The market for recycled electronics, and what companies can do with excess stock.

Circularity and inventory management intersect two key areas for electronics manufacturers. They are problems as old as the industry. In the early 1990s, for instance, an entrepreneur named Jerry Haller had an idea for a component exchange system set up much like trading financial stocks on Wall Street. He called the operation Fast Parts. It never caught on, however, nor did the many attempts others made to emulate it.

A few decades later, however, the industry might finally be ready for sustainable resource management.

Kenny McGee of Component Sense

Component Sense is an Edinburgh, Scotland-based company that leads electronics manufacturers toward zero waste. They take brand new, perfectly good excess components and redistribute them to other manufacturers for use. The impetus, as founder and chief executive Kenny McGee recently explained to Mike Buetow for the PCB Chat podcast, was to help manufacturers carrying huge volumes of excess inventories on their balance sheets, while also providing a path for using those parts so they aren’t ultimately landfilled. The company’s journey has even led to a self-produced documentary on the e-waste sites in Ghana.

The following transcript has been edited for length and clarity.

Mike Buetow: Over 62 million metric tons of e-waste were produced in 2022 and less than a quarter of that was recycled. Meanwhile, we have supply chains under threat of disruption due to everything from wars to politics.

Many have seen images or videos of some of the sites in Southeast Asia where residents fish scraps of anything remotely salvageable to reclaim and sell. You’ve visited a few of these waste dump sites: Tell us what you encountered.

Kenny McGee: Last September, I spent two weeks in Ghana, which is always renowned as the largest e-waste dump. It came to my attention awhile back, around 2007. I saw a documentary and discovered that e-waste from my local area was somehow ending up in Ghana. E-waste is meant to be managed in country and that’s been the case for a long, long time, certainly for European countries, but somehow, it’s getting to Ghana. It horrified me.

From that point onwards, it was something we talked about when speaking to electronics manufacturers. They weren’t awfully interested at that time. In those days, talking to a CFO or a CEO of an electronics manufacturing company, sustainability wasn’t on top of the agenda. Thankfully, that’s starting to change. But it wasn’t the case then.

We were a tiny company at the time, probably four or five people. But it’s always been in my dreams and goals to help. Maybe a year and a half ago, one of our marketing team members was doing research into that topic to see if it was still happening. She found some photographers that had actually been [in Ghana] and have some real insight into what it’s like out there.

We interviewed a journalist who had also been there several times. Her description is that everything changes, but nothing changes. We created a small documentary about that meeting.

By September, we were out there for two weeks on the ground and having a real look to see what was going on, because it’s very complicated.

E-waste seems to be going out of the UK and Europe in the guise of working electronic devices. It is legal to move that stuff. Ghanaian authorities are currently claiming about 80% is usable. But what we saw on the ground of containers arriving was more like 20% was working. They’ll basically burst open a container, and there’s a load of traders wanting to buy that stock. It might be TVs, fridges or a whole mixture of appliances in that container.

You’ll have different specialists. The TV guy has to buy all the TVs. He might take away 10 or 12. It was those guys who were saying that roughly 20% worked. The balance he would sell as broken TVs. Somebody would then buy those and try to repair them.

There’s a whole economy around people literally piecing together one good TV out of multiple broken TVs, and it’s quite amazing. It was cool to see that angle, because we don’t repair things anymore in the Western world. But to see people piecing together a working TV from multiple broken ones was cool from a sustainability point of view.

Even then, a big chunk of that stock ends up in the e-waste dump in Agbogbloshie. That’s what you see in documentaries.

It’s shocking in a documentary, but to see it face-to-face and meet the people that live there was just unbelievable. It was really, really emotional. The sheer scale of it blew me away. We literally watched and saw how they recycle. The tools they use to get the copper – which is the main ingredient that they’re trying to salvage – are often just a chisel and a rock. And the guys are sitting there in slip-on sandals. There’s no health and safety at all. We saw some shocking damage to some of the individuals. And, of course, sanitation is not particularly good. It is very much a slum area.

People have these kind of pens, in most cases, no roof. They’re literally just working on the dirt, trying to salvage. The stuff they can’t sell just lies around in great big heaps. They’ve got a sort of landfill, albeit it looks more like a mountain. And that’s where everything ultimately ends up.

