Reverse logistics service providers often struggle to grow sales. Most seem to hit a glass ceiling in terms of total revenue and can’t seem to figure out how to get to that magical next level. Most often, the missing ingredient to the secret sauce is developing and implementing a strategic plan.
Without a well thought out strategic plan, companies do not have focus across their organization, no commitment to invest time and resources in critical areas, and they end up doing the same things getting the same results. Thus, once again they hit ceiling and end up with flat revenue, if they are lucky.
Strategic planning often gets a bad rap, usually from the CEO who thinks the entire exercise is a waist of time. With the wrong approach and the wrong attitude, this will become a self fulfilling prophesy.
However, with the right approach, strategic planning process, implementation plan, and support from the top of the organization, companies can realize unprecedented growth THIS YEAR.
The Right Approach
Strategic planning for reverse logistics must take a different approach in many key areas to be effective. Unlike other companies, reverse 3PLs, liquidators, and repair service providers live in a world where product flow is unknown, requirements change without notice, and investment in capital assets is very risky. Traditional strategic planning tends to force companies to rely on these variable, basing plans on assumptions that could result in disaster. Companies in the reverse logistics space have to build flexibility and contingencies into their strategic plans. They must have identified red flags that will drive action based on real market conditions.
Back in the 1990s there were a number of good sized computer repair companies, for example, that invested a lot of money on capital assets used to diagnose and repair CRT’s. They ignored the market signs and as laptops and flat screens took market share, all their investment in fixed assets and non-transferrable processes resulted in most of them going out of business.
The Strategic Planning Process
There are two types of strategic planning processes. One is high level, very theoretical, and usually results in a very big binder of information that sits on a shelf and is ignored by the entire company until the next strategic planning meeting. The other is very practical and focused on implementation over a three to six month period. This second type of strategic planning focuses on actions and results. Clearly there is only one choice here.
If you use a strategic planning process that is built on theory and not on action, don’t expect any changes to your results. For example, some companies will spend an entire day defining their Mission Statement. Great! Every company has one so every company must need one. I’ve never known a company that made money from their Mission Statement. You might want to spend maybe an hour on this but that’s it. Think about it. Would you make more money focusing on “Mission Statements” or focusing on what your customers are asking for, where their pain is, what is happening in the market, what your competitors are up to, and what you are going to do to take advantage of the real world your people deal with everyday?
The Implementation Plan
Strategic plans can only impact an organization if the plan is implemented. You must have a method to monitor the implementation of the plan. In order to do this effectively, sub-plans must be developed that are measurable and in alignment with the overall strategy. Key management must be directly responsible for developing, executing, and reporting on these sub-plans. The best way to do this is to setup one-on-one update meetings and base a significant part of their incentive or bonus on completing the plans.
Support From The Top
For small to medium size companies to get to the big leagues, the CEO must be driving force behind the strategic plan. CEO’s that do not spend most of their time thinking strategically will never succeed. There have been countless books written about this and management gurus from Peters to Drucker to Covey all agree. The CEO’s job is to focus the company on long term performance, not short term execution. In reality every CEO focuses on a bit of both, but if you show me a company that has had flat revenue for the past few years, I’ll show you a company with a CEO that spends way to much time working on short term issues of the day and not enough time on strategically driving his organization.
The champion of the strategic plan and the implementation process must be the CEO. If at all possible, the CEO should be the person in the organization that meets with sub-plan leaders for monthly one-on-one updates. If the CEO is committed to implementing and driving the strategic plan, it will get done.
One last note on strategic planning. A wise man once said “It’s not a good plan unless it is flexible.” A healthy strategic planning process is one where plans are changed based on real world conditions and what the people responsible for the plans find out during the implementation process. It is not unusual for some parts of the plan to be dropped completely once the team learns more about the topic. Just because something sounded great back in the “Big Strategic Planning Meeting” doesn’t mean it is a good idea once your team digs into details. You must be flexible. Again, this is why the monthly one-on-one meetings with CEO are critical. Issues can be identified and addressed quickly.
The results of a quality Strategic Planning Process will be a turbo charged company with breakout, sustainable results.
