Reverse logistics: Going in reverse to move forward
The reverse logistics process is as important as forward logistics. With the right software and steps in place, you can make the most of what comes back your way.
By Lorie King Rogers, Associate Editor -- Modern Materials Handling, 9/1/2009
Scitsigol esrever. See, going backwards isn't always easy. And in the world of materials handling, reverse logistics can be especially challenging.
What happens at your facility when a product needs to be returned? Who handles it? Is it a problem? These questions should be top of mind, given the amount of capital tied up in returns, but too often fall to the bottom of the priority list, experts say.
"A key problem with reverse logistics is that retailers or OEMs don't have their focus on the return cycle of product because they believe that it doesn't generate profit," explains Shibesh Banerji, principal consultant at Tompkins Associates (800-789-1257, www.tompkinsinc.com).
One roadblock for reverse logistics is the frequent absence of high-level managers overseeing returns activities. "In the past, companies haven't paid enough attention because reverse logistics doesn't seem like a normal part of business. So, reverse logistics hasn't been thought through as well as it should be, and people have been leaving money on the table," says Dale Rogers, director of the Center for Logistics Management at the University of Nevada, Reno (UNR, 775-784-8050, www.logistics.unr.edu).
But all that's changing, Rogers says. Global interest in reverse logistics is rising. And, if you can efficiently handle returns, there's an opportunity for your company to increase profit margin and minimize loss. For instance, many companies are discovering that they can maximize secondary market opportunities, like eBay, Craig's List and factory outlet malls, as a way to recoup some return on their returns.
"When there's a downturn, companies look for ways to get additional value out of their product," says UNR's Rogers. "Reverse logistics is one way a company can get residual value out of an asset."
Finally, forward thinking companies recognize that how they handle the products that come back to them also has an impact on their green credentials. "Sustainability is playing an important role in reverse logistics," says Paul Vassallo, marketing director for high-tech segment at UPS (800-742-5877, www.ups.com). "More and more companies are looking to reduce their impact on the environment and search for carbon-neutral ways to dispose of product."
A lift truck operator puts processed returns away for future disposition.
Start with a sound decision
Can you handle returns in house or should you outsource the process?
That's the first question to answer to determine if handling returned items is part of your company's core competency.
Reverse logistics may not be a current strength for your operation, but that could change. For instance, if you want to be a leading edge company and get back 80% of your assets' value, you might consider investing in your reverse logistics operations. "As the economy changes, companies may redefine their core competencies and corporate growth strategy," explains Banerji. "A company can develop reverse logistics as a core competency if they're willing to dedicate the time, money and resources."
One way to do that is to take a holistic view of the entire process from the standpoint of margin recovery. "To get a full picture of the potential from returns, you should review all of the economics, practices and processes around reverse logistics, including manufacturing, purchasing agreements with manufacturers or retailers (specifically return allowances and practices), returns processing locations and providers, repair and refurbishment practices, and liquidation costs," says Stephen Fraser, chief executive officer of Genco Supply Chain Solutions (800-677-3110, www.genco.com). "Map the complete process weighing in cost, time, touches, miles and environmental impact."
If you need help making a quick decision, consult with a third-party logistics (3PL) service provider or consulting firm that specializes in reverse logistics. "If you can wait, consider working with a four-year university that has a graduate program in the field," says James Stock, a Frank Harvey endowed professor of marketing at the University of South Florida in Tampa (USF, 813-974-2011, www.usf.edu). "These students have faculty support for their projects, especially at the PhD level where a student may be doing a dissertation and working with two or three professors. It may take longer to get an answer, but it won't be as expensive."
Create a separate storage area for returns away from regular merchandise.
Set the stage
If you decide to handle reverse logistics in house, there are a few basic building blocks to put in place:
Create an internal company structure that identifies who's responsible for the returns. This will keep details from falling through the cracks.
Physically separate inbound from outbound process. "If your facility has 20 docks going out, dedicate two to receiving returns because the process is very different," explains Banerji. Outbound works against a purchase order and is very structured, inbound items come one at a time and require validation and inspection, which is typically a manual process." The same recommendation stands for racks, shelving and storage.
Create a separate area for returns away from everyday merchandise. It might also be necessary to establish a staging area for returns that go back to a manufacturer in bulk.
Let the returns begin
Returns have to come from somewhere, but the debate continues as to whether to include a return shipping label in the outgoing package or not. Some say it encourages returns, others believe that going online or to a call center provides an opportunity to enter the ship notice into the system. Either way, a return shipping label should include as much information as possible—for example the model number, the manufacture date, and any disposition instructions.
