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.
Being a Walmart supplier can be tough. The stories of manufacturers who made bad deals with Walmart that resulted in disaster are legend. Walmart buyers are tough, they know their numbers, and they are skilled negotiators. However, Walmart buyers do not force manufacturers to make bad deals. The only person in those small rooms in Walmart’s Home Office than can make a deal that will result in financial trauma for the manufacturer is the manufacturer’s sales person.
A common mistake that many manufacturers make when preparing to sell Walmart is to only prepare to discuss their product and their price. Many don’t even consider the last two pages of the supplier’s agreement before they meet with a buyer. These last two pages can have a significant impact on their overall profit margin without them even realizing it. The last two pages of a Walmart Supplier Agreement covers the terms and conditions for returned product.
There are ten questions about returns that suppliers should be ready to discuss and negotiate with the buyer when closing the deal at Walmart. For those who may be thinking “Returns? What is the big deal?” we would point out that a study conducted by the Aberdeen Group in 2007 found that on average manufacturers spend 9% to 14% of sales on returns. Another interesting finding from the same study found that 30% of the companies surveyed had no idea how much returns cost them. They were literally blind to cost of returns. The point is that proper preparation, knowing Walmart’s expectations and what the benchmark for returns processes are for your products will have a significant impact on the bottom line. In fact it could be worth as much as 5% of sales!
If a you have answers to the following ten questions you will have everything you need to negotiate a win/win deal with Walmart and maximize the your profits.
- Will you credit Walmart for returns based on actual items returned or provide a standard off invoice allowance?
- Do you want Walmart to dispose of the returns or send them back to you?
- Are you going to receive returns directly from each store or through the return center?
- What should your company’s consolidation fee be for items returned through Walmart’s return center?
- What is your end of life strategy for your product?
- How are you going to handle recalled product?
- What are your return authorization requirements?
- What is your plan for seasonal overstocks?
- Are you going to have “return caps” or other limits to the value of returns that you will credit in a given period?
- If you are going to use an off invoice allowance, what is the standard for your product and how will it be adjusted?
To learn more about how Greve-Davis can help you in preparing to negotiate your terms and conditions with Walmart, go to http://bit.ly/lC8zqW.
A Returns Management System (RMS) is key to operating an efficient and economically sound reverse logistics function. Many companies underestimate the impact a quality RMS can have on their customers, the cost of processing returns, and the recovery rate on returned inventory. The fact is that the system you use to process returns is the key to maximizing the impact of reverse logistics on a company’s bottom line. There have been a number of studies that have found that improving your reverse logistics capabilities can improve a company’s line by 3% to 5% of revenue. This cannot be accomplished, however, without a well designed system that will drive the returns process.
If your company does not have a state of the art returns management system you have three options. First, you can live with what you have and continue to let money fall through the cracks and get thrown in the garbage. Second, you can attempt to write a package using internal resources, which will cost twice as much as promised, providing half the benefits, and take twice as long to to implement. Third, you can buy a state of the art RMS from one of over 30 companies that have been developing and implementing returns systems for many years.
Based on our combined 40 years of experience in designing and implement reverse system, the only option that makes sense is to buy a package from a software provider that has experience implementing returns management systems for similar companies. When buying an RMS 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 you’ve selected.
When deciding which RMS application to buy, how will you know if you the software includes the components you will need to maximize the value of the returned assets that you will be processing? If you ask your software provider 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:
- Explain the process flow of goods and what happens to goods after they are received.
- Show me the report for units that are scrapped.
- Show the process for scrapping a unit and how you capture and track parts that will be used to repair other units.
- How does your system account for the parts inventory that is used to repair product?
- Can your system re-disposition parts that are not needed?
- Does your system facilitate parts harvesting / liquidation?
- Can your system track separate inventories of units that have different owners?
- How are Bill Of Materials (BOM) stored in the system?
- Can your system support more than one BOM per model?
- How does your system support warranty returns and related repairs?
- How many classifications of repaired units do you have and how are is the inventory valued?
- Show me the productivity reports for receiving, repacking, repair techs, picking processes, and shipping.
- Can you re-designate finished goods as liquidation, A, B, or C stock goods?
- When do you designate how and where to ship goods, can you add change shipment status from LTL to Small Package, or Truckload?
- Show me how your system supports selling refurbished goods directly to the customer or B2B?
- Does your system provide sustainability reports that provide an audit trail for carbon footprint reporting purposes?
- Can your system process credit back to the customer based on condition at time of receiving and based on diagnostic results?
- How does your systems track and process consolidation fees and transportation fees for both inbound and outbound processes?
- Demonstrate how your system processes advanced service parts orders and other similar transactions?
