Consultants work with a number of different companies and regularly receive inquiries from investment bankers and others who are looking for C-Level leadership. Recently, Greve-Davis received a call from a small investment banking firm looking to acquire a returns processor or liquidator but this inquiry had a twist. The firm was looking to buy a company and the lead investor would be the CEO.
During our discussion, we talked about what type of company the firm was looking for, how big, market focus, location, and all the other standard M&A questions. But, this was different. The firm was going to provide the CEO so we discussed the background of the potential CEO. The background of the future CEO was a person who had worked on a “reverse logistics project for six months a few years ago.” Oh really?
It is shocking to think that someone actually believes they can effectively run a reverse logistics company based on their “experience” working on a six month project years ago. Sometimes it seems that reverse logistics is like the Rodney Dangerfield of the supply chain: We get no respect.
Reverse logistics is a very complicated industry and is not an area that can quickly be learned.
Like many other industries, to effectively lead reverse logistics, an executive must understand the unique market dynamics, know the key value drivers, and have industry relationships they can leverage to grow their business. Without this knowledge, an executive will spend years “getting up to speed” and will struggle achieving their goals.
Unique Market Dynamics
Executives leading 3PLs, liquidation companies, and repair companies must understand the reverse logistics market place. The contacts are different; the value proposition is unlike any other part of the supply chain; and the competition is tough. One new executive recently said that “he had sold product to retailers for many years and understood the mind of retailers.” Good luck with that. Reverse logistics decision makers do not think like buyers, are hard to find, and have completely different drivers that motivate them to hire or not hire companies looking to outsource part or all of their reverse logistics services.
Unlike product sales or traditional supply chain outsourcing, selling reverse logistics services often requires educating the prospect. The majority of executives inside retailers and OEMs do not understand the risks of not having an effective reverse logistics program, the upside potential of solving the problem, and they rarely have any resources available. If a service provider cannot clearly articulate the risks and potential upside to a prospect, their sale pitch will be DOA.
Key Value Drivers
Why do companies outsource their returns processing, repair processes, or product liquidation? Because the service provider has demonstrated that they can deliver significant value over and above what they will be charged. This means the service provider can deliver reverse logistics processes better, faster, and cheaper than the company. The key is to provide a significantly improved Net Recovery Value on the asset processed. To understand Net Recovery Value (NRV) consider the following formula:
NRV = Amount Recovered on Assets Processed – Processing Costs
The Amount Recovered on Assets Processed is the amount of money credited from vendors upstream for product sent to them, plus the amount of money received for goods liquidated, plus the amount of money received for recycled assets. Processing Costs include transportation costs, the cost of processing the returns, repair costs, and disposal costs.
To be an effective leader in any field, you need a broad network of relationships. The reverse logistics industry is no different. What is different is that reverse logistics executives tend to fly under the radar. They are hard to find. The good news is that once a person gets into reverse logistics, they rarely leave. For years I have said you can’t afford to make anyone mad because you will end up working with them, for them, or they will be a customer or prospect.
Establishing a broad network of relationships with people working for 3PLs, liquidators, repair companies, recyclers, and yes, retailers and manufacturers working in reverse logistics is critical. Often, however, simply knowing somebody that works in a company will not help. Remember, reverse logistics leaders fly under the radar. Many times executives in a company may not even know they have a reverse logistics function in their company.
The key to establishing an effective reverse logistics network is face to face meetings with customers and prospects, attending conferences, and leveraging focused groups on LinkedIn. It takes time and you have to work at it but it can be done.
When selecting a leader for your reverse logistics business, these industry relationships are the best asset a prospective executive can bring to the table.
The Most Important Decision
Selecting the right leader for any organization is the most important decision a CEO can make. Similarly, an acquisition without good leadership is nothing more than buying expensive furniture. In order for an executive to have the type of impact companies expect from their new C-Level exec, that person must understand the unique market dynamics of the reverse logistics industry, the key value drivers customers and prospects respond to, and they must have an extensive network of industry relationships they can leverage. Without these “qualities” a new C-Level leader will either fail outright or will struggle for years while they gain the needed experience. Clearly, simply being a smart person who worked on a reverse logistics project for six months will not be able to be an effective leader in this industry.