Reclamation

Recently, Software Advice posted a great article entitled “How to Get Value Out of Your Returns”.  The author, Derek Singleton, provides a good overview from a unique vantage point.  Here is small excerpt:

Unlocking value from returned inventory is easier than you think. We have compiled a list of best practices, and the companies making them work, to help you in the reverse logistics process. Best practices for reverse logistics include:

• Investing in reverse logistics systems;
• Outsourcing logistics operations;
• Accessing secondary markets;
• Offering recycling services; and,
• Preventing returns in the first place.

If you are a busy executive that would like to understand how reverse logistics can positively  impact your organization, check out this article.

Whether you are a retailer or manufacturer, Christmas returns are on the way  and executives responsible for handling these returns should get prepared.  The 31 Point Christmas Returns Checklist below will help ensure that all preparations have been made for processing Christmas returns.  There is something to do for every day in December.

The Christmas Returns Checklist

1. Update defective returns based on sales since Thanksgiving
2. Update seasonal recall volumes by SKU and vendor / OEM / ODM
3. Review existing processed inventory waiting to ship
4. Prioritize shipments by value and cube to reduce inventory and create space
5. Contact primary and secondary temp agencies and review requirements
6. Review management staffing and organization chart for the first quarter
7. Review volume estimates and plans for outbound shipping with carriers
8. Contact the provider of storage trailers and ensure adequate supply will be available
9. Inspect temporary space that will be used during peak season
10. Review plans for temporary space and storage trailers with Loss Prevention
11. Contact top 20 vendors / ODM’s to review plans and estimates
12. Review manpower plans for quality assurance and inventory control
13. Review plans with Systems to ensure NO major systems changes are planned during peak season or with any systems that directly interface with the RMS
14. Review plans for leasing temporary fork lifts and other power equipment
15. Review all parts supplies and ensure procurement plans and sourcing is ready
16. If additional shift are anticipated, procure addition lift batteries if needed
17. Review shipping plans and requirements with top salvage buyers
18. Review inbound sortation plans and shipping plans with internal Liquidation Department
19. Test all risers, security systems, and emergency procedures immediately
20. Schedule preventative maintenance ASAP for all equipment and conveyor systems prior to January
21. Review first quarter manpower plans by function, by shift
22. Review plans & volumes with recyclers and with waste management companies
23. Send any special instructions to all stores, branches, etc.
24. Notify all stores, branches, customers, and/or vendors contact information during peak
25. Review plans of all outsourced repair vendors,
26. Get reports of existing  backlogs for all repair vendors or outsourced support areas
27. Review weekly communications plans with key internal and external teams
28. Review aged files for any claims or disputes to clear up prior to year end
29. Meet with financial support systems management and review plans
30. Contact high volume vendors and ask if they have any plans to shut down during the first quarter for retooling
31. Have a merry Christmas! – Enjoy your family while you can!

With a good plan for peak returns season, and working through the 31 point Christmas Checklist, you can be assured the reverse logistics function is well prepared for this most critical time of the year.

Beginning the first week in January, retail returns rates will increase dramatically as compared to the normal rate of return prior to Thanksgiving.  In addition to the customer returns, seasonal merchandise recalls will also hit peak volume levels.  Just as retail return center volumes peak in January and February, manufacturer’s returns peak in the third week of January and maintain that level through February and March.

Executives responsible for processing returns must make special plans to handle this tidal wave of volume heading their way.  This year, because of the improved economy, return rates are projected to be 12% to 15% higher than last year.  The impact could be significant and companies must prepare.

In order to prepare for peak return season, three critical elements must be included when planning for year end returns.  These three elements are:

• Manpower planning
• Space
• Transportation

The most important part of preparing for peak return season is to determine how many more people will be needed, what shifts they will work, and who will supervise the additional staff.  This often means making arrangements with temp agencies, hiring part time employees and adding to base staff.  In addition to increasing your head count, you must make arrangement for training new workers and adding trained supervision.

Supervision, especially if you are adding new shifts or operating in temporary space, is critical.  You must ensure they are trained in basic supervision and that you have adequate leadership in all areas, on all shifts, for the entire peak season.  Do not short cut your people or your leadership.