If you would like more details on strategic planning and how a reverse logistics service provider can develop a plan that will result in dramatically improved sales and profits, contact Greve-Davis.
The biggest challenge most third party service providers face is growing sales. Whether a company is a traditional 3PL, a repair service provider or a liquidator growth is always a challenge. The largest companies always seem to have an advantage and regularly post 10% to 15% growth year after year, while second and third tier companies seem to struggle with simply maintaining their revenue.
Why is this?
Does size really matter to companies that outsource? Do larger 3PLs and service providers have a big advantage simply because of a larger sales force? Is it the software and infrastructure large companies have invested millions into that makes the difference? The answer to these questions is the same – NO.
They key to driving sales in for 3PLs, service providers, and liquidators really has nothing to do with the size of company, the number of sales people on the street, nor the fancy systems or technology used monitor sales efforts. The answer is much simpler and a lot less expensive.
We have worked with several large and small 3PLs for the past five years and we were part of the senior staff of a 3PL that averaged over 10% growth in sales, every year, for 15 years. Looking back, the keys to growth are clear. It comes down to five best practices:
- The Sales Team
You would never pack up your family, get in the car, start driving down the road, and then look at your spouse and ask where they want to go on vacation. However, if you do not have a well develop sales strategy that is exactly what you are doing every day. The best 3PLs have a clearly defined sales strategy that clearly articulates:
- Target markets
- Marketing strategy – speaking, social media, and traditional marketing activities
- Sales growth goals in terms of dollars and percent
- Targeted number of proposals sent to new prospects
- Targeted win rate for proposals sent to new prospects
- Cross selling or customer share expansion strategy
Developing a clear, comprehensive sales strategy is the key to growing a third party service provider.
The Sales Team
For many medium and small companies, the “sales team” is really the owner or CEO. Sometimes they may have a VP of Sales, but in practice this person provides the admin support to the owner so they can go close the deal. Growth in companies where the CEO is the key sales executive is limited to the time and energy available for the CEO to focus on sales.
Companies should look at hiring a strong sales executive as an investment. Depending on the market and the relative sales cycles, it could take six to twelve months for a top sales executive to bring in enough revenue to pay for their expenses. Successful 3PLs know this and invest in top talent, knowing it will pay off in the long run. They also know that there are many “sales executives” that never sell anything. They monitor their individual efforts and results, and cut their loses when it is clear they made a bad hire.
Many companies have a decent strategy and a good sales team but they don’t focus their efforts to ensure they are pursuing the right prospects. If left unchecked, an energetic sales person will go after any business they think they can close quickly. The fact is that the time and money it takes to pursue a prospect worth $300,000 is the same as a prospect worth $15,000,000.
3PLs must provide the oversight and be engaged with their sales team on a daily basis to ensure each sales executive is focused properly. The best sales strategy in the world is worthless if a sales executive is left to go their own way and pursue any prospect that will answer the phone.
Monitoring sales activities is critical to achieving your growth goals. This does not require expensive CRM systems, though a good CRM can help. For years, we had a 20 man sales team and all we used was a simple spreadsheet and email to track their activities.
There are a few metrics you need to establish and these metrics should be used for monitoring purposes as well as incentivized goals for your sales executive. Keep it simple. Use something like:
- Number of leads per month/quarter/year
- Number of proposals per month/quarter/year with annual revenue per proposal
- Track dates of when a proposal was submitted and establish rules on when a proposal that is not won or lost comes off the board
- Number of wins with annual revenue
- Number of losses
A typical 3PL should win about a third of the proposals submitted to a new prospect and about half of the proposals submitted to an existing customer.
Perhaps the most important discipline a service provider or 3PL should have is to make sure that the sales strategy, individual sales goals, incentive programs, and sales reporting metrics are all in alignment. There are many companies that use one set of metrics for long term sales strategies, a different set of metrics for sales activity monitoring, and incentivize the sales team based upon something completely different than any of the above. Everything must be in alignment. Sales executives will focus their activities on what drives their income higher, not on a strategy or a report.
Aligning sales strategy with sales executive goals and incentives, along with a simple monitoring process will establish a self correcting system that will help ensure your company achieves both long term and short term growth goals. This will also help the 3PL leadership team efficiently use their time.
