| The evolution of reverse logistics for manufactured | | | | replace defective warranty products, and the |
| products is developing in direct proportion to the | | | | potential resale value for refurbished products |
| rapid advancements in technology and the | | | | returned to market. Manufacturers must also weigh |
| subsequent price erosion of products as new and | | | | the potential cost if inventory for procuring spare |
| improved products enter the supply chain at a faster | | | | parts to support warranty, extended warranty and |
| pace. With such thin margins and so much | | | | out of warranty regulations. To be truly effective, |
| competition, mismanagement of the supply chain can | | | | manufacturers must make these decisions before the |
| be devastating. Those organizations with the | | | | returned product enters the reverse logistics supply |
| infrastructure to capture and compare the composite | | | | chain, not after it is in it. |
| value of components with real time intelligent analysis | | | | Manufacturers have the ability to gather data on |
| and disposition based on changes in refurbishment | | | | activities that drive demand. Contributors to demand |
| cost, resale value, spare parts, repair and overall | | | | planning include failure rate or rate of repairs that |
| demand will not only become more profitable, but | | | | require spare parts. At the very front end, potential |
| such flexibility and scalability will allow them to | | | | return trends and potential repair trends can be |
| outmaneuver and eliminate the competition. | | | | identified by customer technical support or customer |
| This is a case of modern Darwinism. It is survival of | | | | care phone calls. Quality analysis of returns and |
| the fittest. It requires collaboration an integration | | | | defective products can also be used to identify |
| within Supply Chain Logistics, or appear on the | | | | demands for spare parts planning. Resale value trends |
| endangered species list. Even the mighty predator, | | | | for refurbished products and seasonal sales cycles |
| the Tyrannosaurus Rex, was doomed to extinction | | | | can be used to predict demand and resale value for |
| by the constant progress of evolution. Today, | | | | refurbished products, and if the product is cost |
| technology drives evolution at an astounding pace. | | | | effective to refurbish or repair. In some cases the |
| The ability to capture, migrate, integrate and facilitate | | | | parts can actually be sold for more greater margin |
| the intelligent analysis of data is akin to the invention | | | | than the whole product. At the very least, parts can |
| of fire. This is what will separate the companies who | | | | be harvested from return products to mix and match |
| can walk upright from the ones that will be stuck in | | | | repair of other defective return products, avoiding |
| the tar pits of slow response. | | | | expensive spare parts procurement when applicable. |
| The early days of Reverse Logistics were measured | | | | All of these factors contribute to planning the |
| by convenience and customer accommodations. The | | | | demand for a refurbished product or the component |
| focus was on the front end of the return process, | | | | parts. |
| the ability for consumers to be able to return | | | | Once you know the demand and resale value for |
| unwanted or defective merchandise. The ability to | | | | component parts and whole units, then it is only a |
| facilitate a consumer return was a courtesy that | | | | matter of maintaining an intelligent planning engine |
| turned into a compelling competitive differentiator in | | | | that uses the input to analyze the Bill of Materials for |
| retail. The companies that did not support consumer | | | | returned products. Before the merchandise enters |
| returns found themselves at a strategic disadvantage | | | | the Reverse Logistics Supply Chain, make an |
| to those that did, and were eventually forced to | | | | immediate and intelligent decision regarding the value |
| adopt the same consumer conveniences or lose | | | | and intended disposition of the whole unit or the |
| those customers to the competition. | | | | component parts. In some cases the product will be |
| It did not take long for retail merchants to seek the | | | | scheduled for de-configuration to feed refurbishing |
| same concessions from manufacturers and | | | | activities or develop a spare parts inventory for |
| distribution channels. Stock rotation became a normal | | | | warranty repairs. In other cases, the units may be |
| condition of business, and processes for returning | | | | expedited for refurbishing and resale. Some products |
| defective merchandise became standard practice. | | | | may be scheduled to be environmentally scrapped |
| Although this is accepted as commonplace today, it | | | | for materials. Product may even be de-configured at |
| has not always been this way. Even today there are | | | | the retail location to support local customer demands |
| cultural differences with regards to consumer returns, | | | | and thereby avoid freight entirely. Whatever the final |
| especially for product that is not defective and | | | | result may be, the decision can be made before the |
| returned because of 'customer remorse'. | | | | product enters the Reverse Logistics Supply Chain |
| As the cost of Reverse Logistics continued to | | | | cycle, as long as the intelligent engine is provided with |
| increase, and as the methods of transportation | | | | continuously updated and accurate information. The |
| became more sophisticated, manufacturers and | | | | new problem and the new solution is knowing what |
| distributors began to look for alternatives in | | | | you sold, who wants to return it and what it is really |
| transportation for savings. Planning and consolidating | | | | worth, before you own it again. |
| freight for return products was identified as a way | | | | It's hard to believe that there are still companies that |
| to reduce expenses related to fuel and labor. This | | | | invest millions of dollars each year in tools to forecast |
| also led to detailed analysis of transportation options, | | | | procurement and inventory management of spare |
| like truck, air and railway. In Supply Chain Logistics | | | | parts, without accurately forecasting and managing |
| business you are either the one driving the truck, the | | | | the largest single source of surplus components that |
