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Reverse Logistics: T-Mobile's 'Secret Weapon' for Generating Revenue

It's been called everything from a nuisance to a necessary evil. But reverse logistics can be much more than that.

In fact, T-Mobile USA, Inc. views the reverse link of the supply chain as “a secret weapon for creating revenue.”

The words are those of Brian Stoltz, senior manager of reverse logistics supply planning at T-Mobile. Speaking earlier this year at the High-Tech Supply & Demand Summit in San Francisco, he laid out a strategy for shifting reverse logistics from the cost to the revenue column.

The mobile phone business is intensely competitive. Disgruntled customers are quick to switch carriers – and T-Mobile has made that option even easier, with the elimination of annual service contract requirements. So when it comes to getting a defective phone refurbished and back to the customer, “time is key,” said Stoltz.

T-Mobile might not be the biggest carrier in the marketplace, but it boasts more than 43 million wireless subscribers. It maintains a pair of centralized distribution centers – one in Fort Worth, Tex., for returns, and another in Louisville, Ky., for forward replenishment. Both are run by Ingram Micro Mobility.

Some 5.2 million handsets came back through the returns facility in fiscal 2013, Stoltz said. Reasons included warranty repairs, insurance claims, recycling and “buyers’ remorse.”

Forecasting that flow can be brutally difficult – even more so than with forward-moving product. The manufacturer must deal with issues of variable product quality, damaged packaging, uncertain pricing and disposition options that are often unclear. The whole process tends to lack transparency, leading to inconsistent and inefficient management of inventory.

The related costs are huge. Between 8 and 20 percent of all consumer electronics are returned, and U.S. manufacturers spend around $16.8bn on reverse-logistics activities. In all, customer returns eat up between 5 and 6 percent of revenue.

For no good reason, it turns out. Some 66 percent of returns fall into the category of “no trouble found,” said Stoltz. Another 27 percent are the result of buyers’ remorse. Just 5 percent are deemed to be defective – yet 95 percent of customers won’t buy from a company if they’ve had a bad returns experience, so they need to be indulged.

What to do? T-Mobile has come up with five strategies for transforming the reverse-logistics burden into a revenue opportunity. They are:

Deflect the return. Stop a perfectly good unit from entering the reverse-logistics stream. “Repairs” can take place in the store with the help of basic diagnostics and troubleshooting. T-Mobile currently has that capability in more than 1,700 stores, and plans to expand it to more than 3,000 locations, Stoltz said. One challenge lies in speeding up in-store processing time. “It takes a few minutes to hook up the tool,” he said.

Forecast and plan for returns. T-Mobile uses the forecasting program within SAP APO (Advanced Planning and Optimization). The tool analyzes return numbers by channel. Stoltz said it has been “fairly successful” in predicting activity from smaller retail outlets, less so with big-box stores. “Their returns are extremely lumpy,” he said. “They’re very tough to predict.” Account-management teams work to improve forecast accuracy from those locations through close ties with stores and dealer partners. In 2013, T-Mobile achieved an accuracy mix of 72 percent, with a 45-day lag, so there’s clearly room for improvement in that area.

Maximize asset value. Make the most of product that’s coming back through the chain. Each T-Mobile device passes through a central triage station, where the manufacturer identifies “A stock” – items with the highest potential of being returned for sale. Less desirable units are moved to liquidation or auction. T-Mobile maintains three levels of refurbishment, with the cost per each level evaluated prior to approval of any action.

“It’s a clear and concise way for our returns center to figure out what happens,” said Stoltz. “We predispose right when a handset hits the door, so everyone in the D.C. is aware of where it’s headed.” Status reports are communicated through weekly process and Collaborative Planning, Forecasting and Replenishment (CPFR) meetings.

Manage the product’s lifecycle in both directions. “This is the big one,” said Stoltz. “You need to link forward procurement and planning with reverse supply planning.” T-Mobile defines six lifecycle stages for forward logistics, and six for reverse. Control of those steps is especially crucial given the extremely brief lifecycles of most mobile devices today, with 80 percent of sales occurring in the first four months. Yet manufacturers are still expected to support a given phone for more than two years.

The goal, said Stoltz, is to develop an overarching “launch-to-death” plan for every device. Proper lifecycle management drives the purchase and distribution of key materials and missing accessories for the supported unit.

Embrace reporting and analytics. Only through pinpoint tracking can a manufacturer ensure that it’s managing the reverse stream as efficiently as possible. T-Mobile demands accountability from its logistics service providers. They agree on clearly defined key performance metrics, including finished receiving, triage, staging, repair, kitting, finished goods, asset management and inventory turns. That last measure is now up to around 16, Stoltz said.

The result has been a dramatic reduction in T-Mobile’s costs related to reverse logistics, with a high ratio of resalable to disposed units. Of those 5.2 million handsets that came back last year, 4.5 million were returned for sale.

Such an achievement couldn’t have taken place without strict performance metrics, a clear system for determining the status of each device, and tight communication among all players. “We focus on outcomes, not transactions,” Stoltz said. “On the what, not the how.”

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