The most shocking thing is the burning. They don’t want the sleeving or plastics. They burn that to get to the copper. It’s the fastest, cheapest method. It’s obviously horrendous for the environment. And that was an ongoing, almost 24-hour, 7-days-a-week process. There was smoke filling the whole area. It was horribly toxic. You could hardly breathe. The heat was unbearable. This is 20 yards from the houses.

E-waste dumps like these are common sites in Ghana.

MB: So even if some of these products that you saw are ultimately reclaimed and recycled, it’s a totally inefficient solution to the e-waste problem.

KM: Oh, yeah.

MB: We are creating these piles of pollution. What do you see as the role of the secondary market – distributors and those operating on the periphery of the component supply chain – in combating e-waste and how it’s contributing to the circularity movement?

KM: I was asked that question a lot while I was out there. They’re looking for solutions, so they want somebody to come and help. They know what’s happening isn’t good for them. These are people just struggling for survival, so they just need some form of income.

They literally do whatever they can to survive. We’re not directly able to solve this problem, but my hope and my goal is to bring awareness to it.

While we are distributing and redistributing chips, it’s obviously circular. If we go into a large tier one EMS and they have loads of stock of brand-new components - unused, untouched, traceable -we don’t want that stuff adding to the waste, first and foremost. Our job is to redistribute that.

We want to, while we are doing that, educate the world, and particularly these large manufacturers. It’s their names and brands on the products. If we can encourage them to get involved in some way, we can make a difference. It’s separate to our day-to-day business, but it could be fueled by that. We’re committed to putting some of our profits toward the cleanup, and not just cleaning up the mess that’s left, but actually creating jobs and schooling for kids. We want these very large manufacturers involved because, let’s be honest, if you’re paying over $1000 for a phone, an extra $5 on that would make no difference whatsoever. But if that $5 got to Ghana, they could do incredible things with it.

These guys are earning roughly 2 euros [$2.20] a day. Small amounts of money per item could really transform what’s happening out there and create more productive lives and a more sustainable environment for us all. It’s one planet.

Moving our waste from the UK, Europe or the US to Ghana isn’t the solution. It’s killing our world. A 10-year-old TV [in the West] is deemed useless. You can’t get all the modern applications on it. So, people are throwing them out and, in some cases, working TVs are thrown out because they’re just old. But to [Ghanaians], they’re still valuable. We certainly shouldn’t be sending broken items to poorer countries.

MB: You formed Component Sense in 2001, which was just in time for the dot.com bubble. No waste created from that, right? What did you learn from that experience?

KM: We had the dot-com bubble. We had the millennium bug. Every computer in the land was being replaced because on the first day of the new millennium, everything was going to crash. Planes were going to fall out of the sky. And we had crazy demand for mobile phones. Mobile phones were transitioning from being the great big bricks that only rich people carried to the little Nokias that anyone could afford.

Suddenly everybody had a phone. And that created enormous demand too.

It’s usually a perfect storm like that. It’s multiple things that create mad demand plus the shortages and all the chaos that ensues with that. I worked in broadline distribution at the time, and clients were coming to me with a massive excess problem. Because in the shortage period – and the same thing happened [during the pandemic] – people were overforecasting to get stock. Manufacturers and distributors have a thing called allocation. And if you order 10,000 pieces a month of something, and the supply is short, they might agree to give you 1,000. They’ll allocate you 1,000, or 10% of what you’ve ordered. Buyers, thinking they’re super clever, increase their forecast so that they can get them. Many of them don’t seem to realize they’ve signed into NCNR contracts in that situation; noncancelable, nonreturnable, nonrefundable. And when the crash comes, and this is exactly what happened, that company says, “Hey, all that stuff you ordered, here it is.” And they just unload millions and millions of dollars’ worth of stock on you.

In the case of some customers here in Scotland at the time, they were struggling. They couldn’t afford to buy, in some cases, 10 years’ worth of stock because they’d overforecasted to that degree, clearly assuming they could just push it out or change it or whatever. They were forced to take the stock. And again, we’re seeing that now. Normal is about 10% of revenue. So, every company that builds or puts chips on boards is typically sitting on about 10% of their annual revenue tied up in slow-moving excess and obsolete stock. But, at the moment, we’re seeing that in a well-managed company, that’s double. And in a poorly managed company, it can be many, many times. We are seeing five years’, 10 years’ worth of stock in some factories. Of course, the product won’t even be the same product in 10 years. The chances of using those same devices in 10 years is pretty slim.

