Posts Tagged ‘Sustainability’

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.

In this podcast, Curtis Greve covers recent studies that show the impact of reverse logistics on customer satisfaction.  Did you know that companies that are considered in the top 20% in terms of reverse logistics capabilities have, on average, a 12% higher rating in customer satisfaction than the lower 80% of companies?

Also, according to a study conducted by Harvard Business Review, for each 1.3% improvement in customer satisfaction, sale increase by 0.5%.  Extrapolated, this gives companies that are considered best-in-class in reverse logistics programs almost a 5% increase in sales.

Listen to today’s podcast and learn the four key areas that companies need to develop to improve their reverse logistics program and how that will lead to improved customer satisfaction and sales.

The Reverse Logistics Podcast

Your host is Curtis Greve.

The Reverse Logistics Podcast

Your host is Curtis Greve.

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.

As the first quarter is coming to a close many companies are happy to see the volume of returns slow down to a more reasonable rate. Some are happy to be finished with processing peak volume while others are wondering how they will ever get caught up.

There is one truism about returns, regardless of whether you are talking expensive hi-tech gear or a plastic toy and that is that returns don’t get better with age.  In fact, for hi-tech equipment you can count on loosing 10% in value about every 30 days.  What this means is that you must have a strategy to turn your inventory in less than 30 days in order to maximize the value of the goods in your reverse pipeline.

Strategy?  Many executive responsible for returns processing never think “strategy”.  They just kind of know what is going to happen and they hope they survive.  As the old wise man said “Hope is not a strategy.” Without a well thought out plan, that is flexible, the chances of maximizing the value of the inventory flowing through your reverse pipeline is slim.  What is the “Value of Inventory” in a reverse logistics pipeline?  Here is a simple formula that captures the idea:

Returned Asset Net Value = (Original Value X Recovery %) – Total Cost to Process

So why does the value drop on returned items so quickly?  First, goods flowing through the reverse pipeline are handled an additional 8 to 10 times which adds a lot of wear and tear on the items.  Second, returned goods generally aren’t packaged and transported with the same high quality outer packaging, pallets, and protection like similar new goods.  These goods are often shipped without packaging at all and are not stacked on neat pallets, with standard Ti-Hi arrangements that help secure the freight during transportation.  As a result, this stuff get beat up.  Many manufacturers will tell you that a lot of their returns are fine when they enter the reverse logistics pipeline in the back of their customer’s store, but by the time they receive and finally process the goods, it is barely recognizable in some cases.

Another factor is obsolescence caused by technology improvement and age.  For example, a few years ago one of my facilities was receiving Apple iPods.  We were processing these iPods and selling them on the secondary market for about 50% of original value.  Right in the middle of the returns season, Apple introduced a new iPod that was much improved over the previous model we were handling.  Overnight, the value on the secondary market dropped from 50% to 30 % of original value.  The asset recovery buyers knew that in 60 days their current market that justified paying 50% on original retail would drop dramatically as demand for the newer model grew.

It is for these reasons that when it comes to reverse logistics timing is everything.  However, in order to get the most out of returned assets, a strategic plan of action must be developed that addresses the following key variables:

• Volume - Peak returns volumes can be between 30% to 150% higher than an average month and can include additional recalled items, return to stock goods and other asset profiles not normally processed.  Estimated volume, type of returns, profile of the assets and disposition are critical pieces of information to know in order to properly plan.
• Space – temporary space will be needed to handle higher inbound volumes at the start of the season and then used for holding outbound surges as the volumes are processed.
• Labor – additional shifts will be needed which will require hourly labor and additional management. Many often forget they will need more trained supervisors, who will require more time to get up to speed.
• Disposition Partners – Communicate expectations to liquidators, recyclers, and others you ship to so they understand your plans and the volumes they will need to be ready to receive.  A word of caution on dealing with liquidators: don’t expect a liquidator who barely pays for product in normal times to be able to pay three or four times as much during the first quarter when their sales are down.  You will need to qualify, inspect, and select other buyers to keep your asset recovery product flowing.
• Red Flags – Develop metrics to be used to monitor inbound, processing, and outbound activities.  Have a plan of action if the key metrics get out of tolerance.  For example, you might track inbound trailers in your facility and set a metric of 12.  If you see there are more than 12 trailers coming in, the action will be to rent one storage trailer from company X for every trailer over 12.

