Reverse logistics is quickly moving from the image of a back room full of junk to the new sizzle of the logistics world. Everyone wants to be a part of the new buzz. Finally it is getting the attention of top management. New positions are being created with management responsibilities. Sales and marketing are starting to be held accountable and management is realizing that rather than a tactical task, reverse logistics is a strategic approach focused on customer loyalty, better product quality and improved profits.
So does that mean that everyone world renowned for their forward logistics capabilities should add reverse logistics as part of their internal processes? Not if they want to keep those forward logistics processes streamlined and efficient because when it comes to reverse--it's not forward. The best practice is not forward to reverse, but instead reverse to forward, especially in terms of execution, information and results.
The number one success factor given by most organizations for a best-in-class reverse logistics program is top management support. But what exactly is that? The most successful support is when top managers have the conviction of sticking to their knitting, staying focused on their core competencies and outsourcing non-core processes to experts in the field. For most companies their core competency is producing, distributing and selling product in the forward supply chain. True wisdom is the realization that excellent execution in forward distribution does not equate to success in reverse logistics.
Forward and reverse are very different processes. They are more akin to oil and water than butter and popcorn. In forward, it is about uniform cases. In reverse, it is about some cases, but mostly individual units/eaches and mixed shipments.
With forward, you ship orders out. In reverse, you issue return authorizations to bring product back. One final twist is that when it comes back, there is the question of what to do with it. And while sometimes it can be put back into inventory, many times there are disposition requirements that involve regulatory and environmental concerns. This is the point in reverse logistics where the sizzle begins to fizzle.
By outsourcing this non-core function, companies gain efficiencies within their forward operations by clearing valuable warehouse space, maximizing internal resources and managing risk associated with regulatory compliance for product disposition. A company with a core competency of reverse logistics should have scalable regional facilities, a flexible permanent employee base, systems that allow mass customization and a model based on taking cost out. When working with a third-party meeting these criteria, a company is positioned to treat the specialized reverse logistics facilities as an extension of their distribution network and create a reverse-to-forward program that eliminates a touch point and the associated cost of transportation.
Companies tend to view reverse logistics as strictly the physical handling of returns. However there is also the financial aspect of managing the debit/credit scenario. And the sales and marketing impact on profitable top line revenue.
Reverse logistics directly or indirectly affects each of these functional areas. If these three functional silos-finance, sales/marketing and logistics-are not aligned, it can be a case of two steps forward, one step backward. Two critical components are needed to break down silos to achieve the success. One is information that lends itself to analysis. The other is an internal champion and collaborator. This is where the new reverse logistics management professional that is added to the internal staff is best utilized. Everyday individuals within departments are making decisions that are in the best interest of their functional area. However, what they may not understand is that while their decision may appear to be best for their specific area, when you step back and take a holistic view, the decision may not be in the best interest of the overall company. This is especially true when it comes to reverse logistics. Every company can surely cite examples such as sales making their numbers for the quarter, followed by a large volume of returns in a subsequent period, or logistics reporting improved productivity while not capturing the item detail in processing that is required by finance to enable properly crediting, or purchasing changing the packaging to reduce cost only to increase the amount of returns due to damages. The list could go on and on.
A cross-functional team committed to sharing information is the key to breaking down the internal silos, seeing the bigger picture and making better decisions. Excellent operational execution provides the data that delivers the information that allows for in-depth analysis. Technology is the enabler of systems that collect the information and the business intelligence tools that allow analysis.
The challenge with handling reverse logistics internally is that in the big pond of logistics technology needs, reverse logistics is a small fish that tends to get little to no information technology support. In today's business environment, the demand for IT resources far exceed the budgeted supply, especially for processes that are not considered a core competency for the company.
Again, this is where outsourcing can bridge the internal gap. An outsourced partner that has reverse logistics as its core business routinely makes the necessary ongoing investments to improve efficiencies, systematically drive decisions on disposition, collect more information at the most granular levels and develop enhanced business intelligence tools, including management dashboards. If the third-party reverse logistics provider represents several verticals, there is the opportunity to share not only facilities and resources but also best practices. Internal information technology resources can then be devoted to integrating the reverse logistics information into the internal state-of-the-art forward logistics applications to better manage inventory and adjust forecasts. This allows management to keep the focus on the entire supply chain both forward and reverse.
A holistic view breeds better decision-making. One of the quickest ways to get to that point is to partner with a company that understands the operational and the informational components of reverse logistics. Some companies have said that when they add the actual cost of reverse logistics processing combined with the opportunity costs associated with investing internally, especially if the commitment is made to continuously improve, they could easily spend twice as much for an internal program compared to outsourcing.
Best-practice companies take the savings gained through outsourcing and reinvest in supply chain analysis studies that get to the root cause of the returns and implement reverse logistics improvement programs. These programs include: understanding and categorizing the reasons that consumers return product; analyzing the condition of product at each touch point within the supply chain, beginning at the manufacturing plant and extending through the retail store; studying the buying and selling practices and the financial impact of the transactions; analyzing damage across package types across divisions; and monitoring and implementing exit strategies for new product introductions.
It is important to empower and enable the reverse logistics professional to allow them to cross divisions, cross product lines, and cross functional areas to collaborate on ways to utilize the data to improve the overall company's bottom line, not just the specific department or division.
With the support of executive management, the new reverse logistics management professional can yield greater profitability opportunities for the company. Rather than focusing on the operational tactics associated with managing a returns facility, their time can be refocused on strategically leading collaborative improvement efforts with their outsourced partner and their internal team members for efficiency optimization and profit maximization. Results start with accountability supported by measurements. It is a well-known fact that what gets measured gets done and reverse logistics programs are no exception.
Establishing key performance indicators for the third-party reverse logistics partner and internal functional areas will ensure that goals are achieved. It is important that the information is accessible to all parties, tools are intuitive and flexible enough to enable the full benefit of the analysis and that the KPIs are measurable to drive the action. And while many of the KPIs may appear to be the same measurements used for forward logistics, such as processing throughput, and processing rates per hour, day and month, the numbers established are very different for reverse logistics. Which gets us back to the question, if a company has a streamlined, efficient forward logistics operation, should it add reverse logistics to its operation? It's possible, but the differences in processes and information needs require that additional investments be made, taking the focus off the core business. A best practice is to outsource the reverse and integrate into forward to get the best of both worlds.
It's a way to move your business forward in reverse.
Mark Doughton is president of Carolina Logistics Services (CLS), which provides reverse logistics, supply chain analysis and asset recovery solutions to retailers, wholesalers and manufacturers in the consumer goods and healthcare verticals. Visit www.cls.inmar.com.
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