- 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 is to check their references. These references should be from companies that are similar to your own. If you are an electronics manufacturer and all the references are retailers, you can bet the software provider does not have the package you need to drive your process. Finally, insist on touring most, if not all of the reference locations to see the process and software in action. During the tour, talk to the customer’s implementation team. They will tell you what it really costs and how well your potential RMS provider performed during the implementation phase.
While buying an RMS package is usually the best option for companies looking to improve their reverse logistics capabilities, you must do be sure to get the right software providers involved in your RFP process and you need to go the extra mile in completing your due diligence before your company writes a big check for the software solution.
In this podcast Curtis Greve shares best management practices for peak returns season. During the first quarter, many retailers and manufacturers will receive 30% to 60% of their total annual returns volume. This is the critical time of year when reverse logistics managers can really add significant value to their company. With the seasonal spike in volumes in both customer returns and recalls, it is important for returns operations executives to focus their teams on the key areas of the reverse logistics process to ensure they maximize the value of assets flowing through the reverse logistics pipeline.
Many returns managers make the cardinal mistake of focusing all their time and attention on receiving product. While receiving is important, that is just the start. If management’s attention stops there, a cascade of issues will irrupt and a lot of money can be lost. In today’s podcast Curtis discusses three key areas that should be top priorities for every returns operations manager:
For over 25 years Curtis Greve and Jerry Davis have ran returns operations for manufacturers and retailers around the world. Listen to today’s podcast to learn critical management tips for peak returns season.
The Reverse Logistics Podcast
The Reverse Logistics Podcast
Many companies depend on Christmas sales to make their year. For these manufacturers and retailers, the biggest challenge to making a profit is not selling the new red widget with the Christmas tree on the side of the box, but processing Christmas overstocks in the first quarter of the year. The big high from holiday sales is often counted by a big low from high return rates in the first quarter. Welcome to the bi-polar world of holiday sales!
For companies that must live in this bi-polar world, there are two options for processing seasonal overstock and Christmas returns. One option is to outsource seasonal returns processing to a qualified third party (3PL) and the other option is to operate a temporary returns facility internally. If a company is considering outsourcing to a 3PL, the following guidelines will help ensure success:
- The scope of the project must be clearly defined with estimated inbound volumes, outbound volumes by processing category, pricing, approval processes, with clearly defined start and end dates.
- Ensure inventory processing requirements are documented in detail and given to the third party processor prior to any pricing and contract development.
- The documented processes should become part of the contract as a defined scope of work.
- The 3PL (third party processor) must be prepared to guarantee a minimum amount of processing space and storage space at a specific location.
- A fixed / variable pricing model is usually best for both parties. This is when the 3PL charges a flat monthly rate for fixed expenses such as rent, utilities, etc, plus a cost per unit for each disposition – scrap, refurbished, new, clean, or what ever the various conditions of the goods you expect to receive.
- Expectations for “A stock”, “B stock”, “Scrap”, and overall yield rates should be clearly stated and pricing should be based on these expectations. Establish clear volume bans for each category plus rules for price adjustments if the actual volumes in any one category are outside the established volume bans.
- Any 3PL startup costs and decommission costs should be clearly specified.
- Productivity incentives and penalties based based on volume adjusted budgets should be included in the contract.
- A clear change order process must be documented to address any unanticipated processing requirements that may be outside of the scope of the agreement.
- Ensure appropriate insurance coverage is in place for the inventory that will be processed.
- Avoid any lean provisions that would allow the 3PL to restrict access to the product, this includes the third party from holding merchandise over payment disputes etc.
The second option to consider is to set up and operate temporary return centers internally. In order to set up a temporary facility and operating it internally, you must have the infrastructure to support the operation and the management that can focus exclusively on the temporary operation. Once you determine you have the internal support needed and the leadership, you will want to ensure you keep the following in mind:
- Define capital assets and personnel that will be required for each week the temporary facility will be open.
- Define lead times and availability for both, in detail.
- Identify sources for fixed assets and facility labor. Many companies leverage their distribution staff and assets which will be available during the first quarter.
- Develop contingency plans for space, equipment, temporary employees and management in case volumes are significantly higher than anticipated.
- Identify SPOC (single point of contact) to plan, oversee and report on the project
- Ensure lead times for identification and contracting of temporary space, equipment, and employees are sufficient.
- Identify mile stones from the start of planning to decommissioning.
- Establish weekly meetings/calls to communicate progress in planning, startup, processing, and decommissioning of the temporary facility.
- Define “Red Flag” process that will be used to communicate issues during the event.
Whether you choose to outsource Christmas returns’ processing or set up a temporary solution and manage it yourself, one of the best things you can do is to conduct an “After Action Review” within 30 days after last of the seasonal returns has been processed. This meeting should include everyone who had anything to do with the temporary facility and notes should be taken and sent to everyone to ensure they improve the process the following year. Whether you are going to outsource or do it yourself, the key to handling seasonal returns processing successfully is to “Plan Your Work and Work Your Plan.”