Space is a critical element that requires forethought and preparation.  Temporary space comes in two forms.  The first type of temporary space is storage trailers that are parked on the lot and used for storage of inbound or outbound freight.  The second type of temporary space is short term leased buildings.  In general, if additional space is only needed for a “short time” trailers usually make more sense unless there is exaggerated spikes in volumes.  However, arrangements for either trailers or short term space usually must be made at least thirty days prior when needed.  Once product starts flowing and returns are processed at often two or three times normal rates, it is critical to have carriers prepared to provide trailers and drivers as needed to keep the product flowing.

A special word of caution – if you are adding shifts or planning on working on Saturdays and Sundays.  Do not assume that your carriers will pick and deliver trailers during these times.  You must contact your carriers  and outline service level expectations for your new schedule of operations.  In addition, back up carriers must be selected to ensure the flow of goods is not interrupted.

Finally, if you liquidate product and rely on salvage buyers to pick up significant volumes of product during peak season, ensure that you watch them closely and ensure they pick up purchased loads in a timely manner.  Liquidators are notorious for using return centers for free storage of purchased goods.  Seller be ware.

The key to economically processing year end returns is to properly prepare and plan for the two or three month spike in volume.  The critical elements of  peak return season planning are people, space, and transportation.  If your organization has not made preparations for peak season, it is not too late but you need to action now.

In this final installment of our four part series on components of a state of the art reverse logistics system (RMS), we will discuss critical reports and visibility requirements. The prior three parts of this series have described capabilities an RMS must have to receive, process, verify, and ship assets that flow through a company’s reverse logistics pipeline.

Before we go too much farther, it should be pointed out that there are two basic infrastructures used to process returns. One we will call the “Direct” model and the other we will refer to as the “Centralized” model. The Direct model is simply processing returns directly from the field to it’s final destination. This is a decentralized design that relies on people in the field or store to prepare and ship goods. A good example are small, mall based retailers that take back returns and sends the goods directly to the vendor or OEM. The second infrastructure is the Centralized model. This model revolves around a central location where all returned goods are shipped to from the field. Goods are then received, prepped, consolidated by final destination/disposition, and shipped. The vast majority of large retail chains use a centralized model to process returns.

Whether an organization should use the Direct model or the Centralized model depends on a number of factors. These include:

• Volume of returns
• Disposition of returned assets
• Residual value of returns
• Number of field or store locations
• Amount of labor required to process returns in the field vs centralized processing costs
• Risk from processing errors
• Regulatory risks
• Existing field systems
• Cost of centralized facilities
• Transportation costs
• Corporate infrastructure

Whether a company has a centralized model that relies on an RMS for processing and visibility or if they use a direct model that relies on a point of sale system or some other back office application to process returns, the visibility requirements are the same.  The following is list of reports or visibility requirements broken down by functions:

Receiving

• Advanced shipment notification – receipts in transit by date, store/field/customer, carrier
• Receipts by store/field location/customer - by receiving, RMA, month, quarter, year
• Returns by SKU/Category/OEM – by RMA, month, quarter, year
• All reports will need to show quantity and value per unit and in total

Processing

• Total units processed – by day, week, month, quarter, year
• Units received and processed by disposition – Return to OEM, liquidated, repaired, restocked, donated, recycled, destroyed – by day, week, month, quarter, year
• Manpower reports showing hours worked within each function
• Thru Put – In returns facilities thru put is typically calculated as follows:

Total Units Received / Total Variable Hours

Shipping

• Shipments waiting for return authorization – by date, value, quantity
• Pick tickets outstanding
• Hazardous material manifests ready for shipment – by class
• Manifests – by date, OEM, liquidator, recycler, charity

Quality Assurance

• Inbound receipt verification
• Cycle inventory
• Physical inventory – in total, by OEM, category, dollar, units
• Process verification – by function, employee, month, quarter, year
• Location verification – by type of location: bulk, rack, flow rack, shelf, security, etc, day, week, month, quarter year
• Outbound verification – by OEM, liquidator, hazardous shipments, recalled/regulated shipments, random manifest

When it comes to visibility there are endless variations for each type of report listed above. The first RMS put in Walmart’s returns center in 1988 had a total of 26 reports.  Today, the average RMS has over 100 reports out of the box and many now incorporate an easy to use report writer.

