Posts Tagged ‘recalls’

Now that the tsunami of Christmas returns is over, retailers and manufacturers are realizing the financial impact of the first quarter “returns season”. For many, the fantastic Christmas selling season is a distant memory and the impact of all those returned and recalled RMAs are hitting the bottom line. The natural reaction is to focus on the cost of processing returned goods. While it is always a good idea to take steps to reduce expenses, companies that focus only on the expense line are walking by dollars to pick up pennies.

The real opportunity to reduce the impact of returned goods is to improve the recovery rate on inventory that flows through the reverse logistics pipeline. The key to improving the recovery rate is to improve the disposition of the goods returned. By improving the disposition of an item, we mean processing an item in a different way that results in receiving more money for the item.

For example, let’s say an item comes back from a customer and the reverse logistics management system (RMS) is configured to destroy the item. If all the terms and conditions for processing this item can be adjusted so this item can be liquidated or returned upstream for credit, the impact on the bottom line can be significant. This recovery rate can go from costing money to dispose of the item to receiving money from liquidating or returning the item.

The chart to the left illustrates the impact of improving product disposition has an the recovery value of an item. It is clear that while reducing the cost of processing an item from say, $0.53 per item to $0.52 per item is helpful, the impact of improving the disposition of an item from recycling for pennies on the dollar to returning the item up stream or putting the item back in inventory is much greater. Instead of just saving a penny on processing, you can recovery the full cost of the item.

Most retailers and manufacturers never look at how items are set up within their RMS after the system is installed or the item is added the first time. Items are set up and forgotten unless the price is changed or the item is deleted.  Taking the time to analyze how items are dispositioned can often result in dramatic improvement of the amount of money recovered.

The best way to identify “items of opportunity” is to start by categorizing products by their disposition. After this is done, start working you way from the bottom of triangle up to the top.  What are you throwing away? Why are you throwing it away? Can it be donated, recycled, liquidated or returned to the vendor? Can it be repackaged and/or put back into stock? You get the idea.  The goal is to push every SKU up the recovery value arrow.

Once you have identified an item of opportunity, you will need to review the terms and conditions associated in the purchase agreement. You may need to renegotiate the returns terms and conditions. This may be as simple as talking to a OEM supplier over the phone. For some, it may require significant negotiation. Don’t let the extra effort of negotiating stop you.  This can often result in a successful outcome, especially if you have good industry benchmarking information to bring to the table. The Robinson-Patman Act prevents companies from discriminating between companies on issues like this. If one retailer, for example, is allowed to liquidate product and your companies agreement requires you destroy the product, you are in a great position to negotiate.

Improving the disposition of a SKU will dramatically improve the recovery rate on returned product. This can also reduce other potential risks and liabilities, like those associated with disposing of an item improperly.  Reviewing item disposition is well worth the time and effort, and will dramatically reduce the negative impact of product returns and recalls on the bottom line.

Today, every third party service provider (3PL) is looking for ways to increase margins and increase the cost of change for their customers.  They want to figure out ways for their customers to be as loyal to them as they are  to their customers.  One way is to develop additional services and many consider developing reverse logistics capability.

If you are a 3PL executive who is considering this, there are a few things you need to keep in mind.  First, the priorities in returns are completely different than normal forward logistics.  Timing is not as critical but having the ability to profile each individual SKU as it is received into a facility is much more critical.  Every item can be handled one of six ways and you must know how to determine the disposition and what characteristics drive that disposition.

Returns processing could require a basic understanding of repair techniques, parts management, liquidation, and recycling.  The degree of each required depends on your customer and the category of product you will handle. While a basic understanding is needed, many 3PLs outsource some of the more complex internal services, such as electronics repair and testing, recycling, and transportation.  Your customers only want one throat to choke but, depending on the customer and the product being processed, they may not care if you outsource some of the minor functions. Be careful, however, the customer will hold you liable if there are any problems with a sub-contracted service provider.