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.
- Update defective returns based on sales since Thanksgiving
- Update seasonal recall volumes by SKU and vendor / OEM / ODM
- Review existing processed inventory waiting to ship
- Prioritize shipments by value and cube to reduce inventory and create space
- Contact primary and secondary temp agencies and review requirements
- Review management staffing and organization chart for the first quarter
- Review volume estimates and plans for outbound shipping with carriers
- Contact the provider of storage trailers and ensure adequate supply will be available
- Inspect temporary space that will be used during peak season
- Review plans for temporary space and storage trailers with Loss Prevention
- Contact top 20 vendors / ODM’s to review plans and estimates
- Review manpower plans for quality assurance and inventory control
- 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
- Review plans for leasing temporary fork lifts and other power equipment
- Review all parts supplies and ensure procurement plans and sourcing is ready
- If additional shift are anticipated, procure addition lift batteries if needed
- Review shipping plans and requirements with top salvage buyers
- Review inbound sortation plans and shipping plans with internal Liquidation Department
- Test all risers, security systems, and emergency procedures immediately
- Schedule preventative maintenance ASAP for all equipment and conveyor systems prior to January
- Review first quarter manpower plans by function, by shift
- Review plans & volumes with recyclers and with waste management companies
- Send any special instructions to all stores, branches, etc.
- Notify all stores, branches, customers, and/or vendors contact information during peak
- Review plans of all outsourced repair vendors,
- Get reports of existing backlogs for all repair vendors or outsourced support areas
- Review weekly communications plans with key internal and external teams
- Review aged files for any claims or disputes to clear up prior to year end
- Meet with financial support systems management and review plans
- Contact high volume vendors and ask if they have any plans to shut down during the first quarter for retooling
- Have a merry Christmas! – Enjoy your family while you can!
With a good plan for peak returns season, and working through the 31 point Christmas Checklist, you can be assured the reverse logistics function is well prepared for this most critical time of the year.
Beginning the first week in January, retail returns rates will increase dramatically as compared to the normal rate of return prior to Thanksgiving. In addition to the customer returns, seasonal merchandise recalls will also hit peak volume levels. Just as retail return center volumes peak in January and February, manufacturer’s returns peak in the third week of January and maintain that level through February and March.
Executives responsible for processing returns must make special plans to handle this tidal wave of volume heading their way. This year, because of the improved economy, return rates are projected to be 12% to 15% higher than last year. The impact could be significant and companies must prepare.
In order to prepare for peak return season, three critical elements must be included when planning for year end returns. These three elements are:
- Manpower planning
The most important part of preparing for peak return season is to determine how many more people will be needed, what shifts they will work, and who will supervise the additional staff. This often means making arrangements with temp agencies, hiring part time employees and adding to base staff. In addition to increasing your head count, you must make arrangement for training new workers and adding trained supervision.
Supervision, especially if you are adding new shifts or operating in temporary space, is critical. You must ensure they are trained in basic supervision and that you have adequate leadership in all areas, on all shifts, for the entire peak season. Do not short cut your people or your leadership.
Space is a critical element that requires forethought and preparation. Temporary space comes in two forms. The first type of temporary space is storage trailers that are parked on the lot and used for storage of inbound or outbound freight. The second type of temporary space is short term leased buildings. In general, if additional space is only needed for a “short time” trailers usually make more sense unless there is exaggerated spikes in volumes. However, arrangements for either trailers or short term space usually must be made at least thirty days prior when needed. Once product starts flowing and returns are processed at often two or three times normal rates, it is critical to have carriers prepared to provide trailers and drivers as needed to keep the product flowing.
A special word of caution – if you are adding shifts or planning on working on Saturdays and Sundays. Do not assume that your carriers will pick and deliver trailers during these times. You must contact your carriers and outline service level expectations for your new schedule of operations. In addition, back up carriers must be selected to ensure the flow of goods is not interrupted.
Finally, if you liquidate product and rely on salvage buyers to pick up significant volumes of product during peak season, ensure that you watch them closely and ensure they pick up purchased loads in a timely manner. Liquidators are notorious for using return centers for free storage of purchased goods. Seller be ware.
The key to economically processing year end returns is to properly prepare and plan for the two or three month spike in volume. The critical elements of peak return season planning are people, space, and transportation. If your organization has not made preparations for peak season, it is not too late but you need to action now.
In this 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
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:
- What type of RFP and contract is typical for the industry?
- How much variability occurs that is out of our control?
- How predictable are the basic metrics?
- What is an acceptable yield rate for repaired & refurbished goods?
- What is the expected scrap rate for product by category?
- What kind of additional “value adds” are you looking for the service provider to bring?
- How long do you anticipate the contract and associated relationship to last?
- What was the justification used to get approval for the project?
- 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.