surplus
The traditional
intermediaries
.Traditional options
.Liquidation
.Synthesis
Traditional Options
Once a company has decided that it should get rid of surplus assets, it has many choices.
-resell directly to other
companies
-re-deploy assets to other locations
within the company
-return the assets to the
vendor
-trade-in the assets to a dealer
-arrange a barter deal
-donate the items for a tax
deduction
-reclaim the parts for use in other equipment
-demolish or scrap the items
-turn the goods over to an auction house
resell directly to other companies:
The main problem of this option is to find these companies which are able to buy the surplus. For most surplus assets, there might be hundreds of companies potentially interested in buying them from a specific company to a fair price. However, finding the right ones, at the right time, is akin to finding a needle in a haystack. Locating them will require a serious allocation of time and manpower. And once that is accomplished, the companies still have to go through the negotiation process. The Direct Marketing Association estimates that the average cost of a personal sales call for a US business is about $300. It takes on average of four sales calls to close the sale, resulting in a total approximate cost of $1200 per sale. Nonetheless, with a direct sale, the company might generate more revenue than some of other disposal options.
Large companies with multiple locations often re-deploy assets from one location to another. The bigger the company is, the more easy to find someone who is interested in taking the surplus.
In order to use this option, the company has to be very large and have efficient communication tools like an intranet. Furthermore, there could be very strong demand for the surplus among outside companies, and it is impossible to know if the company consider only the internal transfer option. With this option a shipping problem could appear if the company has for instance to ship a heavy equipment to a far away division.
Return the asset to the vendor
Vendors accept returns in some situations unsold merchandise to the manufacturer. This situation is not common and the price is very often low.
When a company try to sell an old equipment to a new one, it very often disappointed by the price. Used equipment is not the dealer's primary business, so the dealer may not have a quick means of turning around and reselling the old equipment. Because, the equipment will not have a high liquidity, he can not afford to pay very much on a trade in.
If a company can barter its surplus for something that it really need and which has at least the same worth, barter is a very attractive proposition. The problem is to find an opportunity. This process could be time consuming so expensive.
US Internal Revenue Code provides a tax deduction for certain qualifying donations of assets. This proposition is very easy, nonetheless, from a pure financial perspective, a charitable donation may not be the answer.
If the surplus equipment is similar to other equipment still in use by the company, a good option may to be dismantle the surplus equipment and use the parts for ongoing maintenance of the working equipment.
It is possible to sell surplus assets for scrap. It may be the quickest solution but also the least profitable. It could even cost money to have another company come and take them away
Auction is a great way to dispose surplus. Auctions create open competition for goods, the auction format will generate higher selling prices than fixed price sales. Very often companies use an established auction house to run the auction. Live auctions have some limitations. Among them, there is the fact that an auction will generate better selling price if it attracts an adequate number of qualified and interested buyer. The auction house must market the auction. The commission is also very high (10 to 20%) of the selling price.
Liquidation firms tend to deal either in excess finished goods inventories or in surplus operating assets. Those that deal in finished goods inventories are also known as jobbers or closeout dealers. They purchase large quantities of goods from manufacturers and distributors, and then resell them in smaller lots to wholesalers or discount retail stores.
Liquidators and dealers play a valuable intermediary role. Many of them specialize in particular industries and they can have vast knowledge of those industries and the key players in the business. That enables them to act as a conduit between companies looking to sell surplus and companies looking to buy that same type of surplus. Because liquidators generally take ownership and possession of the assets, and bear the associated risks and costs, they charge a premium to sellers in the form of lower purchase prices.
Selling surplus to liquidators seems simple only on surface but companies need to take care about few points.
Inefficient
In an efficient market, information is plentiful and flows freely. Sellers can easily find buyers who want their products and buyers can easily find sellers who are selling the types of products they want. Efficient markets also stimulate competition. The more interested buyers you have, the more likely it is that the optimal market price will be realized.
Judging by those criteria, the liquidation market seems to be far from efficient.
1)There are more than 10,000 liquidation firms and surplus dealers in the US (according to Tradeout.com). Nevertheless, it is very difficult and takes lot of time to find a reasonable number of liquidators interesting in each category of the surplus. They are often specialized in some type of goods because they have well developed channels and connections for reselling these goods. So they are not able to sell every kind of goods.
2)Relevant information is not easily accessible resulting in a very poor competition among liquidators.
Slow and time consuming
Liquidation surplus is not an easy task. Firms need to be patient and be prepared to devote considerable time to it. They will have to manage the back and forth communications and the negotiation process and expend great effort doing so.
Channel conflict
When a firm sell its surplus by a liquidator, the firm never knows where
the surplus will be resell. Once a company sells its surplus to a liquidator
it is out of its control and the company hope that it doesn't end up in
the wrong place. This is particularly true for overstock. If a company
sells its surplus to a liquidator which sell its product at lower price
than the regular distribution channel, the company can have some problems
with its retailers. Furthermore, this parallel distribution channel can
erode the value of the brand.
Synthesis of the different options
There are two ways to sell or buy surplus. It can be directly from the
buyer or through an intermediaries:
As we saw above, none of all these methods are satisfactory for the
buyer and/or for the seller.
