Posts Tagged ‘Process improvement’

In today’s Podcast Curtis Greve shares three tips that can help improve returns processing; improve relationships with key vendors, suppliers, and liquidators; and increase the bottom line contribution of your reverse logistics program.

Do you know how to eat an elephant?  One spoonful at a time.  Curtis will share his experiences and time tested best practices that will help you improve, one step at a time.

Like Alan Weiss says “If you improve 1% everyday, in 70 days you will be twice as good.”  Here is three percent to help get you started.

The Reverse Logistics Podcast

Your host is Curtis Greve.

The ultimate measurement to determine if you are really improving productivity in a returns facility is Inventory Turns. Many companies use different productivity measures. Most calculate some variation on throughput. My personal preferred method for calculating throughput is:

Throughput = Total Units Received ÷ Total Variable Man Hours Paid

When calculating throughput in a distribution center, one typically adds total inbound units with total outbound units. In a return center, adding total outbound units can get problematic when product is destroyed, cannibalized for parts, or all major components are not returned. If the flow was even and predictable throughout the year, this would not cause a problem but for most return center facilities, product flow and resulting disposition can vary a great deal so the only reliable number is inbound units received.

While throughput is key metric a return center should measure and monitor on a daily basis, it does not reflect the impact on cash and inventory movement that tracking inventory turns can provide. A facilities annual inventory turns is calculated using the following formula:

Inventory Turns = (Total Processed – Ending Inv) ÷ Ave Inv

Having your management team focus on a daily throughput goals along with monthly and quarterly inventory turn goals will motivate them to focus on using their time more effectively.

For example, a facility’s throughput numbers could be above goal but their inventory turns below goal because the shipping department is blindly shipping product first in first out. If the shipping supervisor was looking to balance their shipping plan between staying with 24 hours of FIFO but shipping a specific dollar amount of goods to ensure they hit their turn rate, the effort would not be any more but the impact on cash flow and overall cost per unit processed would be significant.

When I was the President of Reverse Logistics for Genco, we began tracking turn rates and setting goals for each facility to improve their turn rate by 15%. With in two years, the average inventory turns for our customers more than doubled. The facilities were not necessarily working harder but they were clearly working smarter.

The impact on our customers was tremendous. Cash flow was significantly increased. Most customers tracked our performance internally based on a percentage of cost to total dollars received after processing. This was referred to in most cases as “sales” for the return center. As you might imagine, as the turn rate went up, the “sales” of the return center went through the roof. The cost per unit were in line with our budgets for the most part, but internally the customers were seeing a significant reduction in return expense percent to “sales”.  Our billings were on target but the credit received for returns was significantly higher because we were managing cash flow by driving inventory turns.

In a return center, there are many key metrics a good management team should track. The one most often left off the list is annual inventory turns. This, when all is said and done, is one of the most important overall indicators of a return facilities performance and clearly it  is the best measure of the facility’s impact on the larger organization.

Today I am launching my new web site under the new company name of Greve Consulting, formerly known as Metreks.  The focus of my practice is to help companies develop their returns management, aka reverse logistics capabilities.  Viewers will find a lot of useful information on returns including the Reverse Logistics Podcast, which will feature industry leaders from the world of reverse logistics, and my blog which is packed with articles and information to help service providers, manufacturers, retailers, and liquidators make more money.

Register to get the blogs sent to your desktop automatically or save www.GreveConsulting.com as a favorite on your browser.  Your comments, questions, suggestions and feedback are encouraged.  I will use your feedback to improve the value delivered from the site.

Check in from time to time to see what is new.  For example, you might want to check out The Cost of Doing Nothing.  This is a form you can fill out to find out how much opportunity you and your company have in developing your reverse logistics capabilities.

Whether you call it returns management or reverse logistics, it’s all about improving returns and maximizing profits.  I hope you enjoy the new site and get a lot of value out of GreveConsulting.com.

Click on the image or the link below to download the March 2010 issue of Warehousing Forum, published by The Ackerman Company.  Warehousing Forum is a leading supply chain newsletter that is recognized around the world as a great resource for supply chain executives.  This award winning publication is dedicated to helping warehouse managers and their bosses improve productivity and manage more profitably with tips, comments and articles written by practicing professionals.  If you are in supply chain management at any level, you will want to subscribe to this publication.

The featured article in the March 2010 issue discusses critical components to keeping warehouses and distribution facilities union free, and was written by Curtis Greve.  Enjoy your free download of this thought leading publication.

