How To Improve 3PL Sales – It’s So Simple

Red PhoneRecently, Greve-Davis was hired to help a company outsource their supply chain. The project involved soliciting bids for the top 30 3PLs in North America. We started out by calling all the 3PLs to see if they were interested in participating in the RFP. While we expected some of the 3PLs to decline for various business reasons, we were very surprised at a major issue that many of these organizations had that killed their opportunity.

This issue was such a fundamental part of any 3PL’s sales process that we took it for granted. However, we learned sales fundamentals are not what they use to be. The takeaway was that if 3PLs make a couple of relatively minor changes, they would see significant growth.

What is the fundamental sales issue I’m referring to? Answer: Make it easy for prospects to contact someone to discuss your services.

We looked at the web sites for the top 3PLs and it was difficult to find a number to call to talk about the opportunity. Many had a “Contact Us” form on their website, but half the inquiries resulted in nothing more than a confirmation that someone would call back, which they never did.

Some of the 3PLs’ websites did have actual phone numbers to call. Again, for the MAJORITY of the 3PLs that we did call, the person answering the phone did not know who to transfer our call to and were literally clueless when it came to helping a prospective client. REALLY!!

What NextWe talked to one major 3PL and the receptionist said she was not sure who we should talk to so she could not transfer our call. When we asked for the name and number of the VP of Sales she said “I’m not authorized to give any names or numbers over the phone.” She took our name and number. We did not get any response. That 3PL was taken off the list.

Back when we worked for a 3PL we often said “Everyone is in sales.” Back then, when a prospect called a number, it went to an executive who could talk to the prospect. If a call happened to go to the main office number, the receptionist had a list of people that were ready to take a call from the prospect. Directions were clear and the sales process started off with a bang. This was probably one big reason we grew 15% a year for over 10 years.

If you are in the service business and a prospect has to work really hard to even get somebody on the phone to speak with, what is that prospect suppose to think about your level of service IF they were to hire your company?

3PL Executives would do themselves a great service if they took the time to look at their website through the eyes of a prospect. Is your website constructed so it is easy for a prospective customer to contact you? A “Contact Form” alone doesn’t do it. A phone number answered by a trained sales professional is a must.

We also recommend that you look over the last few months “Contact Us” forms and inquiries through social media and find out exactly what happened with each inquiry. My bet is that you will be disgusted with what you learn.

The old saying is “Hit them while they are hot!” If a prospect calls today and it takes a week for a call back or they get no response at all, they will keep looking, or worse yet, decide that outsourcing is a bad idea. Our experience teaches us that for every new customer, you have to make 4 presentations that result from 20 qualified prospects. A new prospect calling is a gift.

ANSWER THE PHONE!

If your sales are flat and growth is not where it should be, contact Greve-Davis. We have over 20 years experience selling 3PL services. We can identify areas for improvement and benchmark your sales and marketing efforts. If you would like more information CALL 412-759-4356 or EMAIL curtis@grevedavis.com or jerry@grevedavis.com. We will respond quickly I promise.

In Reverse Logistics Leadership is Not Enough

Failure SuccessConsultants 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.

Industry Relationships

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.

Minimizing the Financial Impact of Peak Season Returns

Published in the January 2014 issue of Inbound Logistics

dollar_puzzle_400_clr_2171As the supply chain world settles in for a long winter’s nap, the reverse logistics world is shifting into overdrive to handle peak returns season. Both retailers and manufacturers report that the percent of returns for 2014 is roughly the same as it was by this point in 2013.

The rate of returns for holiday season purchases will likely equal approximately 8.1 percent of total retail sales. Two different streams of products flow through the reverse logistics pipeline in the first quarter, however. One stream is customer returns; the other is recalled or overstock product that did not sell, and must be cleared from the primary sales channel.

Early figures suggest the volume of recalled or overstock product for 2014 will be up slightly over 2013. Categories that experience deep discounting before the end of the holidays typically experience higher recall rates.

ONLINE SHOPPERS BOOST RETURNS

A major challenge facing many retailers is how to deal with the growing number of Internet purchase returns. Many retailers see return rates rise dramatically as the percentage of Internet sales grows.

For many categories, the return rate for goods bought online can be three times higher than the same goods sold in brick-and-mortar stores. While this may seem excessively high, the reality is that—unlike in-store purchases—the majority of returned online purchases can be returned to stock.