Best in class reverse logistics systems today offer all reports via the net and can be accessed from anywhere in the world.  As with all reporting, however, executives responsible for RMS report development should be careful not to get too caught up in developing new reports or constant reformatting of existing reports.  Visibility is only valuable when decisions are being made that impact the business in a positive manner.

Over the next five years, every company will have to rethink their existing reverse logistics network, infrastructure, and systems.  As the cost of transportation continues to escalate, the cost of processing will drive dramatic changes in disposition.  The decisions around these changes must rely on quality data that comes from an organization’s reverse logistics system.  This system will be your only source for the accurate data needed to revise existing returns networks and will be critical in maximizing the value of returned assets and minimizing associated risks in the future.

In this third part of our four-part series on state of the art reverse logistics systems (RMS), we will cover critical elements required to properly cutoff, pick, and ship product out of a returns facility. As you will remember, in the first part of our series we discussed the receiving process. In the second part of our series we talked about disposition management, repair processes, and work-in-process (WIP) features of the reverse logistics system. The final phase of processing goods through a central returns facility is the shipping process. This is literally where the cash register rings in the reverse logistics process.

Perhaps the most important metric in a return center is inventory turns.  The shipping process determines the number of inventory turns a return center can achieve.  A good benchmark for return center inventory turns is between 20 and 30 turns per year. This is only possible however, if your RMS is structured to monitor inventory, process return authorizations, pick items and ship the returns properly and in a timely manner.

Shipping product out of a reverse logistics processing center is quite different from shipping product out of the distribution center. In a distribution center orders are received, picked,  and prepared for shipment. The outbound process is fairly uniform and is controlled by the order picking process and the transportation preparation requirements.  However in a return center, shipping is quite different. Items are cutoff based on vendor agreement terms and conditions, not “shipping orders” or transportation requirements.   Because of the importance of this cutoff  criteria, a reverse logistics system must have several additional features that typically do not exist in a  traditional warehouse management system.

The triggering mechanism to pick and ship goods in an RMS is the cut off criteria.  Remember, upstream in the returns processing functions,  items have been segregated based on item condition and “return point”.   Each of these return points  will have its’ own “cutoff criteria”.  By “cutoff”, we mean segregate sorted goods into shippable quantities.  There are three basic methods to cutoff returned or recalled items in a state-of-the-art RMS: By quantity of items, cases or pallets; by “cap” which establishes a percentage of sales by time period; by value of goods that is to be shipped; or time that the oldest item has been processed within the returns facility.

Each return point can have a unique cutoff.  In addition to this unique cutoff a “global cutoff” should be set as well.  The global cutoff will usually be something like “ship every 30 days or $10,000.”  The RMS shipping process will be set up to run through a hierarchy that looks to the individual return point cutoff criteria first and then to the global cutoff.  Once one of these are reached, the return authorization (RMA) must be processed.

Return authorization is the process of “getting permission” from the company you are going to send the returns.  This notifies the receiving party of the quantity and make up of the returns and it establishes the basis for the financial transaction that will be processed upon shipment.  There are 4 types of returns authorization (RA or RMA):

• Call for RA – A phone call must be made to get an RA number that will be used to track the return
• Fax or Email for RA – Same as calling for an RA but processed automatically by the RMS
• Standing RA – An RA number is used by the sender but no advanced notice or approval is needed to ship
• No RA Needed – no tracking number, advanced notice, or permission needed

Often the RA process is used by the receiving parties to delay shipment and the resulting claim.  Because of this, an RMS must have a number of RA reports that can track RA aging, RA dollars outstanding, etc.  The RA process and RA monitoring reports are critical to keep return product flowing through a returns facility.  This part of the RMS must be very robust and flexible to ensure product is shipped and the financial claims are filed in a timely manner.

As I said earlier, the shipping modules of an RMS is literally where the cash register rings in the returns process.  Up to the point of shipping, the returns process has only cost money.  You’ve collected a lot of broken stuff and stuff that has been recalled but it is still your stuff.  The shipping process cuts it off, ships it out, and charges to the receiving party for the shipment.  In order to do this effectively, the RMS must have a flexible return point cutoff process, aging reports, picking logic, manifest capabilities, verification processes, and financial transaction processes built into the shipping module.

Be sure to check back with us for our forth and final segment on The State of the Art Reverse Logistics System.  In the final segment we will discuss key reverse logistics reports and systems visibility capabilities that a state of the art RMS must have.