Receiving: When a return arrives at the receiving dock, it has to be entered into the system. This can be done by scanning a bar code or by manually keying in information. And, once in hand, keep it moving. Tompkins' Banerji strongly recommends assigning well-trained receiving personnel to the task. "You need associates who understand the whole service supply chain aspect because if they don't receive items properly, it's money lost," he says. "And if not handled properly from the start, things can only go south."
Inspect: Part of the initial process is inspection. Usually a manual process, inspection ensures that the returned item actually matches the product information in the system. If you're expecting a pair of shoes, your inspectors need to verify that you've actually received the shoes and not a box of rocks.
Authorization: The authorization and credit processes have to be done in a timely manner, otherwise you risk building angst about future dealings. "Reverse logistics is all about damage control and making the process as customer-friendly as possible," explains Lou Cerny, vice president of Sedlak Management Consultants (216-206-4700, www.jasedlak.com). "You've already disappointed the customer once, now you have to close the loop as soon as possible."
Sortation: This step can be labor intensive if you're handling items of varying shapes and sizes. In that case, it's most likely a manual process of unpacking, inspecting and putting the item on a conveyor or in a bin for disposition. However, if you're dealing with like products, the process can be automated with a conveyor and sortation system.
Disposition: Put simply, this is what you do with the product now that it's been returned. There's money to be made in choosing the right disposition. The decision is based on predefined business rules that are built into the system. The direction might be to return salable items to stock, resell merchandise online, donate it to charity, disassemble for recycling or scrap it.
If you’re dealing with like products, the returns process can be automated with a conveyor and sortation system.
Software for hard tasks
Sophisticated data collection and information flow help the process. Batch data collection, which uploads information into the system infrequently, is an option for inventory that isn't slated to go out for resale. But to get the highest return from an asset, it's crucial to communicate to the warehouse management system (WMS) that an item is available for picking after it's inspected. Real-time visibility is often a must.
Once you've collected the information, reverse logistics software and a robust information system infrastructure can help you successfully handle the next steps. "Software has become an enabling technology. It reduces the number of touches in the process, removes the 'oops' opportunity and closes the loop," says Pat Anderson, senior solutions architect of TAKE Supply Chain (512-799-0741, www.takesupplychain.com).
Returns management software solutions provide a number of functions.
Gate keeping: This step performs triage. It ascertains who sold the product, its specific identification information and validates the return. It also provides the customer with labeling and shipping information to send back a returnable item.
Collection: Once it's determined that action must be taken, the system tells you what's coming back, how, when and where it will be sent. This allows preplanning and will ensure that the return gets to its proper destination.
Receipt: This is a further level of triage. When an operator scans the item upon receipt at the dock, the system knows how it should be handled. The return management system interfaces with a warehouse management system making sure rules are in place to provide accuracy and velocity for the flow of returns.
Disposition: This prompts an operator to conduct certain tests which determine whether the return will be repackaged and put back into inventory, repaired, whether it will go to another customer, sent back to the manufacturer, whether it can be recycled or if it has to be scrapped.
Including data capture functions in the returns process can actually improve products. Data collected from reverse logistics software can identify trends in product failure that might assist in designing products for ease of assembly and deconstruction, identify secondary markets like online markets, discount stores or overseas opportunities which could be a requirement for brand protection.
Let the pros handle it
What if handling returns just isn't a core competency? Then it's time to outsource. There are several reasons why a company may turn to the experts for help.
"If something comes back and it isn't going to be resold right away, outsourcing to a 3PL might be the right choice," says Sedlak's Cerny.
If your company handles sensitive products like pharmaceuticals or electronics that have laws and complex protocol involved in the reclamation, recycling and disposal process, it might be best to leave the job to the experts.
"It's not easy to set up a network and continually mange a relationship with recyclers," says Garrett Jaenicke, senior market analyst at UPS. "High-tech electronics is a good example. They have to be disassembled, precious metals like mercury and lead have to be salvaged, plastics need to be collected for recycling—this is an industry in itself."
If the volume of returns is low, Genco's Fraser says, "It's wise to also look to share the cost of a returns network with other companies in a shared operation. "It may not be economical to build a dedicated reverse center for low-volume operations."
When selecting a 3PL, Fraser says, "Evaluate a reverse logistics supplier's information technology platform to ensure ease of integration with your existing systems, manage all the operations and achieve complete transaction visibility."
Regardless of who handles the process, speed is the name of the game. "The goal is to convert returned assets into cash fast in a sustainable, environmentally conscious way." Fraser says. "You can't tie up capital in inventory. If inventory is moving too slowly, it's losing money. Inventory ages like bananas."
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