The challenge is how to leverage reverse logistics capabilities when Internet order fulfillment centers are not located close to existing reverse logistics facilities.

TAKING A SMALLER HIT

For many retailers and manufacturers, 40 to 60 percent of total returned volume is received and processed in the first quarter of the year. The goal of an effective reverse logistics process is to minimize the impact of processing these returns.

The first thing companies must do is provide the space and labor needed to keep up with the high inbound flow of goods. Timely processing of both defective returns and overstocks is key to maximizing the recovery rate on this inventory. Companies must provide additional space for processing and shipping the higher volume.

This may mean using excess space in a nearby warehouse, renting storage trailers, or taking a short-term lease on a separate facility. A common mistake is to focus on the extra expense, and not consider losses on recovery value.

STREAMLINING PROCESSES

The second step to minimize the impact of peak season returns is to manage processing and shipping. Simply taking a first-in/first-out approach can needlessly tie up space and capital. Management must review inbound inventories by manufacturer, and maintain a balance between freeing up space to process, shipping high-value inventory out of the facility, and avoiding excessive aging of the rest of the inventory.

Properly managing the sequence of what is sold on the secondary market and returned to an original equipment manufacturer can also have a significant impact on both recovery rates and processing costs.

The first quarter sets the tone for the year. Get your reverse logistics operations off to the right start and set yourself up for a profitable year.

Delivery by Drones – What About Returns?

Drone Delivery VehicleThe logistics world is really buzzing about Amazon.com’s 60 minute debut of their drone delivery development. It is a great concept that has potential but there are a number of issues that will have to be addressed before it becomes a reality. For example:

  • FAA regulations
  • Delivery to apartments and offices buildings
  • Weather
  • Accidents and related liabilities
  • Shipping container issues
  • Weight limits of the drones

These are just some of the big issues on the forward side that will have to be addressed before this is viable.

On the reverse side of the supply chain, using drones for returns present a much more complicated set of issues. In thinking this through, it seems that these issues will require Amazon to handle returns as they are today. That is, via small parcel pickup. Consider the fact that for many categories, the return rate for internet sales can be three times higher than traditional brick and mortar stores. For categories such as shoes (think Zappos) this is a big deal.

Transportation costs are typically based on running routes that drop off AND pick up. If the volume of outbound deliveries decrease and there are less trucks running routes, the cost of returning products will increase. Amazon could develop drop off points or leverage existing options like small parcel consolidation points but small parcel carriers will be reluctant to support any program that they view as a direct competitive threat.

I am sure that there are hundreds of executives at UPS and Fedex talking about drones and how they could impact their business, or at least they should be. These same executives should also be discussing how they could develop similar delivery systems and the real threat drones pose to their business model. If UPS and Fedex executives simply dismiss Amazon’s drones as a publicity stunt, they risk becoming the buggy whip manufacturers of the of the 21st century.

Will drone technology ever replace delivery drivers? No doubt. Will I live to see it? Probably not. The bottom line is that the idea of drone delivery is sexy but the odds that drones will be delivering internet orders to you door in 2015 or even by 2025 are slim to none.

The Cost of Black Friday Returns

ReturnsAccording to media reports, total retail sales for Black Friday were in excess of $57 billion. In the reverse logistics world, this means there will be over $4.6 billion of goods returned. Approximately 20% of the goods returned will go back on the shelf, 40% will be liquidated by the retailer on the secondary market and about 40% will be returned to a manufacturer who will ultimately liquidate over 95% of the goods after they receive the product.

What will be the reverse logistics costs of Black Friday returns?

Inventory cost of returns processed – $3.7 billion

Transportation costs from the retail store to final disposition – $637.7 million

Reverse logistics processing costs – $200 million

Scrap and disposal costs – $55 million

Gross recovery rate for goods liquidated – $552 million

Net reverse logistics cost of Black Friday returns – $4.04 billion (7% of sales)

According to a study completed by the Aberdeen Group, the cost of returns for manufacturers range between 9% to 14% of total sales. Retailers average less and vary greatly depending on the type of merchandise they sell and their target customer. Also, retailers often charge consolidation fees and freight costs back to the original manufacturer for returns shipped back to the OEM.