If you have any questions or would like to learn more about how to drive sales and monitor your sales team, contact Greve-Davis.
Third party service providers (3PLs) have a tough job. They have a customer who hired them primarily because they couldn’t do the job themselves. They have to worry about keeping the parties upstream and downstream happy and inline. They are held to high standards and act as a surrogate insurance provider, protecting their customer from issues with inventory shrink, damage, workers comp, and productivity.
If things go wrong, the 3PL pays. If things go right, everybody is happy and the 3PL makes a profit. My 15 years working for a 3PL taught me that there are many things that can go wrong and there are a few things that must go right to make money. Over time we had to develop some key disciplines to make sure we kept our customers happy and to made money.
When I started with Genco, our revenue was about $34 million per year and when I left it was over $850 million. However, if you charted our success it wouldn’t be a straight line. In fact, it would look more like a saw tooth. The one thing we were good at was learning from our mistakes and putting in controls and disciplines that helped prevent us from making similar mistakes in the future. There were 5 key disciplines we put in place that enabled us to be successful and retain our customers over time.
The 5 keys to running a sustainable, profitable 3PL are:
1. Contract Terms: For a 3PL, the contract with the customer is the most critical document. Get the contract right and you have a chance to succeed. Get it wrong and you are doomed. When negotiating, I broke down the contract into two categories. On the one hand, there will be service level agreement (SLAs) that protect the customer and sets the standards of performance for the 3PL. Often customers will try to set SLAs extraordinarily high. The 3PL must be realistic and agree to terms they know they can achieve. The key here is to have data and experience in hand. Don’t guess and if you make assumptions be sure those are included in the contact and a mechanism for SLA adjustments are included. This is critical especially for key metrics such as volume, timing, and product condition.
On the other hand, there are other various terms that provide for other factors that will have a financial impact on either the customer or the 3PL. Thing such as gain sharing, health insurance increases, building maintenance expenses, out of scope work, and other non-operational events can cost a 3PL big time or provide for nice profits if properly addressed. One key point to remember is to build in flexibility for anything the 3PL cannot control, and there are many.
2. Key Indicators: One of the keys to our success was when we established key operating indicators for each operation. As the adage goes, you can’t manage it if you don’t measure it. You need to track key metrics that are in alignment with the contract. This needs to be tracked on a daily, weekly, monthly, quarterly, and yearly basis. You must track the critical metrics, not just the contracted SLA’s. Every operation has problems. The key to being a successful 3PL is to have a mechanism in place that recognizes there is problem before it is to late.
3. Customer Communication: 3PLs should have a formal communications plan with their customers. Typically, this means meeting with their customer on a quarterly basis. You must have a standard agenda for these meetings that focuses on the SLAs, what happened in the previous quarter, the plan for the next quarter, and a year to date financial review. This should be an interactive discussion with plenty of time for open discussion.
You should also have a significant amount of informal communications. This includes regular email updates, week calls to check in, and coordinating facility visits when the customer is going to be in the facility.
4. After Action Reviews: The best way to build excellence across every facility is to get into the habit of conducting After Action Reviews. Every time there is a major event, such as peak season, a major recall, or a major incident in the facility, immediately after the 3PL team sits down and talks about what went right, what went wrong, and what should be done differently the next time. Notes should be taken and sent to key team members across the company. This often results in changing policies, setting up hotlines, or adding a metric to the Key Indicator report. The key for conducting After Action Reviews properly is to make sure you get all the right people in the room and the review is held as soon as possible after the event.
5. Cross Selling: There is an old saying that “Happy Customers Buy More Stuff.” This is a key growth strategy for a 3PL. In practice, it is simple. Anytime you have a “good meeting” with your customer, ask them what else is going on in the company and how you can help. You’d be amazed how many times I met with customers and when I asked this I was told about an opportunity that resulted in new business. I’ve been in a number of meetings where my customer said “You know, I didn’t even think about talking to you about that. I’ll make sure you get to bid on that.”
