Posts Tagged ‘retail’

In a previous post, the importance of having a well defined recall process in place was discussed at length.  Our series on “Five Components of a Recall Action Plan” pointed out that the most important component of any recall process is communications.  This is true for any manufacturer involved in any recall but especially for drug manufacturers involved in a recall.  Perception is often more important than reality when it comes to how a recall is processed.  Perception is nothing more than the reaction to the manufacturer’s communications concerning the recalled product.

A good example of this is the recent noise out of Washington DC concerning a recall of Motrin tablets by Johnson & Johnson.  In a recent article titled “U.S. House Widens Inquiry of J&J’s ‘Phantom Recall’ by Drew Armstong appearing on Bloomberg.com, J&J is pummeled by a Representative Edolphus Towns, a New York Democrat and the committee chairman of the The House Oversight and Government Reform Committee – “Rather than doing the right thing and announcing a recall, we have learned that the drug company hired contractors to basically sneak into stores to purchase the products as if they were legitimate customers…”

The actual facts have yet to come out and J&J is not talking to reporters.  The impact, however is significant, even if the “phantom recall” was real or not, or if there are adverse reactions to the recalled Motrin or not.  According to the article on Bloomberg.com “J&J shares declined $1.76, or 2.9 percent, to $58.01 at 4 p.m. in New York Stock Exchange composite trading. The company has declined 9.8 percent since the recall of the children’s medicines was announced.”

J&J is a reliable, honest company.  Inmar, the company that was described as “sneaking into retailers” is a top notch 3PL and very honest as well.  Based on my experience with pharmaceutical recalls, there is a very high likelihood that the Motrin in question poses no risk to the public at all.  There is also a greater likelihood that the only reason this is in the news is for headlines and political gains at the expense of J&J.

While the details of what J&J really did, along with their internal and external communications are not public record, it is clear that appearing and actually being completely open and honest is their only path to avoid future problems.  As pointed out in the article, the facts are going to come out sooner or later.  The impact poor communications and attempting to cut corners to get a product off the market is clear.  As pointed out in Mr. Armstrong’s article “You’ve got a company that’s considered one of the premier companies, that’s spent something like 100 years building its reputation,” Les Funtleyder, an analyst with Miller Tabak & Co., said yesterday in an interview. “This is the kind of thing that can hurt that.”

Dealing with the public fallout over this recall is one headache that J&J can’t cure with a couple of Motrin.

The most important question that an executive in charge of reverse logistics can ask about a new item is “What is the merchandise exit strategy?”  It is easy for a company to get excited about a seasonal item or the newest widget in their product line, but it is important for them to think about the exit strategy.  Just like an investor who is going to acquirer a company, manufacturers and retailers need to have a clear exit strategy for their goods.

In today’s podcast, Curtis Greve talks about how to develop an exit strategy for products and critical factors to consider when working within an organization to develop merchandise exit strategies.  Whether it is a seasonal item that is part of a guaranteed sales agreement, an item with a limited life span like a computer or fashion item, or if it is an item that is coming to the end of it’s life and is going to become obsolete, having a well thought out exit strategy could significantly improve that item’s contribution to the bottom line.

The Reverse Logistics Podcast

Your host is Curtis Greve.

Someone once said that the only way you can change the way you act is to change your perspective.  This is true in in life and in business.  One of my favorite stories to illustrate the impact of perspective is the story of a friend of mine named Danny Parker, a Minister at Orchard Hill Church in Pittsburgh.

When Danny was studying to become a Baptist Minister he needed a job during the summer to help pay for school and he wanted to spend the summer working close to a Florida beach.  He bought a bus ticket and was soon on his way.  On the long ride down to Florida, Danny decided to put his faith to the test and take the first job he saw with a  “Help Wanted” sign in their window.  Danny was a trusting soul to say the least.

As luck would have it, when he got off the bus the first “Help Wanted” sign he saw was for the local porta-potty company.  For the next few weeks Danny cleaned porta-potties, by hand.  When he told me this story, some thirty years later, he said “I learned two important things that summer.  First, there is no job that I am too good to do.  We should all be humble regardless of what our job is.  The second thing I learned was that most people don’t chew their corn.”

There are many reasons I respect Danny Parker. One is that he is a man of great faith.  The second is that he always has a unique perspective on life that everyone can appreciate.

While porta-potties and corn have nothing to do directly with reverse logistics, it does illustrate the point of the value of perspective.  Reverse logistics can provide great insight into many aspects of your companies business, if you have resources focused on developing that perspective.

Studies have shown that companies that are considered best-in-class in reverse logistics have, on average a 12% higher customer satisfaction rating than their competition.  That is a significant differentiator for any company.  Clearly there are a number contributors to customer satisfaction.  Reverse logistics is one part of a larger overall program but it’s importance is often overlooked.