For more information on how you can improve your reverse logistics terms & conditions, as well as how to minimize your processing and transportation costs, contact Greve-Davis at 412-759-4356.

 

Recent Trends in Consumer Electronics Reverse Logistics – Trouble

Failure SuccessIf you get retailers, service providers, and manufacturers together to discuss latest trends in reverse logistics, more often than not issues in dealing with consumer electronics returns will come up. Consumer electronics (CE) is always a hot topic because this category, more than any other, has the greatest potential, while posing the greatest risks at the same time.

The biggest issue impacting consumer electronics returns is the combination of rising costs and lowering price points. Everyone is feeling this compression, and the service providers are stuck right in the middle. It is a tough market and many retailers and manufacturers are trying to figure out how to improve recovery rates and reduce processing costs. Service providers are simply trying to figure out how to survive. Everyone is trapped  and there doesn’t seem to be any easy answers. However, there are alternatives for everyone involved that could add to everyone’s bottom line.

There are dozens of companies out there that specialize in repairing and/or liquidating CE goods. All these companies boast a nationwide program but nobody has a real coast to coast solution that doesn’t cost a fortune in transportation. Even the biggest repair service providers have only one truly comprehensive repair shop where every level of repair can be performed. Some boast of an east coast and west coast solution, while other have a “processing’ facility in the midwest but they do all the repairs in Mexico. Transportation costs are turning both of these models upside down.  They simply don’t make economic sense when you look at the net realizable recovery rate you get for the goods on the secondary market.

 In general, you can split CE reverse logistics service providers into three groups:

  1. Repair Only
  2. Liquidate Only
  3. Repair and Liquidate

The “Repair Only” companies that have a sustainable business model usually stay in business by providing local repair services to consumers and/or by providing regional field repair services for major telecom or cable providers. Back in the 1990s there were a number of large repair service providers but most of them went bankrupt when the average price of a PC dropped below $1,000.

Companies that just liquidate electronics are everywhere but they are all struggling to stay alive. Intense competition and falling retail prices in key segments are pushing these companies to the limit. Some of these liquidators have developed relationships with larger repair companies and now “offer” repair services that promise higher recovery rates. This is a dubious model and one that we have not seen work up to this point.

Service providers that legitimately offer both repair and liquidation services DO have a good model, if there is enough volume to support a dedicated operation. The size and location of the facility is critical, as is the retailer or manufacturer’s concern over brand name protection.

A key issue to consider is the amount of goods that are being sold “As Is” versus items that are “required” to be tested, repaired and resold. If you just take a cursory look at the numbers, you can make costly mistakes. For example, most consumer electronics liquidated “As Is” will be sold for 20% to 25% of retail. Repaired electronics that come with some type of guarantee can be sold for from 55% to 80% of retail. Seems like a no brainer….until you look at the costs involved, customer service requirements, and how long it takes to move the product.  At the end of the day, it doesn’t matter how many items are actually repaired and sold, versus sold “As Is”. All that really matters is the total net recovery value and the time required to sell the product.  Many experienced retailers and manufacturers never look at the total net recovery value and don’t think about the time requirements. They will focus on total liquidation revenue and yield rate. Companies that do this have a big opportunity to dramatically improve profits.

If you are in the CE reverse logistics world, you must know your net recovery value. What is the “Net Recovery Value?” You calculate net recovery value (NRV) as follows:

 NRV= Total Liquidation Revenue + Recycling Revenue – Repair Costs – Processing Costs – Transportation Costs – Cost of Parts

Take a look at your last quarters results. Having a defined time period where you use actual costs and revenue is critical. Calculate your NRV for all CE product liquidated, including anything sold “As Is.” Next figure out NRV for CE that is “repaired and liquidated” versus CE that is sold “As Is.” After you have gone through this exercise you will have all you need to make adjustments to your CE reverse logistics program and you will be better prepared for the Christmas returns season.

If you have any questions or need help. Contact Greve-Davis at 412+759+4356 or send us an email at curtis@grevedavis.com

Discovering the Value of Reverse Logistics

Click here to read the latest article in Inbound Logistics magazine written by Curtis Greve.

THE Best Practice in Reverse Logistics

Asset PieThe most common questions asked of reverse logistics consultants concerns “industry best practices.” Whether the client is a 3PL, repair services provider, liquidator, retailer or manufacturer, they all want to hear about reverse logistics best practices. There are many best practices that are unique to the clients position in the market, however there are many best practices that can be applied across the reverse logistics industry.

