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By | Tim Worstall 23rd December 2012 14:06

Forget value-added broker jokes: Could YOU shift nuclear plant scrap?

The stock doctors: What they actually DO (besides talk)

Why do brokers exist? All we ever do is just sit around and talk to people, so what value do we add to the economy? Or what value do “asset managers” like the late Howard Strowman add? And will the existence of such be a permanent feature of the tech distribution landscape?

Regular readers will know that I spent the 1990s wandering across the blasted heath that was the economy of Russia after the collapse of the Soviet Union.

One little tale from those times: I once sold 60 tonnes of nuclear power plant scrap to be turned into car wheels. Not used scrap of course, rather the stuff left over from making the fuel rods. These are, in the Soviet system, made of a zirconium/niobium alloy (the Western world uses Zr/Sn). The tubes are also made to a standard length, but the bottom of a reactor is curved so the actual fuel rods are of different lengths. Thus, before they're filled up with uranium and other delicious goodness they're cut to size. Leaving lots of little orphan tubelets.

Back then the plants that made the new tubes were all closed, so there was no recycling to be done by them, there's no point in trying to run them through the Western Zr scrap plants because it's an entirely different alloy. So what to do with this pile that we were being offered? Zr is used in some aluminium alloys, usually a 1 per cent or so addition. But no one wants the Nb: not a good thing to have in such alloys. However, there was one bloke in Rotterdam who had worked out that under 0.01 per cent Nb (100 ppm) was fine and the Russian nuclear alloy was 1.1 per cent Nb. So, if he mixed in a bit of pure Zr scrap and only wanted 1 per cent Zr in the Al alloy then the Nb would be diluted below 0.01 per cent and thus he was willing to pay bottom feeding fire-sale prices for this nuclear scrap.

The job of the broker is to know this shit: there's no reason why the bloke running the fuel rod filling plant should, he's got other things on his mind. And this broker did know this shit and after contacting the friendly local smuggler (without, of course, mentioning the need for a nuclear goods license) shipped three trucks worth off to be made into MAG alloy wheels for cars.

A tube is a tube, right? Asset managers make their money
from having killer ideas.

This broker learnt all this through the time-honoured practice of spending weeks and months gossiping to every other broker and thus learning stuff. Like who recycles broken germanium lenses, why gallium could be bought in Moscow in 2 litre Pepsi bottles (they were draining it from the solar neutrino experiment) and even who the only two people in the world were who used scandium to make light bulbs.

Stick it in the warehouse... we'll find a use for it later

That's nothing at all to do with the tech distribution channel of course: but brokers do exactly the same thing there as well. There's a whole host of companies out there that are little more than a phone line and some cheap (but dry) warehousing.

Every day someone hoicks out the old kit (the PDPs, VAX, whatever) and installs the new shiny-shiny. That old kit going into said warehousing to be brought out again when one of the remaining users of the old (PDPs, VAX, whatever) needs a replacement bit. For they're not making the spares anymore but there are indeed those machines being hoicked out. The only important things you need for such a business is a bit of cash and the knowledge of who is still using the old and who is hoicking it out. And this is exactly the sort of thing you learn by simply talking to people on the phone for a few years. Which is why brokers actually do little more than that.

There are myriad little niches for brokers in any and every part of the economy. I know one who brokers used cooking oil from chippies (used to make biodiesel). A merchant or investment banker is nothing else, he's just brokering money between those who want to invest and those who desire investment. I've worked for a bloke who shipped used ink jet cartridges around four different countries (the trick there being knowing who can refill which cartridges). The game is essentially to know more, in your specialist area, than anyone else you come across. There's little point in the chippy owner investigating how to process 1,000 tonnes of cooking oil. But there's great point in someone collecting from 500 chippies knowing how to do it.

Distie business

Within the distribution channel there's any number of such specialists: from those guys who know where the old kit is and where it's to go, all the way to people like me who know how to monetise the old telephone exchanges (it's the gold on the contacts of the old analogue exchanges that excites).

But we've also got a rather different type of broker, the Strowmans of this world. Here it's not so much the knowledge of who could possibly want this dog's dinner of dead stock. It's who off my patch would want it.

Image kindly provided by Tarquin Millington-Drake

The late, great Howard Strowman Image by Tarquin Millington-Drake

OK, sure, there are times when no one has any idea at all of what to do with some old kit. But that's rare: what is really wanted is a way to get rid of the old kit without cannibalising sales of the new and much more shiny kit. And that's where the asset managers really come into their own. Take the deal that El Reg mentioned, Strowman getting rid of the Sinclair PCs that Amstrad had inherited along with the firm. Yes, of course, Alan, Sir Alan Lord Sugar would like to get some cash for these boxes. But he'd also very much like to make sure that he doesn't flog cheap kit to someone who without it would have bought full price Amstrad kit (erm, an oxymoron but there we are). So the deal in these cases is that the asset manager moves the cheapo kit off into a market where the seller isn't competing at all.

These other markets can be geographically distant: odd lots of kit do turn up in poorer countries often enough. Or they can be channel distinct. For example, a distributor that sells to resellers won't want dumped kit being offered to resellers. But it might be fine with them going mail order or on the shelves on the Tottenham Court Road (or at the sadly late and lamented Morgan Computers).

As to why there is this odd kit it's usually one of two things. Either simply godawful screw-ups (like 160,000 Sinclair PCs) or end-of-line stock. Say, just as an example, that you're a retail chain. You've been flogging that 486 33 MHz (shows you how long it's been since I was in this game) successfully but the 50 MHz is out now. You've got 30 stores but only 20 of the 33s. Better to pull those 20 boxes out of the pipeline altogether instead of wasting money on advertising something that not every store can stock.

Richer Sounds has made a specialty of buying up that sort of stock for decades now. A variant on this is returned goods. Customer buys something, the mouse is the wrong colour, they return it. You don't want this now fixed but lower priced stuff in your distribution chain for shiny shiny. So you get it dealt with by one of the asset managers. Their job, as above, to make sure that these returns don't end up cannibalising your own new sales.

For example, by shipping them off to the people who go to computer meets in hotel ballrooms: no one who goes to those things is ever going to pay full retail anyway.

And the reason that such asset managers continue to exist is that it's never worth the while of any one distributor or reseller to gain the specialist knowledge of where those outlets all are in detail. While it is worth the while of an asset manager who deals with 5 or 50 of the kit makers. Which is where we can put it all into the standard economic terms.

It's all that Adam Smith and his damn bloody pin factory, that thing which has been boring economics students for centuries. Simply the division and specialisation of labour. The manufacturer, the distributor, specialises in the standard part of the selling exercise, getting the new kit to the eager punter. The broker specialises in the odd stuff, the end of line, the mistakes, the getting rid of it where it won't cannibalise sales.

Looking at it this way those brokers aren't going to go away. Indeed, standard theory would tell us that we'll get more of them: a larger and more complex economy provides more opportunities, not fewer, for such division and specialisation. As indeed is happening: recent years have seen the rise of mobile phone brokers operating in much the same fashion as the older computer ones. ®

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