A strong returns management program will influence every aspect of the customer experience from improving the package and design of a product, to properly communicating the refund policy, to providing alternatives to help satisfy the customer.  However, to apply the lessons that can come from managing returns, you have to work at it and you must have a dedicated team working with operations, sales, merchandising and others.

Reverse logistics must have a seat at the table and a voice in all aspects of the business.  Reverse logistics executives are often kept to processing the returns only and have no input in other areas such as vendor agreements, disposition rules or developing a more customer friendly return policy.  These leaders could bring valuable information to the table that could provide insights that would have a great impact on the customer.

The key is to take a team approach.  For example, too often, the customer return policy and front end process is sole responsibility of Loss Prevention or some other department that is more focused on preventing theft than satisfying customers.    As a former internal auditor for Wal-Mart I understand the need for prudent policies to protect against abuse, however, one must remember that the majority of customers that return goods are not thieves.  Further, if that customer has a bad experience in returning an item, they will tell nine other people about their customer.  Studies have also found that if the returns experience is good, they are twice as likely to buy in the future and tell more people about their p leasant experience.

Before an effective customer return policy can be developed, information on what is returned, why it is returned, and the relative impact of the returns must be analyzed.  Do you really want to write a policy based solely on anecdotal evidence provided by somebody whose job is to catch shop lifters?  They should be part of the team but not the only voice that counts.

Similarly, a company can’t really decide if an item is a winner until they factor in not only the sales but the return rates, reason for returns, and customer comments.  Reverse logistics completes the picture and provides the needed insight to make future decisions that impact what you sell and most importantly, customer satisfaction.

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.

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.

As the first quarter of 2010 comes to a close, it is time to review where your reverse logistics program stands.  By now, the “Christmas Season” for returns should be finished and whether your returns operation is going to make budget this year has been determined.  For the vast majority of reverse logistics operations, over half volume and processing expenses hit the books in the first three months of the calendar year.  If an operation didn’t perform well during that time, it will be next to impossible to make up for it over the remaining nine months of the year.  However, steps can be taken to make the most of the rest of the year and document learnings to help make next year a success.

Over the next two weeks, organizations should conduct a reverse logistics first quarter review.  This review should take a look back at the first quarter results, record lessons learned, make note of where the operation is at the moment, and plan for the next three months activities.  A best practice approach to this would to complete an SF-SWOT analysis.  The following outlines the basic steps to a good analysis and first quarter review:

• Gather data for the following, the best you can.  Do not wait until you have absolutely everything and estimates are acceptable. It’s like the old saying goes “If you wait until you are 100% ready you’ll never be ready.”  Close is good enough but get all the details you can.
• Pull together a team to help gather and review components.
• Conduct the SF-SWOT analysis as follows:
  • S – Successes:  For the previous 90 – 120 days, document what went well, what you got right, what you want to make sure you repeat next year
  • F – Failures: For the previous 90-120 days, document what went badly, what problems occured that you want to avoid next year, what actions do you NOT want to replicate next year
  • S – Strengths: Looking at your current state, document where are you in great shape, what are the best things about your operations, what can you leverage going forward to build on to achieve your goals the rest of the year
  • W – Weaknesses: Looking at your current state, record what gaps exist in your programs, what short falls should be corrected in order to avoid catastrophe the rest of the year
  • O – Opportunities: Looking at the rest of year, note what is happening internally and externally that you can leverage to improve results and what actions you will take to ensure you make the most of the opportunity
  • T – Threats: Looking at the rest of the year, analyze major events that will take place must prepared for, what internal threats to performance and results do you see, what external threats are out there that you need to act to avoid over the next few weeks
• Once the SF-SWOT analysis is complete, publish the results and conduct strategic planning meetings with the purpose of developing action plans to address the findings outlined in the analysis.

While the first quarter is the critical season for the majority of reverse logistics programs, taking time to review what happened, document lessons learned, and plan the rest of the year are critical disciplines that every reveres logistics executive must follow to ensure asset values and bottom line contributions are maximized.  A goal without a plan is nothing more than a wish and hope is not a strategy.  There are many things that are unknown when planning for returns but there are many opportunities that can be leveraged, threats that can be avoided, and lessons that can be learned if you take the time and put the effort into it.

In a recent survey completed by McKinsey & Company titled “How Companies Manage Sustainability”,  more than 50% of the executives surveyed thought sustainability was “very or extremely important in a wide range of areas, including new-product development, reputation building, and overall corporate strategy.”  However, only 30% of the executives surveyed say that they actively seek ways to invest in sustainable practices or take any action to embed sustainability into their corporate practices.

The response to “sustainability” framed questions, programs, and practices certainly confirms this.  However, I believe the problem is that the majority of executives see sustainability as an environmental tax on their operations, not as a way to save money and improve processes.  Often, companies want to take steps toward improving their carbon foot print or embed some sustainability program but the high level analysis results in extra costs and expenses.