There is one best practice that can provide the “biggest bang for the buck” but is often overlooked. That best practice is developing and tracking metrics that gives management the ability to monitor the key aspects of their reverse logistics function. The old saying holds true. If you don’t measure it, you can’t manage it.  Regardless of the type of organization, if a disciplined method of tracking key metrics is not in place, the reverse logistics function will be inefficient and will have a negative impact on profits.

Developing ways to measure the various segments of a reverse logistics process will improve customer service, maximize product recovery values, and reduce processing costs. Companies do not measure their reverse logistics performance because of one or more of the following reasons:

  1. They do not have a reverse logistics systems
  2. They do not what should be measured and/or how to measure the various processes
  3. Reverse logistics process cross departmental lines and management does not feel responsible nor empowered to take action
  4. Results are good enough and management does not understand the potential impact of improving the reverse logistics processes

The reality is that none of these reasons are valid and any company that is not measuring their reverse logistics processes is wasting money and causing customer issues that can harm the company in numerous ways. We will explain why these reasons are invalid and the impact they can have on a business.

Not having a dedicated reverse logistics system is a problem for most companies but it is not a reason for not developing metrics. There are simple, inexpensive ways to collect data that can be used to measure returns processing. The return on investment is usually dramatic. Management is armed with real data that can be used to make critical decisions that impact costs and customers

Knowing what to measure can be solved in short order. Take a common sense approach and break down the processes into the following three major processes:

  1. Inbound – where the product comes from, what does the customer have to do to return product, and what is done with the goods when they are received.
  2. Processing – what are the various pathways products follow once they are received.
  3. Dispositioning – where are the goods sent after they are processed.

Be careful not to get buried in the weeds when looking at the different processes. For example, when developing measurements for receiving, don’t worry about how many pallets of product are received by truck load vs. LTL vs. small parcel. Only worry about how many pallets or cases are received.

Reverse logistics is unique in that the financial “hit” often impacts many departments outside of the returns facility. Don’t let this stop you. Collecting data and reporting back to the various departments can have a big impact on the company and is usually met with a positive attitude. Real data reported properly can drive change.  Let the data do the talking and improvements will follow.

Many don’t worry about tracking reverse logistics metrics because of their lack of understanding on how returns impact the company. Studies have found that companies with best in class reverse logistics processes enjoy, on average, a 12% advantage in customer satisfaction. Improving customer satisfaction has a direct impact on sales and profits. The same study also found that companies with best in class reverse logistics processes save 3% to 5% of total sales because of their improved efficiency.

The key industry best practice that enables a company to improve customer satisfaction and reduce the impact of returns on the bottom line is developing a disciplined, effective way to measure and monitor their reverse logistics processes.

If you would like to learn more about how your company can develop or improve methods used to monitor reverse logistics, contact Greve-Davis. You can email us curtis@grevedavis.com or call 412-759-4356.

Three Mistakes That CEOs Make That Stop Growth

Golden_Growth_551015The world of reverse logistics can be divided into three distinct parts,. there are retailers, manufacturers, and service providers(3PLs, Liquidators, Repair Companies, Recyclers). Retailers and manufacturers are always trying to figure out how to deal with returns in a way that minimizes processing costs and maximize recovery values.

Service providers are trying to figure out how to get retailers and manufacturers to use their services. There are hundreds of companies fighting for their share of the reverse logistics pie. However, there are only a hand full of large companies that have revenues between $1 billion + and $300 million. Size really drops off after that. Hundreds have revenues between $10 million and $100 million and many more very small companies that live for the day they have revenues of $10 million.

After working with service providers of all sizes since 2008, we have found that most of the small and mid sized companies have the same issues and make the same mistakes that hinder their ability to break through their revenue ceiling and enable them to consistently grow. These companies has a history of fluctuating revenues. They find themselves flatlined, say at $20 million in revenues. One year they hit one home run and they grow to $23 million, followed by a drop the next year when they struggle to hit $15 million.