Remember, the biggest difference between a normal distribution center and a reverse logistics operations is that in the latter, you don’t know what you are going to get until you open the door.  In a warehouse, you have somebody placing orders and you know how much you are going to receive and when it is going to get there.  Not so in a return center.  The key to building a good plan to deal with returns is to build in flexibility.  You have to be able to increase or decrease each component based on what is going to come in the door and you won’t know that until it gets there.  Simply hoping the flow is smooth and things work out is asking for trouble and will cost money.

Reverse logistics is like other functions in a supply chain.  In order to optomize performance you must have a goal but like the old saying goes “A goal without a plan is just a wish.”  For the average company, returns are over 8% of assets and the average company spends between 9% & 14% of revenue on these returned assets.  That is a lot of money to leave to chance.  Developing a strategic plan of action focused on maximizing the value of all assets flowing through the reverse pipeline is crucial to your companies success.

As a consultant that specializes in strategic planning and supply chain management, I’m often surprised at how little strategic planning focuses on the supply chain.  Like Napoleon said, “An army travels on it’s stomach.”  He was not talking about food as much as he was talking about the importance of the supply chain that delivered the food.  Today, a company’s survival depends on their supply chain.  However, there is little planning that focuses on significant changes that impact that vital part of the business.  In fact, for the last few years there has been one obvious glaring omission in just about every strategic plan that I’ve read.

The glaring omission is the lack of any planning around the impact doubling fuel prices will have on the supply chain.  Nobody will argue that fuel prices are going to double over the next five years but there is hardly a company that has taken any steps or developed any plans that address this impending change. We aren’t talking about just the impact on transportation but on the size and shape of the entire supply chain and supporting networks.

Today, for example, many supply chain networks are based on a network of major facilities in three or four locations in the US.  Typically they import goods through the Port of LA and ship containers to DC’s on the West Coast, Midwest, Southeast, and Northeast.  Ever so often you’ll see a facility in Dallas Metro area and maybe in the Northwest.  This network was designed based on a number of factors that have not been altered in the last twenty years.  These factors include dated demographic information, along with “traditional” facility fixed costs and typically, today’s transportation costs, using today’s fuel prices.

Few company look at what happens to this network model when they account for population shifts, reduced real estate prices and building costs, and doubling of fuel costs.  That’s the strategic analysis that every supply chain should conduct.  The company that completes this analysis and leverages the results in the market will have a significant competitive advantage.  The survival of some companies will depend on resulting supply chain network realignment.

According to a study conducted at the University of Nevada, Reno by Dr. Dale Rogers, the impact on a supply chain will be significant.  Dr. Rogers study showed that a three or four DC network will probably be  replaced by a network of 15+  smaller DC’s located in markets not normally considered supply chain hubs.

The implications of this shift include fewer build to suit million square foot facilities, facilities with significantly less material handling equipment,  and smaller, leased facilities with more generic systems .  Flexibility will be key to the future supply chains.  The higher total facility fixed costs resulting from more square footage under roof, will be more than off set by the total reduction in transportation, powered by $5 per gallon fuel.

Strategically, every company with a supply chain and certainly every supply chain solutions provider  should seriously consider the impact that the oncoming increase in fuel prices will have on their business.  It is coming, be ready.  To paraphrase President Eisenhower, it isn’t the plan that is important, it’s the thought process that goes into it that makes the difference.  Think about the impact of rising fuel prices on your supply chain network.

Focusing only on the bottom line is not the best way to improve profitability. That’s the conclusion of recent research conducted by Mary Sully de Luque and Nathan T. Washburn of Thunderbird School of Global Management; David A. Waldman, of Arizona State University West; and Robert J. House, of the University of Pennsylvania, that underscores the risk of single-minded pursuit of profits.

This finding is based on survey data gathered from 520 business organizations in 17 countries designed to test if a CEO’s primary focus on profit maximization resulted in employees developing negative feelings toward the organization. The result? Employees in these companies tend to perceive the CEO as autocratic and focused on the short term, and they report being somewhat less willing to sacrifice for the company. Corporate performance is poorer as a result.