Many companies would find they actually do have a significant investment in sustainable practices today but it is called their returns process, aka reverse logistics.  Once an organization has developed a pipeline to remove returned and obsolete assets from their primary market, they have the processes and infrastructure needed to support and facilitate a number of sustainable initiatives.  Leveraging the reverse supply chain can often turn a sustainable effort into a very profitable process improvement.

For example, a department stores tend to build a big backlog in plastic hangers.  Setting up a process to collect, sort and ship those hangers back to the manufacturer for reuse would be costly and very inefficient. However, if that department store has a returns center, they could set up a hanger recycling process within the facility and have the store ship hangers back with their returns. This is a very efficient use of a returns facility that turns a sustainable initiative into a profitable process.

For many sustainable processes, the cash register rings in the return center. Many programs become viable when they are incorporated into the reverse logistics process. If you are one of those CEO’s who would like to develop sustainable practices within your organization but can’t seem to get the economics right to make it viable, look to see how you can leverage your reverse logistics pipeline.

One of the biggest values that a company can receive from returns processing is that it turns trash to cash.  That is to say returned product and goods that didn’t sell, are processed and are ultimately exchanged for cash that is used to buy new goods.

Many companies take the refund process for granted and never think about the related cash cycle.  What they are doing by default is allowing others to keep their cash for free.  A great exercise you can use to see if this is happening in your company is to complete a diagram of return items.  Note the path the items takes from the time the customer is refunded until you receive payment for the item after final disposition.  Document the stops, the dwell time, and the steps required to move the product down the line to when your company receives payment for the returned items.

To start off, select the top five or six items, in terms of dollars returned, for your analysis.  Be sure that the average dwell time is recorded for the various items at each location.  Once you’ve charted the path and noted the dwell time for each stop along the way, you will have the total days for your returns cash cycle.

If you have never done this, you will see obvious gaps and delays that can be eliminated, as well as illogical processes to eliminate.  You will also see where some of your suppliers, liquidators, recyclers, or vendors are unknowingly taking advantage of the process.  Once the cash flow and the returns process flow has been streamlined, you can put together a coherent returns process that your suppliers, liquidators, and other partners can internalize and comply with, resulting in better vendor relations and improved cash flow.

One company I worked with went from over sixty days out to less than forty days between the time they refunded the customer until they received credit from the OEM.  The impact was to improve their cash position for 8% of their sales by twenty days.  Imagine the impact this could have on your organization.

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.

Reverse logistics was born from the desire to improve customer satisfaction. As competition increased and the living standard improved after World War II, customers demanded better quality and service.  As a result, people started to return items at a greater rate.  Retailers and manufacturers, seeing an opportunity to gain or keep market share eased their return policies.  For many companies, such as Wal-Mart, this was way to differentiate themselves to the customer.

In the mid 1980′s, when I was responsible for Walmart’s reverse logistics operations, I received a call from Sam Walton’s office.  Mr. Sam wanted a returned item that was an outrageous example of an item that had been returned and money refunded to a customer.  He was going to use it at an upcoming store manager’s meeting.   I went out on the floor and found a Stanley Thermos that we had recently processed from a store. On the bottom of the thermos there was a date stamped showing the date of manufacture – 1954. The first Walmart store didn’t open until 1962.  I grabbed the thermos and the store return tag and sent it over to Mr. Sam’s office.

A few weeks later, at the Wal-Mart Store Manager’s meeting, Mr. Sam held the thermos up and asked the store manager that had given the refund to come up on stage. The nervous manager walked up on stage and stood beside  Mr. Sam.  Mr. Sam shook his hand, thanked him for doing a great job and then praised him for providing such great customer service.  This guy understood that taking back a return wasn’t about a $20 thermos, that had clearly not been bought at Walmart.  It was about customer satisfaction.

All the managers in the attendance got the message.  Over the next few months, the volume of Wal-Mart’s returns increased significantly, as did sales, earnings, and market share, all which were the result of keeping customers happy, one return at a time.  By the way, that same Stanley Thermos is now on display in the Walmart’s Visitors’ Center in Bentonville Arkansas.  The message lives on.

Reverse logistics is all about customer satisfaction.  In a study published by the Aberdeen Group in February 2010, out of the 160 enterprises examined, those companies rated in the top 20% in terms of quality of reverse logistics program had an average customer satisfaction rating of 93% compared to the other firms ranked in the lower 80%, whose average customer satisfaction rating was 81%.

In other words, companies that had well developed reverse logistics programs were ranked significantly  higher in customer satisfaction.  Interestingly, the same study found that for both, the top 20% and the lower 80%, the cost of reverse logistics, as a percent of total service operations costs, were within 1%.  The point being, it isn’t about spending more money to process returns.  The difference is in how and where you spend the money you invest in your reverse logistics program.

Every executive understands the positive impact of improving customer satisfaction.  Sales grow, customer turnover decreases, over all moral improves and earning go up.   This study proves that there is a direct relationship between customer satisfaction and reverse logistics.  Reverse logistics can help both top line and bottom line results through processes  that improve customer satisfaction.