These service providers make three critical mistakes that stunt their growth and prevents consistent, predictable, profitable growth. These three mistakes start at the top, with the CEO. It is not about what they do. It is about what they don’t do. These CEO’s suffer from:

  1. A lack of strategic planning and direction
  2. A lack of qualified talent
  3. A lack of true commitment

Contract SigningStrategic Planning & Direction

Out of the all the mid and small size service providers we have worked with, none of them had a strategic plan and by definition, no strategic direction. You could ask any of these CEO’s how much they paid for that load, or how much they make off that customer and they could tell you off the top of their head to the penny. Ask them what their revenue goal for the next three years is going to be and they would say something like “We should do about $20 million this year and hopefully grow 10% the year after that.”  In other words, they don’t have a clue.

Hope is not a strategy. Running a business without a clear, well developed strategic plan is like going on vacation with your family and as you drive down the road you ask your spouse where they want to go. You would never do that but running a business without a plan is doing the same thing.

Many of these companies had great opportunities they had to pass on, or were disqualified for, because they did not anticipate and plan properly. When given the opportunity, they discovered they did not have the manpower and/or infrastructure for the job. Planning helps everyone think through where they are going and what they will need to get there.

bigstockphoto_Global_Team_Workers__459459Qualified Talent

When you ask the CEO about his business and where they would like to see it go over the next few years, many will say “I’d like to double in sales and reduce processing costs by 15% next year.” When you ask them what they are doing to achieve these goals, however, they normally say something close to “We are going to try harder.” If you do the same thing over and over again, you will get the same results…. no growth.

A big difference between the large, successful, growing service providers and those stuck in a rut is that the large companies see getting the best sales and operations executives as an investment, not an expense. These companies understand that if you have four sales people and you want to double your revenue, you have to hire more talent. They also realize that you get what you pay for. They don’t try to go on the cheap.

One client wanted to double sales over the next twelve months.  For all practical purposes, the CEO was really the lead sales guy and the “VP of Sales” was really just another assistant. When asked what a good sales executive cost, we told him he would have to pay a base of $100,000 to $125,000. He said he thought he could get a good person for $60,000. He hired a friend of a friend, with no experience, and tried to train them over the next year. As you would expect, not only did they not hit their growth goal, but revenues dropped and the new guy got fired. Profits fell more than sales because the CEO was spending too much time trying to train the new guy and sell services that he took his eye off of a lot of other important things that made a big difference on the bottom line.

Hand ShakeCommitment

To develop a company that achieves their growth goal year after year, the CEO must be committed to the strategic plan, the strategic planning process, and to their team. For many CEOs this is perhaps the hardest of the three big mistakes to correct. Old habits die hard. Many CEO started their company from nothing and live by the motto “If you want something done right, you have to do it yourself.” The problem is that as a business grows, no one can do it all themselves.

Talented executives must be given the freedom to do their job. It doesn’t do any good to bring in top talent if they have to get approval for everything. They must be given the freedom to fail. Top CEOs learn how to monitor their activities and strike a balance between blind trust and over control.

Similarly, the CEO must be the champion of the strategic plan and the ongoing execution of the plan. This doesn’t mean they do it alone. The CEO is like the conductor of an orchestra. They keep the beat, follow the music, and direct the players. The beat is the culture and pace of the company. The music is the strategic plan and the P&L. The players are the executives working for the CEO.

Commitment is a big issue for many CEOs. It is easy to get distracted or go back to doing things the old way when trouble hits. You can’t let this happen. Being committed doesn’t mean that you never change the music or the players. It mean you are going to adjust the plan and the players as needed to achieve the overall goals.

Every CEO can build their company into an organization with a great culture that delivers consistent, predictable, profitable growth. The only difference between the large, successful, service providers and all their smaller competitors is leadership. Those CEOs avoid the big three mistakes that could stunt their growth. They plan to hit specific goals, they invest in people and equipment as needed, and they keep the team focused on where they are all going. You can too.

If you would like more information on how Greve-Davis can help your company achieve it’s maximum potential, click here to contact us or call 412-759-4356.

Reverse Logistics Industry IS Changing

For the past 15 years, little real change in approach, process, or providers has occurred in the reverse logistics industry. Some of the names have changed and retailers and manufacturers across the globe have come to understand the value of reverse logistics, but the “industry” has not really evolved very much.