But when the CEO makes it a priority to balance the concerns of customers, employees, and the community while also taking environmental impact into account, employees perceive him or her as visionary and participatory. And they report being more willing to exert extra effort, and corporate results improve.

So does this mean that CEO’s don’t have to worry about profits. No. What it does mean is that if you want a motivated workforce who will support all your goals, including bottom line goals, show them that you have a balanced approach. It also means that taking a balanced, “sustainable” approach is more profitable.

This research also confirms what many progressive companies such as Walmart, P&G, and Dell already know. That is that focusing on sustainability, aka – the triple bottom line, is not only good PR, but is the best strategy to maximize long term bottom line results.

The Sustainable Supply Chain Management Podcast is hosted by Dr. Dale Rogers and Curtis Greve. This podcast is focused on sustainable supply chain management issues and best practices.

Podcast #4 – Asset Recovery

Join Curtis Greve and Dr. Dale Rogers as they discuss basics of Asset Recovery in their fourth podcast. Whether you call it Asset Recovery, Liquidation, or Salvage Sales, it is an opportunity to increased profits for manufacturer and retailers alike.

Successful manufacturers such as Nike, Dell, HP, Adidas, Foxconn, and leading retailers such as Walmart, Kohl’s, Canadian Tire and Target successfully integrated a Strategic Asset Recovery Strategy into their Sustainable Supply Chain Management Strategy. This approach enables these companies to maximize the value of obsolete inventory while removing slow moving or dead inventory from the primary stream of commerce.  A Strategic Asset Recovery Strategy will increase customer satisfaction and increase profits.

A company’s supply chain can either be one of it’s greatest competitive advantages or a huge disadvantage it struggles to overcome. Market leaders typically enjoy significant advantages over their competition because of their supply chain. Another characteristic that market leaders share is that the vast majority outsource some or all of their supply chain. Coincidence? Hardly.

Why do leading businesses outsource? The reasons are as varied as the companies themselves. However, it usually boils down to three primary reasons: Need for flexibility, the need for speed, or improving profits.

Walmart has one of the best supply chain networks in the world. However, due to the volatile nature of imports, the cost of real estate around major ports, and the expertise needed to meet customs requirements, they outsource most of their import warehousing.

Some of the leading manufacturers also outsource pieces of the distribution networks. Today Atlanta is one of the biggest supply chain hubs in the world. That wasn’t the case 25 years ago. Milwaukee use to be the center of all things beer related, including supply chain. That isn’t the case today.

The point is that companies realize that great supply chain solutions for today may be a major problem years from now if they are stuck with a building in the wrong location. This could result in a major competitive disadvantage to competitors who built flexibility into their networks.

Often, companies will outsource to 3PL’s to minimize the risk of these major demographic changes. Outsourcing has other advantages also.

Outsourcing requires less up front capital costs and agreements can be structured to avoid impacting bank covenants.

Outsourcing a new operation is usually much faster than building facilities. Companies leverage 3PL’s infrastructure to provide geographic coverage much quicker than they would be able to if they had to go through the building and development process.

Companies often outsource to limit certain liabilities. For example if a company with a non-union workforce needs operations in a highly unionized area, they will outsource to provide protection from their other operations. In addition, issues with health insurance, worker’s compensation, and shrinkage can be limited by outsourcing.

In the right situation, outsourcing can provide a cost effective solution, fast. The result will be a more flexible, more secure, more profitable supply chain.

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.

The Sustainable Supply Chain Management Podcast is hosted by Dr. Dale Rogers and Curtis Greve.  This podcast is focused on sustainable supply chain management issues and best practices.

Podcast #1-Risk Management considers the many issues and complexity of risk management and what executives should consider when developing strategic plans that address risks from a strategically sustainable point of view.

Podcast #1 – Risk Management

Show Notes

Dr. Rogers has identified 13 types of risks that should be considered when developing sustainable strategic plans.   The 13 types of risks are:

1. Design
2. Financial
3. Labor
4. Reputational (headline risk)
5. Process (better process reduces Ecoli)
6. Catastrophic event risk
7. Environmental risk (Sherwin-Williams avoidance – Burroughs/Unisys)
8. Human rights
9. Supply*
10. Capacity
11. Information risk
12. Ethical
13. Equity – equitable distribution of risk

All comments on this podcast, risk management, and sustainable supply chain management are welcome and will be posted.