Warehouse Forum March2010

According to a study conducted by The Aberdeen Group, companies whose reverse logistics capabilities  rank in the top twenty percentile are realizing more than four times the decrease in year-over-year costs per return, compared to the lower eighty percentile.  In short, the best keep getting the better and the rest are falling farther and farther behind.

At first blush, this seem counter-intuitive.  Shouldn’t those with the highest cost per unit be able to reduce cost more then those that are best-in-class?  So what is the key to reducing the costs of processing returns?

There are two best practices that will enable your company to significantly reduce the cost of processing returns starting this week.  (This is assuming you are in the bottom 80%.) That’s right, you could start saving money this week.

First, you must have a dedicated, talented, executive permanently assigned to manage your companies reverse logistics pipeline.  I told a client this one time and he said “We don’t have a reverse logistics pipeline.”  I replied, “You do, you just aren’t managing it.  It is managing you.”

Today, the total cost of returns can cost from 9% of sales to 15% of sales.  A function that can impact your corporate financial to this degree deserves the dedicated focus.  Whether you assign a top talent internally or you outsource the oversight and management, make returns somebody’s job and you will see instant payback.  If they need to get educated on reverse logistics, get them trained.  If they are trained but aren’t making an impact, make a change.  The point is to get the right leader dedicated to driving improvements that will put your company in the top twenty percentile.

Next, develop metrics so you can measure what you’ve received, how much is in process, how much you’ve shipped, and quality of the process.  Avoid falling into the trap of “we don’t have a system.”  Sure a system would be better, but you can save a lot of money by tracking it the old fashion way.  You don’t need a system to measure performance and you don’t need to let any excuses stop you from doing some level of measurement.  You don’t measure it, you don’t manage it.  You measure it, you manage it, the costs decrease.

If your company is not doing anything to improve returns and you don’t have the budget to invest in systems or facilities, simply putting a smart executive in charge and having them develop basic metrics will put significant dollars on your bottom line.

Many companies that undertake development of their reverse logistics capabilities, aka returns processes, often find an unexpected benefit that can drive significant dollars to the bottom line. What’s that benefit? The ability to support guaranteed sales agreements.

Guaranteed sales agreements are buying deals between manufacturers and retailers, or similar B2B relationships, where the party selling the goods, agrees to take back any unsold units over an agreed to amount, after an agreed date.   An example of this would be if the maker of a hot new toy were to make a deal where the retailer to buy one million units for the Christmas season, but the retailer can return the unsold quantity over five hundred thousand units, after the first of January.

Manufacturers like this idea because they get a big sale and they have product on the shelf.  If it is a hit, they  maximize sales and avoid out of stocks.  The retailer’s love the idea because they have hedged their bets.  If the item is only half as hot as the seller said it would be, they are protected and can return the unsold portion.  The buyer has protection against excess markdowns if the sales are lite and he has plenty of product if sales are strong.

The special returns process used for unsold goods under a guaranteed sales agreement is call the “recall process”, “marketing returns”, “merchant returns”, or similar name.  Regardless of what you call it, it is the returns process used to remove unsold goods from the buyer’s supply chain and return it to the sellers supply chain.

Many companies do not take advantage of guaranteed sales options because they do not have a well developed reverse logistics program to handle the flow of goods coming back.  Companies depend on the recall process embedded in their reverse logistics program to ensure compliance through out the chain. With a well defined recall process, the parties have control and the checks and balances in place to ensure that both the retailer and the manufacturer can properly control and account for the goods flowing back to the original manufacturer.

Today, many leading retailers and manufacturers rely on the recall process to hedge their bets and maximize profits. The volume of “recalled goods” flowing through a return center, can be 50% or higher of total volume in the reverse pipeline.  In weeks following Christmas, recall goods can be as high as 90% for some.

Manufacturers use their recall processes to transition from season to season. This is especially cost effective to companies whose manufacturing is offshore. Many famous name brand manufacturers use guaranteed sales agreements and recall processes to go from having packaging with Christmas trees to packages with Easter Eggs, repackaging the same product but with relatively little additional expenses, minimal time delays, and significantly reduced lead times.

The key to leveraging guaranteed sales agreements for both manufacturer and retailer is a reliable reverse logistics program. For many executives that are the sponsor behind developing reverse logistics processes in their companies, they often don’t realize this until well after they have finished the hard work of developing their returns capabilities.   For them, finally, they get a pleasant surprise for all their hard work and efforts.