Finally, your WMS system will not work in reverse.  WMS systems are built to move boxes for the most part.  A reverse logistics system is built to disposition returned goods and is guides operations through a very complex system. Your WMS provider may tell you it can do the job when it comes to processing returns, but do your homework and make sure it can handle all the complexities of product disposition management.  In all likelihood you will need specialized reverse logistic software to manage the process, product flow and disposition.

It is possible to put together a virtual reverse logistics solution for your customers but your customers will expect a certain amount of expertise.  Time has shown that companies that simply offer to be the 4PL manager without any real value additive services are quickly by passed by the “real” service providers.

Does the development of reverse logistics capabilities make financial sense for most 3PL’s?  It depends on the 3PL.  For the most part, fees in the reverse world can be twenty to forty percent hire than traditional distribution and transportation profit levels.  It really comes down to the needs of your customer base, internal capacity to take on developing new services and your appetite for investing in a development process. However, if you are currently serving a customer who needs help processing returns, you are half way home and should consider developing your company’s reverse logistics capabilities.

UPS has just published a white paper  titled “Recovering Lost Profits by Improving Reverse Logistics” written by Curtis Greve and Jerry Davis. Below is are excerpts from the Executive Summary:

It is no surprise that almost every company is looking for ways to increase sales, decrease costs and reduce risks. But in such tough economic times, the easy cuts have been made and all of the simple process improvements have been put in place. Enter reverse logistics, an often overlooked process that can help companies reduce waste and improve profits.

Reverse logistics is defined as the processes of receiving returned components or products for the purpose of recapturing value or proper disposal. Reverse logistics processes and plans rely heavily on reversing the supply chain so that companies can correctly identify and categorize returned products for disposition, an area that offers many opportunities for additional revenue. It is much more than simply counting defective items returned by customers. Also, it is much more complex than outbound shipping in that customers and/or consumers initiate a return, making it an inbound shipment process that is less predictable…..

And yet reverse logistics seldom receive much attention — that is, until something goes wrong. Many executives go out of their way to avoid dealing with returns because it can be ugly and is thought of as nothing more than a cost of doing business. What many fail to realize is that the average manufacturer will spend 9% to 15% of total revenue on returns, according to a 2010 Aberdeen Group study…..

To download a free copy  of  “Recovering Lost Profits by Improving Reverse Logistics” by Curtis Greve and Jerry Davis, click on the following - Recovering Lost Profits by Improving Reverse Logistics.

If you would like to order the recently published “An Executive’s Guide to Reverse Logistics – How to Find Hidden Profits by Managing Returns” also written by Curtis Greve and Jerry Davis, click here.

Curtis Greve and Jerry Davis have been providing reverse logistics and liquidation services for over 25 years and they have written a book to help business people around the world make more money by improving their reverse logistics processes. Jerry and Curtis have captured key lessons learned about designing and running reverse logistics networks for companies such as Walmart, Target, Macy’s, Unilever, Dell, HP, Best Buy and many other Fortune 500 companies and third party service providers.

The goal of this book is to provide valuable insight to executives looking for ways to improve their return management capabilities and maximize profits on goods flowing through their reverse logistics pipeline. Whether you are thinking about buying reverse logistics software, negotiating better return agreements, improving return center operations, or updating your company’s customer returns policy, this book is for you.  This book will explain reverse logistics best practices, current trends, future change drivers and much more.  Like the title says, this is an executive’s guide to reverse logistics that will show you how to increase your company’s profits by managing returns.

In today’s economy every business executive is looking for ways to reduce costs and improve customer satisfaction. Most of the usual steps, like cutting payroll, reducing expenses, and negotiating better deals, have been exhausted. Business leaders are now looking for new ideas to achieve their goals.

In many organizations, reverse logistics is an area of untapped opportunity that can have a positive impact on both customers and earnings. It takes leadership and resources in order to take advantage of these opportunities but the payback can be significant. If you are new to the world of returns management, the question is “How do you find hidden profits in reverse logistics?”

