Posts Tagged ‘3PL’

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.

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.

Reverse Logistics Podcast #11 – Future Trends in Reverse Logistics

This podcast is a recording of a presentation given by Curtis Greve to the DRS Customer Symposium on September 9, 2010.  The subject of Curtis’ presentation covered four external drivers that will impact every reclamation center and reverse logistics process in the world between now and 2015.

This presentation was directed toward CPG manufacturers but the drivers behind the future changes in the reverse logistics ecosystem will impact every retailer and wholesaler as well.

The DRS Customer Symposium was a great event with a lot of take home value for all attendees.  It was attended by over 40 manufacturers who are customers of DRS.  For more information on this symposium or about DRS services and solutions visit DRSReturns.com.

The Reverse Logistics Podcast

Your host is Curtis Greve.

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.

Carrier claims for returned goods are a little more tricky than normal claims because of the trouble in valuing the goods shipped.  Traditional carrier claims are based on known items on a manifest, each with a market driven value.  In the world of reverse logistics, the shipper often does not exactly know what is in the “returned box” to begin with and the value could vary greatly depending on the SKU, product profile, condition and age of the item.  If left to the traditional means of calculating freight claims, neither the carrier and nor the shipper will have a reliable way to value freight claims because the relative value of the inventory is almost impossible to determine, once the item is lost or destroyed.

Correct values could be dramatically different and there are a host of issues that impact the real value of the returned goods for which a claim is filed.  Examples of some of the problems in valuing returned assets are if there are missing components, or if the item has been tampered with, or if the item has been abused and is broken beyond repair.  These are common finding in processing returns but if an item is missing or if the carrier smashes the case containing the item, figuring out these variables ends up being nothing more than a guess.  Collecting on claims filed can almost be impossible, at times, because of these variables.

The best, easiest and most straight forward method to file freight claims is to establish an “average value per case”.  The average value per case is based on the budgeted units and total value of the goods that are to be processed.   No company can really peg the value of any item that is going to be returned in the future.  Using a logical method to calculate an average value per case is a fair, acceptable way to base reverse logistics freight claims.  Once an average value is determined, the process used to calculate the average should be reviewed with the carrier and the average value to per case should be included in the carrier contract and reviewed on an annual basis.

A word of caution, however, if the value of an individual item is significant, traditional freight claims processes should be used.  The level of detail concerning the returns goods is much greater using this method and you must ensure the proper processes for identification at the point of origin are in place.  In order to file “normal” freight claims, an exact list of items shipped will need to be recorded, tracked, and received at a detailed level for each shipment.  You must also ensure that the proper documentation noting the value of the shipment is made, prior to shipping.  If this level of detail is not possible, using an average value per case is probably the best method.

If you are in the market for either a third party repair company to outsource to, or if you are considering investing in reverse logistics software for your return center, with product repair capabilities, there are a few key features that clearly separate the contenders from the pretenders.  Purchasing a software package that has the required features and is installed by experienced reverse logistics professionals will pay big dividends.  In fact, if you buy software that doesn’t have the right functionality in production, you are wasting your money and most likely financing the development of a new module for the software vendor or service provider you’ve selected.

If you are not a system guru, and the typical decision maker for buying reverse logistics isn’t, how will you know if you the software or process includes the components you will need to maximize the value of the hi tech, hi value assets that will be processed?  If you ask your software provider or third party processor to explain the following, you will be able to separate the best-in-class from the jokers-in-class when it comes to reverse logistics software:

1. Explain the process flow of goods and what happens to goods after they are received.
2. Show me the report for units that are scrapped.
3. Show the process for scrapping a unit and how you capture and track parts that will be used to repair other units.
4. How does your system account for the parts inventory that is used to repair product?
5. Can your system re-disposition parts that are not needed?
6. Does your system facilitate parts harvesting / liquidation?
7. Can your system track separate inventories of units that have different owners?
8. How are Bill Of Materials (BOM) stored in the system?
9. Can your system support more than one BOM per model?
10. How does your system support warranty returns and related repairs?
11. How many classifications of repaired units do you have and how are is the inventory valued?
12. Show me the productivity reports for receiving, repacking, repair techs, picking processes, and shipping.
13. Can you re-designate finished goods as liquidation, A, B, or C stock goods?
14. When do you designate how and where to ship goods, can you add change shipment status from LTL to Small Package, or Truckload?
15. Show me how your system supports selling refurbished goods directly to the customer or B2B?
16. Does your system provide sustainability reports that provide an audit trail for carbon footprint reporting purposes?
17. Can your system process credit back to the customer based on condition at time of receiving and based on diagnostic results?
18. How does your systems track and process consolidation fees and transportation fees for both inbound and outbound processes?
19. Demonstrate how your system processes advanced service parts orders and other similar transactions?
20. Are all your reports available on the web and do you provide a report writer as part of your standard system?