That is about to change. Winds of change are blowing across the reverse logistics landscape and there are four drivers that will disrupt reverse logistics networks and the reverse logistics service industry, as we know it. Those four drivers are:

  • Regulation
  • Transportation
  • Collaboration
  • Disintermediation

Regulation

The growth in regulations that impact consumer returns, hazardous materials, product recalls, product disposal and consumer goods’ end of life continue to grow exponentially in the US, the EU and Asia. These regulations require both retailers and manufacturers to rethink how returned, recalled, and obsolete goods are addressed. While the life of a product may be three years or less, retailers and manufacturers know that liability lasts forever.

Up to this point, everyone is ignoring end of life problems but everyone agrees that obsolete product is a problem that they will have to address in the future. It will be interesting to see how long companies wait to deal with end of life issues. How many fines will have to be paid before programs are put in place?

Transportation

Rising transportation costs are forcing reverse logistics executives to rethink network designs and product disposition. The majority of reverse logistics networks were designed when fuel costs were less than $2.50 per gallon. At today’s prices, these networks no longer make financial sense.  There is one major retailer, for example, that opened their return center in the early 90’s. There store count has doubled but they still have one returns facility in the middle of the United States. The cost of transportation has driven them to reduce the SKUs that are sent to the central return center. Items not sent to the return center are handled locally.

Processing returns at store level is inefficient, results in more shrinkage, and exposes the retailer to increased liability. These factors, exacerbated by increased transportation costs, will result in a massive redesign of the retailer’s reverse logistics network.

The impact of transportation costs on grocery reclamation is even greater. The grocery industry is moving away from reclamation centers primarily because of rising fuel costs. More and more grocery chains are adopting adjustable rate policies and donating unsaleables to local food banks and charities. As a grocery executive recently told us, “It doesn’t make sense to transport trash across the county.”

While grocery companies can easily replace reclamation centers with a network of food banks, dealing with product recalls and general merchandise has many different challenges that will need to addressed by other means. Creative solutions that leverage manufacturer reverse logistics networks or project based 3PL services could be options worth pursuing.

Collaboration

Driven by increased liability and processing costs, manufacturers and retailers are finally starting to seriously consider leveraging each other’s reverse logistics infrastructure and capabilities. This collaboration is potentially the most disruptive driver that will impact the reverse logistics service providers. There are significant opportunities to reduce costs and increase customer satisfaction, if retailers and manufacturers would work closer together.

Retailers and manufacturers have common interests and they realize that there is no real value in having a closed reverse logistics system that ships returns to another closed reverse logistics system. Today, many retailers and manufacturers share sales data, visibility, reporting and control of inventory in the forward supply chain. Retailers and manufacturers are starting to see the benefits of sharing visibility and control over the reverse logistics segments of the supply chain in a similar manner. The missing link to better collaboration seems to be reverse logistics software that can provide ready made access needed to accommodate the needs of both retailers and manufacturers.

3PLs, software providers, and liquidators are all threatened by this drive for collaboration but also have an opportunity if they can become collaboration enablers. There are a number of new companies that have emerged that see the opportunity to a limited degree, but to date there is no provider that has a fully develop set of collaboration tools. The question is which provider will break out of the pack and develop tools that could gain significant market share.

Today, retailers and manufacturers are talking with each other. We believe that tomorrow they will be joining with each other to process, track and liquidate returns and recalled product from a shared processing facility that will save both parties significant processing and transportation costs.

Disintermediation

The biggest threat to 3PLs, repair service providers, and liquidators in the reverse logistics marketplace is the emergence of new technology solutions that can provide a high level of functional expertise to retailers and manufacturers. These solutions enable retailers and manufacturers to achieve the same or better processing productivity and liquidation recovery rates as the service providers they pay fees to today.

These solutions will enable retailers and manufacturers to replace outsourced services with software solutions. The software will provide the same value as the service providers at a substantially lower cost. This will put the service providers in a position that will challenge their ability to provide value in comparison. Service providers will not only have to compete with other service providers, but with technology that will enable retailers and manufacturers to achieve the same or better results, but with much lower costs and much more control.

Conclusion

Retailers, manufacturers, 3PLs, liquidators and any other reverse logistics service providers must figure out how they can adapt, survive, and thrive in this new reverse logistics world. Regulations, transportation, collaboration, and disintermediation can be both opportunity and threat. Whether these change agents are one or the other depends on how companies react to the new normal in the reverse logistics industry.

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