MB: It does tie up a lot of companies’ cash in inventory, and it creates risk. So that’s where Component Sense comes in. Let’s talk a little bit about your typical customers, and how your process works.

KM: Our typical customers are billion-dollar sites. We need to ensure the quality of the parts we’re reselling. Everybody is aware of the counterfeit challenges. If we were buying from the gray market, we’d lose the links in the chain that give traceability. We feel that there is no way to absolutely guarantee a counterfeit-free supply chain.

We buy only from large OEM and EMS companies that can prove where they bought the product. And, in most cases, we’re typically looking for that to have come from direct supply. So, usually, straight from the chipmaker, and in some cases, large recognizable franchise distributors.

If we want to sell that stock, we need to find a way to redistribute it. To find an incentive for somebody to buy that stock, it’s price. If we can take [excess inventory] from a billion-dollar company that’s got really strong buying power, they’re probably buying at half the price of the $100 million company that we’re selling to. We’ll remove the risk, we’ll give you all your money back and we’ll redistribute it downstream. We take a small margin in the middle, and the owner gets their money back and, in some cases, solid profit.

Our goal was always just to move stock and get it redistributed into the hands of somebody who can use it. Because if it sits and sits in a warehouse for 10 years, it’s going to end up scrap.

MB: Do you actually take delivery of the excess parts?

KM: We do. Our original goal was to just help people redistribute stocks: find a buyer, find a seller, put the two together. That was a bit naive, if I’m honest. At that time, I didn’t realize just how difficult that was for a big company. They don’t want to create hundreds and thousands of new suppliers on their system and get approvals for a new supplier. If you’re a billion-dollar company, it takes ages and it’s a really cumbersome process.

We realized we had to physically act as middleman and take ownership of the stock. They also don’t want any liability whatsoever. If a very large company sells stock to us, they want us to take all the risk, all the liability. We do that.

We bring it to the UK for inspection because we’d still put it through over a 100-point check, even if it’s traceable. We take it through using microscopes, to absolutely ensure that we don’t ever have counterfeit or inferior product, and to collect a beautiful database. We’ve got this most amazing database of known-good stock Chips vary much more than you think. They’re made to Six Sigma [three parts per million failure rates] but physically they’re not made to very high standards. The variance on a particular device across a period of time and made in different factories is surprisingly wide. The texture, the content … For example, when you do an XRF, you can get quite a variance even in the quantities of different substances inside and the epoxy coating that seals the component.

MB: Are you inspecting every part or are you sampling on a per lot basis?

KM: Sampling. The stuff we deal with is brand new, sealed packs, factory sealed. But we’re really cataloging what known-good devices look like so that we can detect anything if something odd came up.

MB: Will you take possession of inventory prior to having a buyer?

KM: Yeah, we work in a number of different ways. If it’s a really huge site, the best way to deal with it is our implant system, inside their factory basically. Very large EMSs, particularly, don’t want to move the parts offsite because as soon as they do, somebody has to pay for it. Somebody would have to pay in full for that stock.

They often talk about obsolete or dead stock, which is 1% of revenue. That’s what most people are aware of when they talk about E&O, is the dead stock, the stuff they’ll never use. But there is this other 9% that is slow moving. It might take a year or two to use up. That’s the risk. You’re well aware of the obsolete, the dead stock. That 9% is obviously a much bigger number, but that’s your future obsolete stock. That’s your risk. We’re trying to reduce that risk, get back to just in time. You want six weeks’ worth of stock, maximum. Get rid of the excess, give it to somebody that can use it now, and reduce your risk.

MB: Does this mean that you find yourself also susceptible to the component inventory cycles?

KM: Absolutely. Our business changes from year to year depending on where we are in the cycle. In the peak period, getting people to release stock was tough. Even though they had masses of excess, there was a fear factor of letting stuff go. Companies tend to hang onto it just in case. That was at a time they could have made 10 times their money on it.