| one pumping the gas, or the one paying the other | | | | results from return merchandise. There are still |
| two. | | | | organizations that struggle to achieve freight savings |
| The next step in the evolution of Reverse Logistics | | | | purely by negotiation or consolidation, without a |
| was the experimentation and cost comparison | | | | achieving a balanced approach to freight avoidance, |
| between multiple local hubs and single consolidated | | | | localization and intelligent de-configuration disposition. |
| returns centers. The simple analysis for savings | | | | In the competitive landscape of rapidly evolving |
| contrasted the costs of warehouse space and | | | | technology, mass production and eroding profit |
| manpower to the amount of freight and | | | | margins, managing the total cost of the supply chain |
| transportation fees for handling the back end of the | | | | and the composite value of the components is |
| Supply Chain. Other factors also played a significant | | | | essential to cost reduction and financial survival. To |
| role in the financial analysis, including volume, material | | | | ignore this aspect of reverse logistics can not only be |
| costs and inventory controls. | | | | costly, it can be fatal for an organization. |
| As the costs of Reverse Logistics continued to rise, | | | | For Consumer Electronics and Computer products, |
| the importance of returning refurbished merchandise | | | | the Reverse Logistics handling requirements are |
| to market also became more significant. Organizations | | | | further complicated by compliance and regulations like |
| began to place financial significance on the devaluation | | | | RoHS, WEEE, controls on Lead based and Mercury |
| of product for every day lost in transportation, | | | | materials, just to name a few. Recognizing these |
| handling, processing or warehousing. As technology | | | | component parts is absolutely essential to the proper |
| and features improved, price and demand for aging | | | | management of the intelligent engine that directs the |
| product diminished, as did the ability to recoup costs | | | | disposition of returns immediately upon notification |
| from returns. Speed to return to market could be | | | | that merchandise may enter the returns cycle. Proper |
| measured in resale value. | | | | management is not only financially rewarding, but in |
| In the next step of Reverse Logistics evolution, | | | | the case of hazardous materials, it is the law. |
| there was an awakening and realization that reverse | | | | In service, to be competitive is to be the first to |
| logistics is only a portion of the entire back-end | | | | provide the services that would otherwise put you |
| services solution. Consolidation meant more than | | | | out of business. If you can do this, you will place |
| merely consolidating returns, it meant consolidation of | | | | your competitors out of business, or at least have |
| activities related to back-end support operations. | | | | them working for you. Gathering the data that |
| Manufacturers began to consolidate spare parts and | | | | pertains to customer call centers, extended warranty |
| materials in the same warehouse as the returned | | | | services, spare parts, resale value, parts procurement |
| merchandise, discovering that it is less expensive to | | | | costs and impending returns often requires extensive |
| move parts and packing materials across an aisle than | | | | collaboration, integration and data exchange. To be |
| across state lines. Spare parts used to refurbish | | | | successful, it is often necessary to partner with |
| returns were placed in the same building. Taking this | | | | multiple organizations and experts to leverage best |
| concept one step further, manufacturers began to | | | | practices in a collaborative environment. The |
| consolidate depot warranty repair operations inside | | | | companies that collaborate, integrate and optimize |
| the same facility to maximize the utilization of parts, | | | | date exchange will enjoy the competitive advantages |
| labor, warehouse and materials. This activity often | | | | of improved profit margins and precision |
| required collaboration between previously diverse | | | | management. The organizations that do not |
| management and operational groups within large | | | | participate will be remembered as fabulous fossils. |
| organizations. The collaborative effort reduced | | | | Words of Wisdom |
| expenses for all participating departments and groups | | | | "In Supply Chain Logistics business you are either the |
| within the organizations. | | | | one driving the truck, the one pumping the gas, or |
| The next major step in the evolution of Reverse | | | | the one paying the other two." |
| Logistics is collaboration with partners and external | | | | - John Mehrmann |
| resources. It is a greater awakening and realization of | | | | "The old ways are dead. And you need people |
| integration with the entire Supply Chain by leveraging | | | | around you who concur. |
| data exchange. It begins with an understanding of | | | | That means hanging out more with the creative |
| the value of the components that comprise a | | | | people, the freaks, the real visionaries, than you're |
| completed manufactured product, the Bill of Materials | | | | already doing. Thinking more about what their needs |
| (BOM). The Bill of Materials is also used by | | | | are, and responding accordingly. Avoid the dullards; |
| manufacturers to forecast, procure and manage an | | | | avoid the folk who play it safe. They can't help you |
| inventory of spare parts that are used for repair. | | | | any more. Their stability model no longer offers that |
| Frequently, the combined cost of the individual | | | | much stability. They are extinct, they are extinction." |
| components exceeds the cost of the original retail | | | | - Hugh Macleod |
| product. Furthermore, due to price erosion, the cost | | | | "In service, to be competitive is to be the first to |
| to repair some products exceeds the cost of | | | | provide the services that would otherwise put you |
| replacing the entire unit. Manufacturers must make | | | | out of business. If you can do this, you will place |
| quick financial decisions regarding the return on | | | | your competitors out of business, or at least have |
| investment to refurbish returned products, repair or | | | | them working for you. |