In today’s podcast, Curtis Greve talks about Disposition Management and why it is the key to maximizing the value of assets flowing through your reverse logistics pipeline.

There are only six possible dispositions for any item in a return center, whether it is a can of soup or an expensive computer.  Do you know what they are?  Do you understand how the disposition of the item impacts the value received for an asset and how that determines the cost of processing?  You will after you listen to this podcast.

RLP #1 – Disposition Management

The Reverse Logistics Podcast

Your host is Curtis Greve.

The majority of companies that outsource distribution or returns facilities to 3PL’s also run their own facilities and often they will outsource to two or more 3PL’s.  If you have multiple operators providing services, a great way to develop process improvement is to start benchmarking and ranking each operation.

While this sounds like common sense, surprisingly few companies actually rank all their operations based on a common set of metrics.  Your facility operations teams and the 3PL’s will complain that you are trying to compare apples and oranges but there are common metrics in every supply chain that you can use to rank operations and promote process improvement.

Common benchmarks include lost time accidents, variable cost per case, quality, productivity improvement or variance against plan, and many more.  There are some comparisons that are not valid but there are always key metrics that each operation shares with other operations within a supply chain network.

Once you have identified common benchmarks to measure, you then put together a program that rewards the best performer and most improved.  You can have a number of different recognition programs but too many “awards” will kill the program.  The actual rewards don’t have to cost much money and should be self funding based on the improved metrics.  In fact, if the rewards aren’t self funded, you have not picked the key metrics that really could impact your cost.

Once the program is put together, the rankings and metrics are ran monthly and rolled up into quarter and annual results.  To be effective, you must make sure that you review the metrics and talk about the rankings on a monthly basis.

To really make a program like this work, you should require that each operation review each metric and put together a plan to address it at the beginning of the year.  Then on a quarterly basis, a review should be presented by each operation detailing where they are versus their plan and what they plan to do over the next 90 days to improve.

Don’t underestimate the power of having a ranking posted in your newsletter and on the office walls.  3PL’s will want to be first and your internal operations will see this as a way to prove their worth and avoid their operations being outsourced as well.  At the end of the day, you’ll have a much improved supply chain which is the ultimate goal.

If you need to improve moral in your warehouse and wish your supervisors were better trained and prepared, set up a “Work Day” program.

“Work Days” are days when a supervisor shows up dressed like regular employees and they actually do the work, just like a normal employee. No meetings, no extra breaks, they just do the work. Supervisors and managers cover for each other so the manager or supervisor on a “Work Day” has their supervisory responsibilities taken care of.

Often, supply chain managers and supervisors never actually do the work that they are charged with overseeing. Requiring them to do the work will teach them more about their job than any class on leadership ever will. The employees love it also.

Supervisors will dread it and you will have to force them to do it, but soon they will see that they are more effective and their team is more cooperative than before. Don’t stop with the supervisors in an area. Require every manager to spend one day a month working in one area that they oversee.

This was a common practice at Walmart and it worked like a charm. Soon the supervisors were adding value by coming up with ideas for improvement, eliminated redundancies, and labor relations improved dramatically.

Setting up a program for management to rotate every month to complete Work Days is a best practice that shows immediate payoff.

Many executives today still think that sustainability is just another form of green that will cost money.  If you have a new enviromental program that has a detrimental impact on your bottom line I can guarantee you two things.

First, you aren’t doing something right.  You may not be looking at the entire picture and realizing the full benefits.  You may be doing something like spending more money on fuel picking up recyclable materials than the revenue you gain; ie doing stupid programs.

Second, if your program really is costing you more money, it is not sustainable.

A true sustainability program improves the enviroment, improves the impact on your workforce in someway, and IT IMPROVES THE BOTTOM LINE!!

Case in point:

The CEO of BP committed BP to reducing greenhouse gases, especially carbon dioxide.  The CEO sent out word to all BP businesses to find ways to reduce these gases.  After three years, BP had discovered many ways to accomplish this goal.  They cut emissions, improved efficiency and saved money.

The initial process changes cost BP roughly $20 million but SAVED $650 million in the first few years.  When asked about this Lord Brown, BP CEO, said “We set out to do good…. and we ended up doing well.”   (“Green to Gold” by Esty and Winston)

Committing to a sustainability strategy has to come from the top and it has to be institutionalized to really work.  However, when done correctly, sustainability will avoid risks, improve labor relations, improve stockholder relations, and increase the value of your firm.