Then, of course, the market collapses. They’re now sitting on years’ worth of inventory, and they desperately want to get rid of it. But they pay the premium in that time; even those buying it directly were paying a premium. So it was much, much harder to sell in that period. And that’s where we are now. We’re still in a situation of abundant stock. If you want to get rid of stock right now, you’re going to have to sell it, and probably below cost to incentivize a buyer to take it. We’re now in a position where we’re getting stock coming out of our ears and we’re having to work really hard to shift it.

We’ve spent millions in the last few years building upper stock because it’s cheap to buy. If somebody desperately wants to get rid of something, we’ll buy a whole batch, put it into stock. It might take five years before that stuff starts moving again. So there’s risk.

MB: Is everything warehoused in Scotland?

KM: We have our own warehouse in Scotland, but we partner with DSV, one of the largest logistics companies worldwide, and we store in their warehouses wherever possible, because we don’t want to move stuff unnecessarily across the world. If it’s in the States, why bring it to the UK to probably send it back to the States. Whenever possible, we try to keep it local. We’re in Alabama. We’re in Vietnam. We’re in Budapest. But anywhere there’s enough stock, we’ll open up a store. The DSV model allows us to do that with just two weeks’ notice.

MB: You’ve been to Ghana, you’ve seen these waste dumps. You’ve had a firsthand look at all the issues that are involved with excess components and e-waste. Is there anything in particular you’ve taken away from that that you then go back to your customers and try to educate them or their buyers on insofar as managing their supply chains, knowing full well that you make your living off of their excess, their mistakes?

KM: I’ve lived through this cycle a few times now. I’ve been in electronics since I was 16. I joined straight from school. I’m 56 now. I’m always trying to educate. In truth, when I’m out visiting clients, it’s always about education. It’s trying to highlight to them things they can’t see. If you’re in a manufacturing plant, you’ve got all your metrics, the things that are important to you, but you’re quite insulated. You’re looking very much through blinders. I’m always trying to broaden my horizons. That Ghana slide’s been in my deck since 2007. I’ve talked about e-waste for a very long time.

The younger generation is really fired up by improving sustainability. We want to help redistribute. We want to help avoid waste. But if they’re not interested, there’s no point in pushing that narrative. We have to encourage them into our fold and in the ways that matter to them. And as I say, that is typically money. So, if we can give them all their money back, why would they not redistribute it?

We try to take away all the barriers. We make it easy. We install our person at their site, or we pay their person if they prefer to have their person onsite for security reasons. We can pay for that with the proceeds of moving the excess. It costs them nothing. We try to remove all barriers because our goal is to redistribute stock. And if we can encourage people to do that, then we’re doing our little bit to save the planet.

We’re starting to hear sounds from some of the biggest electronic manufacturers they are coming on board. And I do believe that we’ll convince some very large customers soon to actually help us make roads in there. We’re not looking to become a charity and get on the ground, but we’re looking to support the charities there.

MB: What metrics does Component Sense use to track its recycling?

KM: It’s the figure of components we’ve saved from landfill at the moment. I think 35 million off the top of my head.

We’re currently working with some companies that are literally measuring the carbon footprint of every component. We’re trying to get to a point where we can literally measure by component what the cost of that component was. It’s a change in attitude. Most companies are financially driven. Most companies are on the stock exchange. They’ve got to report those figures. And the figures that are currently most important are still very much about cash and money and profit. We’re starting to see companies reporting on their carbon footprint and other sustainable numbers. This is going to become more important because the cost of a component isn’t just the cost of a component. It’s the cost to the planet. The average mobile phone uses something like two-thirds of the elements in the periodic table. So, we’re drawing all those elements out of the Earth. We’re combining them together using heat, light and power to then create these devices.

The cost isn’t just the $1.20 or whatever. It is the cost of all that work, all that pooling resources and combining them into these wonderful devices that make our lives better. But you can’t look at that just in dollars and cents. You’ve got to look at the whole picture. We’ve already pooled all those resources out of the earth. If we can, in its simplest form, get a component that would otherwise end up being redistributed scrap and into the hands of somebody that can use it, that’s easy.

Mike Buetow is president of PCEA (pcea.net); mike@pcea.net.

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