“An Executive’s Guide To Reverse Logistics” has the answers. If you are a supply chain executive who needs to understand more about reverse logistics, or if you are a CEO or CFO looking for ways to reduce the financial impact of product recalls and customer returns, this book is for you.

“An Executive’s Guide To Reverse Logistics” is filled with explanations, facts, process flows, diagrams, tools, and best practices developed over the authors’ combined 40 years of hands-on experience. Simply put, this book is a roadmap that will help you find hidden profits by managing returns.

Click here to order copies of “An Executive’s Guide to Reverse Logistics – How to Find Hidden Profits by Managing Returns” by Curtis Greve and Jerry Davis.

The Consumer Product Safety Commission (“CPSC”) announced a revised version of its Recall Handbook and new Guidelines for Retailers and Reverse Logistics Providers.  The Recall Handbook contains a number of changes including the following:

• Companies should file Section 15(b) Reports through the CPSC’s website (saferproducts.gov), rather than by mail or phone.  The staff repeated that preference at this week’s annual meeting of the International Consumer Product Health and Safety Organization.
• When announcing a recall, companies should consider use of their social media presence, including Facebook, Google+, YouTube, Twitter, and company blogs.
• Companies should consider the use of mobile scanners to obtain information on recalls from mobile devices.  The recall poster should include a QR code or other mobile scanning code to let consumers act on the recall immediately.
• Companies conducting a recall should develop a plan regarding disposition of the returned product

The Recall Handbook also clarifies the following:

• In addition to the factors identified for determining whether a risk of injury could make a product defective, the CPSC will also consider whether the risk was obvious to the consumer; whether there were adequate warnings and instructions to mitigate the risk; and whether the risk of injury was the result of consumer misuse and, if so, whether the misuse was foreseeable.
• For the Fast Track Product Recall Program, if a corrective action plan is not approved within 20 working days, the staff typically will not make a preliminary hazard determination if the company has provided the required information, but the staff has not been able to review it  within the time period.

Manufacturers and 3PL’s that process recalls should review this document closely. Now that the CPSC has the ability to level fines and penalties, the importance of complying with these guidelines is greater than ever.  Please read the revised recall guidelines for further details and information.

Walmart and Sam’s Club will bring on board literally thousands of new suppliers every year. These new suppliers are only 2% of the manufacturers that attempt to become a supplier to the world’s largest retailer. Manufacturers across the globe work hard to join this elite club. While they will work pricing and sales pitch to perfection, they often over look a critical part of the program every Walmart Supplier must bring to the table to finalize the deal. We are talking about their program to handle returns, end-of-life product, and recalls.

Due to the huge number of companies wanting to pitch their service, Walmart developed a process to “qualify” potential suppliers.  This process is detailed and can be difficult to navigate for those who are unfamiliar with the “Walmart way.”  Having a product that would look good on a store shelf is just the beginning. A manufacturer’s ability to provide a comprehensive support program for their goods is as important to Walmart or Sam’s as is the item and the price.

Once a supplier has the required paperwork in hand and has completed the online questionnaire, they can then attempt to set up a meeting with a Walmart Buyer.  This meeting will determine if your item will be sold in a Walmart or Sam’s club, or not.  All the stories you’ve heard about going to the Walmart Home Office to pitch your product are true. For many, their company’s future will come done to 45 minutes with a Buyer who is tired, overworked, and has no time to waste.  You have a limited window to get the Buyer excited and you must be prepared to make the most of it.

Just imagine; the meeting is going well, the Buyer seems excited about your item, you talk about price and seem to be close to a deal, then you get blind sided.  The Buyer asks, “How are you going to handle returns?” The meeting comes to a complete stop. If you don’t have an answer the Buyer will ask you go do you homework and come back another time. Have fun flying home, knowing that you will have to reschedule another trip to Bentonville and try again to make a deal.  All the way home you will be kicking yourself for not having the answers to the Buyer’s questions.  If you had a plan to handle returns you would be flying home with a deal.

