friendly fashion or sent for a component-recycling process using certified recycling vendors. Counterfeit gear is separated from the pack at prescreening. Authentic products then go on to the Engineering Change Order (ECO) step. After products are updated with the necessary firmware and hardware upgrades, they undergo a set of functional, system and burn-in tests at ambient, hot as well as cold temperatures."

This is followed by an indepth test process, where any previous configuration or owner information is removed, and the unit is returned to its default setting. Original software is erased, and a licensed and current shippable release of IOS software is installed.

Each unit then undergoes a final system test and debugging, and a final quality inspection before receiving a Cisco Certified Refurbished Equipment seal.

They are then packaged, prepared for shipment and placed on a pallet for a last out of the box audit.

"During this audit, samples of units are opened from an already packaged box to verify compliance of product contents, accessory kits, documentation and box labels. If a single unit fails this audit, the entire lot - that day's production run for that particular product - is pulled and run through the entire process again. Any Cisco product that does not carry the Cisco Certified Refurbished Equipment seal - whether from an authorised reseller or not - should be considered cautiously," warns Sabri.

A bit about the WEEE

The Waste Electrical and Electronic Equipment Directive (WEEE Directive) is the European Community directive 2002/96/EC on waste electrical and electronic equipment (WEEE) which, together with the RoHS Directive 2002/95/EC, became European law in February 2003, setting collection, recycling and recovery targets for all types of electrical goods.

The directive imposes the responsibility for the disposal of waste electrical and electronic equipment on the manufacturers of such equipment. Those companies should establish an infrastructure for collecting WEEE, in such a way that "Users of electrical and electronic equipment from private households should have the possibility of returning WEEE at least free of charge". The companies are compelled to use the collected waste in an ecologically-friendly manner, either by proper disposal or by reuse/refurbishment of the collected WEEE.

Following the directive, even local governments and councils in the UK increased measures to ensure businesses and other non-household users are disposing of their wastes  in an entirely legal and environmentally friendly way.

In a bid to emphasise the importance of this directive, in April 2005 the Royal Society of Arts in the UK unveiled a 7 metre tall sculpture entitled 'WEEE Man' on London's South Bank, made from 3.3 tonnes of electrical goods - the average amount of electrical waste one UK individual creates in a lifetime.

The WEEE directive obliged the twenty-five EU member states to transpose its provisions into national law by 13 August 2004. Only Cyprus met this deadline. On 13 August 2005, one year after the deadline, all member states except for Malta and the UK had transposed at least framework regulations. As the national transposition of the WEEE Directive varies between the member states, a patchwork of requirements and compliance solutions is emerging across Europe.

Along with a well-structured re-manufacturing process, most vendors have developed a partner ecosystem, to sell and support renewed systems across the globe.

Vendors, like Dell, also pride themselves on providing limited period warranty, return policies and support that is akin to any that is provided for their new products. The regional scenario

As appreciable as these are, the truth remains that many of these programmes are restricted to the Europe, US and sometimes Africa. For all of its advantages, the concept of renewed systems has not caught on in the Middle East just yet.

There are some obvious reasons for this. One of the major factors inhibiting larger adoption is the mindset that refurbished systems are by definition second-hand, and therefore of a lower quality. Moreover, in a cash-rish, brand-conscious region, most end-users do not want to even consider this option in IT hardware.

This situation is compounded by the fact that many sales personnel, and the vendor's partners, have no incentive to push refurbished systems. When the refurbished systems sell for 5% less than new systems, and if the same partner handles both set of products (which is the case for most vendors where the same partners handle both new and used equipment), there is no drive or impetus to sell the renewed systems.

Tomaras agrees that much of this sales process depends on the individual initiative of sales personnel on the vendor's side.

"By offering these products, the partners can address one more market segment and thus expand their business. Moreover, a lot of sales personnel, like I used to, offer two business propositions - one with new systems and another with refurbished systems. This is demanded in the global scenario of growing competition," says HP's Tomaras.

Another major consideration that inhibits investments in refurbished systems is the lack of regulation. Much of the drive internationally for redone systems and the consequent investment by vendors into recycling units was driven by the Waste Electrical and Electronic Equipment (WEEE) directive.

The standard, which has been around for the last few years, is designed to tackle the fast increasing waste stream of electrical and electronic equipment and complements European Union measures on landfill and incineration of waste.

By placing the onus of equipment disposal and recycling on vendors, the standard has pushed manufacturers to put their efforts behind a clearly defined and well-carried out refurbishing policy for IT hardware.

With the lack of such strong policy to demand changes in the region, there is very little activity with refurbished systems. Most systems that are shipped through the region, are being transported to markets such as Africa, where there is a bigger demand for them.

In spite of all these factors, most vendors that operate in the region believe that there is huge and untapped potential for growth.

"I strongly believe that there is a very big future for these programmes in the Middle East. Many companies are investing in new systems, setting up infrastructure and redoing their datacentres. They can all benefit from our renewal programmes. It is cheaper and they can invest the money that they save in other areas, like services. It is like a tool, the customer has a choice to buy full-warranty covered last-generation products at a cheaper rate. And they will buy," states Tomaras.

HP is not alone in having a positive mindset about growth in the region. But, with the amount of investment happening in the Middle East, and no sign of a change in prevailing mindsets, it might take a bit of strong regulation, rather than just market forces, to establish a much-needed consideration for refurbished systems.

Refurbishing programmes across vendors

Cisco refurbished equipment programme highlights

 - Comprehensive inventory of current and end-of-sale switches, routers,wireless, security, telephony and other products

 - Equipment is refurbished, upgraded, tested and inspected to meet Cisco specifications

 - Loaded with a licensed, shippable release of the Cisco IOS software to ensure network compatibility Backed by the same Cisco warranty and service programme options as the new product

 - Technical support available through the same Cisco Technical Assistance Center as new product

 - Financing programmes available through Cisco Capital to further increase budget flexibility

 - In-stock inventory usually ships within 24 hours of ordering

HP's reuse and recycling programme highlights

HP's programmes enable customers to buy pre-owned HP products, which include lease, trade-in or buy-back returns, demonstration equipment and cancelled orders. Products are refurbished as needed, reboxed and then resold, often with an HP warranty.

HP offers remarketed products for most HP product lines including printers, PCs and monitors. It even has remarketed entire datacentres.

In all cases, HP follows strict processes to protect user data and confidentiality. It's worldwide asset recovery services help commercial customers retire older or obsolete IT equipment in a way that helps safeguard their proprietary information and complies with applicable environmental laws.

Some products returned to HP are not suitable for reuse. These enter its recycling programmes, with equipment returned in consumer take-back programmes.

Sun's reuse programme highlights

Sun's product reuse programme recycles, reclaims, and reuses both components and entire systems. Everybody wins - fewer resources are used, commercially valuable resources are diverted away from the waste stream and back into productivity, and Sun, and ultimately its customers, save costs.

Customers who participate in Sun's hardware upgrade programme can, at no cost, return their end-of-life equipment (including equipment from competitors) to Sun for recycling and proper disposal.

This used computer equipment is collected and sent to a third-party asset recovery vendor who recovers useful parts that are returned to Sun for remanufacture and re-use, often as replacement units for equipment in the field. 

Much of what is not returned to Sun is recovered, refurbished and resold by the third party vendor. Components and assemblies that have no commercial value as functioning systems or components are broken down for recovery of metals and plastics.

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