UPS is launching a global ad campaign touting their global logistics capabilities.  Their jingle for the campaign does a great job of explaining what logistics is and how it can benefit companies when done correctly.  The next time my mom asks me what I do I think I will just play the new UPS Logistics jingle.

Well done UPS.

The Reverse Logistics Podcast

Your host is Curtis Greve.

In the first part of our four part series on Reverse Logistics Systems (RMS) we pointed out that the system used to process returns is the critical component to every reverse logistics pipeline.  Show me an efficient, well oiled reverse logistics process and I’ll show you an operation that relies on a well constructed RMS.

In this four part series, our goal is to help the uninitiated understand what to look for in a quality returns system.  We will describe critical capabilities needed in a state of the art RMS. We will explore what differentiates a state of the art reverse logistics systems from lesser “returns processing systems”.  In the first part of our series, we covered the receiving process.  In this second part of the series we will discuss processing requirements to disposition assets, drive repair practices, as well as direct and monitor physical processing.  In the upcoming third chapter of our series we will cover the processes that drive shipping, financial transactions, and quality assurance.  The last of our four part series will discuss visibility requirements and key reporting capabilities that will be needed.

Processing

Once or twice a year, logistics trade publications will come out with a list of third party service providers and/or logistics software companies that show a matrix of “solutions” offered by each company.  Practically every company that appears on these lists will have the box for reverse logistics checked.  However, there are less than a dozen companies, IN THE WORLD, that actually have a credible reverse logistics software solution.  Many third party service providers (3PL’s) claim to offer reverse logistics solutions, but the reality is that they simply transport, unload, and store used or broken stuff.  This is hardly a “reverse logistics solutions.”

What differentiates the pretenders from the true reverse logistics solution providers is their ability to process goods in a manner that maximizes the value of the assets flowing through the reverse pipeline.  Simply unloading and counting broken stuff is as close to having reverse logistics capabilities as play catch in the back yard is to being a major league baseball player.  However, look at the annual reports on logistics capabilities and you will see hundreds of companies that say they have a reverse logistics solution.

The processing capabilities of an RMS determines how a reverse logistics process maximize the value of an asset.   To understand this concept, you need to understand the basic difference between a traditional distribution operation and a returns operation.

In distribution, orders for new goods are placed, a PO is cut which tells the DC operations what to expect and a general idea of when it is going to arrive.  When the goods are received, they are check in against the PO and put away in a predetermined location.  When orders are cut, a pick ticket is generated, the items are picked, consolidated, loaded on a truck and shipped to their predetermined location.  Items are typically segregated by SKU and are stored in the same part of the warehouse, picked using repeatable processes and shipped.  What is inside of the box almost doesn’t matter.  DC’s receive, putaway, pick and ship large, medium, and small boxes to the same locations on a scheduled basis.

Centralized returns facilities operate with a completely different process.  First, nobody orders returns so you have no idea, really, what will be on the truck until you unload it.  After you get the items in the building, you must account for the specific item, BUT, you must also determine the condition and profile of the item so it can be sorted.  This sorting process and the processes that follow is what drives the value recovery in a returns operation.

For example, let’s say you receive a box of white coffee cups.  Two cups are in the original packaging and have never been opened.  One of the cups is broken in half and cannot be repaired.  Another cup appears to have been used but has no visible flaws or defects.  A quality RMS will ultimately returns the first two cups to the vendor for full cost credit, the second cup will be thrown away and the last cup would be sold on the secondary market for ten percent of the original sales price  As you can see from this example, processing all four cups the same way would either cause problems with the vendor or a loss of value for three of the four cups processed.

It is an RMS’s ability to identify not only the item, but the condition that differentiates a quality RMS from a low end gate keeping solution.  This process of identifying the item, condition, and where it should be shipped to maximize the value of the asset is referred to as “dispositioning” the item.  The interesting thing about dispositioning is that there are only FIVE dispositions for anything.  Whether the returned item being processed is a top of the line hi-tech server or a white coffee cup there are only five possible dispositions for the item.  Those dispositions are:

1. Returned to the vendor or OEM for credit
2. Sold on the secondary / salvage market
3. Donated to charity
4. Returned to a warehouse for redistribution later
5. Destroyed either by being recycled or disposed of in a landfill or incinerator

There are many variations in the processes used to flow assets through any company’s reverse pipeline, but there are only five different final destinations for any item.  Some companies repair goods and sell them on the secondary market, for example, while others don’t repair anything.  They have a simple, yet important controlled destruction process.  Some new items are repackaged and stored for next season while other items are donated to charity.  Some companies are very concerned about brand protection while others are much more interested in keeping costs down and getting the most for the item returned.  The options and variations are as numerous as the companies and the items they sell.