Within the Supplier’s Agreement, there is a large section that address returns. However, according to Walmart associates this is often overlooked or poorly addressed, which reduces the supplier’s chances of success.  You will need to be prepared to quickly explain how you will handle returns and negotiate the terms in the returns section of the Supplier’s Agreement. You will need to have a plan to deal with customer returns, end-of-life, and recalled products.

There are two requirements in the returns section of the Walmart Supplier Agreement, and eleven different variations of returns terms that you’ll need to quickly negotiate with the Buyer. The processes and terms used can vary greatly depending on the product.  In addition, the terms for end-of-life and recalls are often different from terms to cover customer returns or damage.

Do not assume that these terms are inconsequential just because they only apply to returned goods. According to a study conducted by the Aberdeen Group in 2010, manufacturers spend between 9% and 14% of sales on returns.  Poor preparation and negotiation of return terms can have a huge impact on the bottom line of a new Walmart or Sam’s supplier. In fact, the returns terms can impact a manufacturer’s bottom line by as much as five percent of sales. It is worth the extra effort to get it right.

Remember the motto of the Boy Scouts of America – Be Prepared. If you want to be part of the 2% of manufacturers that become Walmart or Sam’s Club suppliers, do your homework. You will need to have a program to deal with customer returns, end-of-life, and recalls.  You will also need to have a competitive returns fee structure in hand and ready to quickly discuss with the Buyer.  The purchase price is critical but it is not the only number you will need to have in hand.

To find out more about how the terms and conditions of a Walmart Supplier’s Agreement and the program you will need to have ready for you meeting with the Walmart Buyer, check out our Walmart Supplier Returns Program.

Aftermarket Services have been in high demand for a number of years now.  With the explosive growth in consumer electronics and offshoring of many factories, Aftermarket Service providers have seen demand skyrocket.  According to Livingston Partners, the Aftermarket Services sector has grown over 20% since 2006. Furthermore, they expect the Aftermarket Service sector to keep on this growth trajectory for the next five years. While demand for Aftermarket Services has been strong for quite a while, the service providers are still a fragmented lot with no dominate player emerging as the “Go-To” Aftermarket Service provider of choice.

Aftermarket Services traditionally include returns processing, repair and refurbishment services, and end-of-life services that include recall processing and product recycling services. Over the last few years, however, Aftermarket Services have expanded to include warranty management, customer service, and comprehensive reverse logistics programs.

Due to rising costs and pricing pressures retailers, distributors, and OEM’s have looked to outsourcing Aftermarket Services. They outsource because of a general lack of expertise in the services needed and to limit potential liabilities. There are other benefits but for the most part, companies outsource Aftermarket Services because the service providers can provide the services for a net lower cost, with lower capital requirements, and a higher quality result.

The question remains to be “Why hasn’t a dominate Aftermarket Service provider emerged?”

We think the answer is because of the wide variety of services and sectors that would be considered Aftermarket Services. There are a number of 3PL’s that offer returns processing but these services are often no more than gate keeping processes to receive and ship returned goods.

There are many companies that repair and refurbish aftermarket goods, but these companies are usually narrowly focused on a limited number of categories.  Most repair and refurbishing companies operate on a local basis and do not have the infrastructure required to handle the large volumes that come with a comprehensive nation wide program.

Few reverse logistics companies understand end-of-life processes at all, much less have comprehensive solutions they can take to the market.  Going beyond these three basic Aftermarket Services into the newer solutions such as warranty management, customer service, or comprehensive reverse logistics is a bridge to far for the Aftermarket Service providers of today.

There are a number of 3PL’s who are looking to expand their services and develop differentiating services.  The market is looking for a service provider that can provide comprehensive Aftermarket Services.  When the two intersect, growth and prosperity will abound for both. The question is “Is there any provider out there who has the vision and the capability to be the dominate Aftermarket Service provider?”