If you ask a reverse logistics software provider these twenty questions along with the follow up questions that will naturally come up during the software demo, you will quickly be able to tell the wanna-be’s from the best-in-class providers.  The last and most important step in purchasing reverse logistics software or hiring a third party processor is to ask for references of other customers that have the same requirements you have.  Insist on touring most, if not all of the reference locations to see the process and software in action.

You’ve just gotten approval to outsource reverse logistics.  The first step is to put together an RFI/RFP and send it out to your evoked list of potential service providers.  When developing this RFP, there are basically two approaches companies can take in selecting a third party logistics provider.  The first approach is the “Commodity Pricing” approach. This is used by companies that, for a number of reasons, are going to base everything solely on price. The lowest, BELIEVABLE price will get the deal. Most of the Commodity Pricing RFP questions concern establishing credibility and position in the market. Of course, the final version will be based on exacting specifications that require a firm price.

Often the final RFP will have a completed contract that has to have pricing filled in and signed when returned for final review and selection by the buying company. Companies that issue Commodity Pricing RFP’s don’t care how much is profit, what the provider’s cost is, or what assumptions were built in by the service provider. They seldom pay attention to critical elements such as yeild rate, scrap, or disposition statistics.  Their only concern is their cost. For some it could be a cost per unit, others look at total dollars out of pocket, and some ask for a monthly dollar amount for fixed expenses and a firm cost per unit based on volume. This approach works great if the solution calls for a “commodity service” that is not customized, and with little or no variation in residual value of goods flowing through the reverse pipeline.

However, if the valuation of returned goods could vary significantly based on how the product is processed, the Commodity Priced approach can end in disaster for both the company and the provider.  Disaster strikes when the condition or make up of the goods returned are not as expected.  And just like when you drop buttered toast on the floor, it ain’t going to be in your favor.  The 3PL ends up either spending a lot more time and money trying to process the goods or they take short cuts to avoid losing their shirts.  Regardless, it is a big problem for both the third party service provider and their customer.

The second approach to developing reverse logistics or reclamation RFP’s is called the “Relationship” approach. If you are going to outsource a reverse logistics that requires flexibility on the part of the provider and the rate of variability is high, you want to select a provider that you trust.  You will need a provider that will work with you and is willing to agree to contract language that will tie the provider’s interest to your interests.  Relationship contracts are often volume based. Many times contacts are cost plus with a budget cap, based on a mutually agreed to set of assumptions. These contracts are much more complicated than a fixed priced agreement but they can result in much better service over the long haul.

Watch out, though, contracts with assumptions and variability require a lot of effort and oversight to ensure everything is on the up and up. If you are outsourcing returns management to an industry expert, you better have an internal expert working for you, otherwise you could be taken to the cleaners.  One client was getting charged $400 per hour for additional software customization, even though the contract clearly stated that systems charges were fixed.  The customer was “confused” because the contract was cost plus so when the system invoices came through they were never questioned.

If your company is going to outsource and you are developing the RFP or you are ready to select the third party provider, ask yourself the following questions:

1. What type of RFP and contract is typical for the industry?
2. How much variability occurs that is out of our control?
3. How predictable are the basic metrics?
4. What is an acceptable yield rate for repaired & refurbished goods?
5. What is the expected scrap rate for product by category?
6. What kind of additional “value adds” are you looking for the service provider to bring?
7. How long do you anticipate the contract and associated relationship to last?
8. What was the justification used to get approval for the project?
9. What risks can be controlled if included in the contact? Shrinkage, mis-ships, worker’s comp, health insurance increases, union organizing efforts……

For those looking to outsource reverse logistics, take a look at RL Quote on the Reverse Logistics Association’s web site.  This is a great tool and can ensure you get access to the best in class service providers in the field of reverse logistics.  Their members provide reclamation services, refurbish and repair services, software, operations and consulting.  This is the best source to find 3PL’s who specialize in reverse logistics.

The key component in developing an RFP and later, the contract, is to ensure that you have someone on your side of the table that is as knowledgeable as the third party service provider sitting on the other side of the table.  There are many details involved in outsourcing reverse logistics.  Having an experienced negotiator that understands these details can be worth millions over the life of a contract.  If you are equally matched and you end up with a professional service provider that hits it out of the park, the benefits outsourcing will far exceed the expectations.