The 3PL or RMS provider, however, must have the ability to capture the information needed to ensure the item is sorted and prepared properly in order to achieve the customer’s goals, while minimizing the risks that might result from improper dispositioning of the returned item.

The system used to process returns is the critical component of a reverse logistics process.  The returns system will determine if a company is going to maximize the value of returned assets or if they will needlessly throw money in the trash, literally.

For many companies, if you had to draw a picture of a car that would represent their reverse logistics process, it would look like Fred Flintstone’s car.  For other best-in-class organizations, the car would look like a Ferrari. The question is “what differentiates a Flintstone from a Ferrari?”  The answer is the returns management system (RMS).  There are not many supply chain executives who have any experience with returns and even fewer IT executives. It is this lack of experience and knowledge about reverse logistics that leads to poor decisions when it comes to building or buying a reverse logistics system.

In this four part series, we will help the uninitiated understand what to look for in a quality returns system.  We will describe critical capabilities needed in a state of the art RMS. We will explore what differentiates a state of the art reverse logistics systems from lesser “returns processing systems”.  In this first part of our series, we will talk about the receiving process.  In the second part of the series we will discuss processing requirements to disposition assets, drive repair practices, as well as direct and monitor physical processing.  In part three we will cover the processes that drive shipping, financial transactions, and quality assurance.  The last of our four part series will discuss visibility requirements and key reporting capabilities that will be needed.

The Receiving Process

The receiving process of an RMS should accomplish two primary functions.  First, the receiving process should identify and credit the “sender” of the assets for what they shipped to the processing facility.  Second, the receiving process adds the value of the returned asset into the “inventory” of the returns processing facility.  Before an item can be refurbished, repaired, repackaged, recycled, or sold, it has to be properly identified and recorded in the processing facility’s inventory.  In the world of returns it isn’t “garbage in, garbage out” that you worry about.  You worry about good inventory in and garbage out.  That costs money.

To ensure this doesn’t happen, you must have a quality receiving process at the front end of your RMS.  The RMS should drive a process that answers the following questions as goods are received:

When did the item arrive at the facility?

Where did the item come from?

Who was the shipper?

Is there any damage and should a freight claim be filed?

What is the SKU / Model number / Serial number or other identifying number for item identification?

Is the asset “hazardous” or some other regulated classification?

What is the condition of the item? (New, defective, damaged, damaged beyond repair, in original packaging, etc.)

What quantity is received?

What is the value of each item received?

What is the total “inventory” of the shipment that has been received?

Once this information is collected for each shipment, the process of crediting the sending customer/store/plant can take place.  One of the critical differences between an Returns Management System and a Warehouse Management System (WMS) is that most WMS’s rely on processing receiving against a PO.  In the returns world, there usually isn’t a PO or similar document and the condition of what is received can vary greatly.  The condition of the individual item determines how the asset is valued and how the item flows through the process.

An important back office function relies on the RMS receiving process.  That is the reconciliation of what the sender says they shipped versus what was received.  One of the challenges that exists in the world of returns is that most of the customers, stores, plants, or consumers are not properly equipped to determine the condition of the item they are returning.  They have no way to determine the condition and the value of the returned asset based on the condition. The accuracy of goods shipped is not reliable and the preparation and packaging of the item is not sufficient to prevent significant damage during shipment.  These issues cause differences in valuation and drive the need for a back office reconciliation process.

Identifying the item, determining the condition and valuing the item is the critical capability of the RMS receiving process.  Once this information is gathered, the process of inspecting, refurbishing, repairing and dispositioning the assets can take place.  It is at this point in the process that the value of the asset is determined.  Without a well thought out receiving process, the value of the returned assets could be lost when the item is received in the returns facility, before the process really gets started.