Reverse logistics is the part of the supply chain that is often outsourced to third party service providers (3PL’s).  Many companies that have best-in-class supply chain functions outsource reverse logistics.  If these industry leaders can run very complex global distribution networks, why don’t they operate their own return centers?  For the last two decades, we have worked with Fortune 500 Companies who have outsourced their reverse logistics to 3PL’s and we have found they do so for one of three reasons:

1. To get reverse logistics expertise quickly and with less risk
2. To achieve greater flexibility and faster speed to market
3. To create a protective barrier against outside forces and limit potential liabilities

Many companies outsource reverse logistics because they do not have the expertise within their management ranks to run the area, or they don’t want to use these resources on the function under consideration.  Retailers, for example, want their top executives working on ways to improve traditional core supply chain functions, or store operations, or merchandising systems.  Manufacturers want their top talent running manufacturing plants, working with customers, managing imports, managing parts or just about anything other than focusing on returns.

Reverse logistics is more often treated like the red headed stepchild of the supply chain.  No one wants to deal with returns.  When I first got involved with returns, Lee Scott, now retired Walmart CEO and then VP of Logistics had to promise me that I would not have to spend any more than two years running reverse logistics for Walmart before I would agree to take the position. That was over 25 years ago and for me it became a career.  The point is that reverse logistics is outsourced because there is no internal expertise and/or the company is unwilling to invest in the team and technology needed to develop reverse logistics.

This is the main reason why retailers and manufacturers outsource their returns processing functions.  A qualified 3PL can have a significant impact on a company simply because of their experience in returns.  They can also help leap frog the competition by leveraging systems, liquidation networks, and by sharing best operations practices that will reduce the processing costs.

The key, however, is to outsource to a firm that is experienced and has a broad view of the issues.   Many 3PL’s claim they “process returns”, few actually do and fewer still have any idea about what happens upstream or downstream from the actual returns processing function and how they must be coordinated to achieve maximum results.

When you are selecting a 3PL, it is important to do your homework and select a provider that has real experience providing reverse logistics services in your market.  Can they help you improve the product flow upstream so you can process more efficiently and maximize the value of the returned assets downstream?  Do they understand the impact of returns on customers, suppliers, stores, DC’s, and how they effect the financial well being of the company?  Do they have existing operations repairing product that is similar to your returned items.

WARNING: Watch out for the 3PL who wants you to be the first.  Often 3PL’s who repair phones will spin their experience and try to convince a TV manufacturer that they really can process, test and repair TV’s because they have been in the consumer electronics repair business for years.  In reality, they have never fixed anything other than cell phones and they are looking for a customer to fund their technical development.  Buyer be ware.

Lack of on point experience is often why companies outsource reverse logistics, but speed and flexibility also drive many to outsource.  Companies outsource reverse supply chain functions not because they don’t have the leadership or experience but because they need a solution fast and going to a 3PL with the focus, motivation, experience, existing technology, capital resources and staff can get things up and running much faster than the company could do it on their own. A quality 3PL will be able to start up a new reverse logistics operations within six months.  Most companies who decide to develop reverse logistics internally will take at least twice that long.

The third reason companies outsource supply chain functions, including reverse logistics, is to have a layer of protection and minimize their risk.  Many companies outsource operations to avoid unwanted attention from labor unions. It is against the law for companies to fire employees who attempt to organize a labor union, however, a company can fire a 3PL and replace them with another if the 3PL doesn’t meet performance metrics.  This is true even if the 3PL did not achieve it’s goals because of a strike or other union activities.

Companies also outsource to cap and control other risks and liabilities such as inventory shrinkage, workers compensation expenses, medical benefit costs and other “non-controllable” expenses.  Companies protect themselves by either negotiating a fixed fee arrangement for multiple years or with some form of variable pricing.  This enables companies to limit these risks by negotiating caps within their outsourcing agreement.

Outsourcing reverse logistics is often the best way to develop returns processing capabilities for many manufacturers and retailers.  You will need to employ experienced resources to help select the 3PL and negotiate an acceptable contract. However, with in six months you will have a best-in-class reverse logistics process that maximizes the value of returned assets, with limited risks and controllable costs.