Cell Phone Providers Deal with Used Device Onslaught

If you grew up watching the Jetsons or Battlestar Galactica, it's easy to be disappointed that the human race hasn't mastered intergalactic space travel yet and that we don't commute to work in flying cars. Weren't we at least supposed to have hoverboards by now? Not the kind with wheels and exploding batteries, but the ones that actually float. Those sci-fi writers definitely lied to us about our future.

However, the future has a funny way of evolving in unanticipated ways, disappointing on some fronts while delighting in surprising ways on others. I don't remember any shows where people walked around with handheld devices connected to a huge network that gave them instant access and searchability to a comprehensive database of human knowledge. Yet, here we are, taking our smartphones for granted every single day — at least, until we lose them. Keep in mind that this hasn't even been going on for nine years; the first iPhone was released in June of 2007. 

As interesting as the technology itself are the supply chains that were developed to fill this insatiable need to stay connected. I knew someone who once did door-to-door sales for a cell phone provider; can you imagine selling a smartphone like that today? That was back when the phones were commodities and consumers were wooed by service offerings like how many minutes of talk time they got. Today, people are much more concerned with the actual devices and the service is becoming more or less commoditized.

But the infrastructure that has developed in order to get the latest tech to market quickly has been nothing short of remarkable. This was highlighted back in 2014 when Apple was blamed for causing shipping delays out of Asia because it booked so much air capacity to ensure timely deliveries of its newest iPhone.

Now, the forward logistics for this industry is largely mature, but the big shakeup that is emerging is in reverse logistics. It used to be that reverse logistics in the wireless industry was due to an unhappy customer, a warranty return, or an insurance claim. In sum total, the number of devices returned amounted to approximately 25% of the forward logistics volume. Improved recovery and rapidly growing secondary markets, though, mean that just about every handset sold in the United States today will ultimately find its way through reverse logistics channels. Reverse logistics isn't just for defective devices and warranty issues anymore, and that's why it is becoming such a hot topic.

The secondary market giant has awoken

New technology, whether it's cameras with higher megapixels, longer battery life, more memory, or higher processing power, motivates consumers to swap out smartphones for newer models. This upgrade cycle is creating an enormous supply of used devices that still have plenty of useful life remaining while markets in places like China, Latin America, and Africa are seeing their own spikes in demand for smartphones. It's a win-win situation for consumers in both markets: North American customers recover higher trade-in values to help fund purchases of new devices and secondary markets get supplied with high quality used handsets. 

This second life for smartphones has changed the game for how the devices are sold. No longer subsidized as part of service contracts, carriers are instead offering interest-free financing on phone purchases. Anticipated resale value has also allowed plans where customers can pay slightly higher monthly payments to guarantee the ability to trade-in at a set value early, resembling the model automobile dealers use to lease vehicles. Last year, Apple launched its own direct sale and upgrade model to iPhone customers, effectively guaranteeing that almost all of the product it sells will be returned.

Big data has nothing on user data  

Think about all the rich data contained on your cell phone. Call records, text messages, emails, even GPS records of places you have been — it's a treasure trove of information that the wrong hands would love access to. The court of public opinion has deemed that users own their own data, but legislation is much less clear as can be easily seen in Apple’s refusal to give the FBI access to a suspected San Bernardino gunman's iPhone. We are unlikely to see concrete legal precedent of who owns data any time soon.

That makes it an issue of trust between consumer and carrier. Thus, a vital aspect of accepting used cell phones is the guarantee that all data will be securely and thoroughly wiped. Whether the device is destined for a second owner or the spare parts heap, this covenant is ironclad and no party that does not completely delete this information from devices can have any hope of success. Moving forward, data disposition is the most important function of smartphone reverse logistics for customer loyalty.

Keeping Captain Planet at bay

Secondary markets are great at extending the product lifecycles of smartphones, but not every device is suitable for reuse. Some come back too damaged to salvage and others just aren't in high enough demand to justify the process. The emerging circular economy is putting pressure on manufacturers to keep their products out of waste streams, and consumers are increasingly concerned with sustainability. Media reports have also focused the public eye on ensuring that rare earth metals don't end up in landfills.

This helps cement the notion that almost every handset — even destroyed units with no resale value — are flowing through the reverse cell phone supply chains . Carriers and manufacturers that hope to maintain customer loyalty have to be ready to accept them. In the near future, they could be legally required to do so, which makes establishing processes and best practices now important.

The mobile phone sector is a great barometer for the increasing importance of reverse logistics in the electronics space. Identifying areas where reverse and forward logistics can share resources and building the assumption of every unit sold coming back into supply chain design is key to long-term success.

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