The reverse logistics 3PL industry is tough and competitive. Once you get a customer to say yes, you can’t afford to fail. If you focus on these 5 key best practices, you will be successful and grow your business. If you have any questions or would like to find out how Greve-Davis can your company grow and succeed contact us here.
Consumer electronics manufacturers and retailers take note. The EPA has developed a program called “The Sustainable Materials Management (SMM) Electronics Challenge.” If you are a OEM / ODM, Retailer, 3PL, or Repair Service Provider, you need to learn about this program. According to Walter Alcorn from the Consumer Electronics Association, the US Government is starting to look into the what happens to consumer electronics returns and product end of life issues. This program is just the beginning.
The following is from the EPA’s Website on “SMM Electronics Challenge”:
Where do your used electronics go? Rethink! Join Now
Today, the average American household uses about 24 electronic products like personal computers, mobile phones, televisions, and e-readers. With an ever increasing supply of new electronic gadgets, Americans discard more than 2 million tons of obsolete electronic products annually. Learn more
One way EPA is addressing this growing number of discarded electronics is through the Sustainable Materials Management Electronics Challenge. By participating in the Challenge, original equipment manufacturers and retailers are promoting responsible electronics recycling. They are increasing the number of electronics being collected, sending 100 percent of their used electronics to a recognized third-partycertified recycler by the third year of your participation, and publicly reporting this information.
Who can Participate?
The SMM Electronics Challenge is open to original equipment manufacturers (OEMs) and retailers.
- Demonstrate leadership by using third-party certified recyclers.
- Ensure responsible management of used electronics.
- Take advantage of EPA’s technical assistance and resources.
- Receive recognition for your achievements.
SMM Electronics Challenge Participants
|Best Buy Company||South Richfield, MN||5|
|Dell, Incorporated||Round Rock, TX||5|
|LG Electronics USA, Inc.||Englewood Cliffs, NJ||2|
|Nokia Corporation||Sunnyvale, CA||9|
|Panasonic Corporation of North America||Secaucus, NJ||2|
|Samsung Electronics Company||Ridgefield Park, NJ||2|
|Sharp Electronics Corporation||Mahwah, NJ||2|
|Sony Electronics, Incorporated||San Diego, CA||9|
|Sprint Nextel Corporation||Overland Park, KS||7|
|Staples, Incorporated||Framingham, MA||1|
For more information on this program go to the EPA’s Website.
As economies and bottom-lines shrink, it becomes crucial for companies to reduce costs and maintain their competitive advantage. In this scenario, coupled with stringent EU environmental laws and regulations, a strategically effective Reverse Logistic function can secure your supply chain’s ‘backward loop’ and make significant cost savings for the company.
RLCON 2013: ADVANCED REVERSE LOGISTICS STRATEGIES WORKSHOP & CONFERENCE, organized by QuaDimension Events with key focus on EMEA region, will provide innovative strategies and solutions for pertinent RL issues.
The Workshop on 10th April 2013, conducted by Mr. Curtis Greve, renowned RL expert, author and Managing Partner of Greve-Davis – The Reverse Logistics Experts, will focus on how consumer electronics manufacturers and retailers can find hidden profits by maximizing the value of product returns.
The Conference will provide valuable insights on implementation of cost effective reverse logistic process for optimal ROI. The focus will also be on identifying and sharing best practices on measurement systems to drive and achieve operational excellence through continuous improvement in Reverse Logistics.
Effective returns and parts management strategies to identify current gaps and reducing costs will be another area under the spotlight during RLCON 2013. Further, the relevant factors to consider while choosing the right 3PL partners and the gains of developing joint RL initiatives will be explored at the conference.
This Quadference will be a unique opportunity to compare warranty, inventory management, and aftermarket services and support performance with industry peers and experts. From an evolving new concepts perspective, RLCON 2013 will delve into upcoming trends and benchmarking in closed loop chains, going green, waste disposal strategies and related legal complexities
Reverse logistics is a part of the supply chain that is often outsourced to 3PL’s. Many companies with large sophisticated logistics departments outsource returns management because they do not have any expertise in processing returns and the return center operation can stand on it’s own, outside of normal supply chain operations.
In addition, companies outsource reverse logistics operations for many other reasons. Some need quick expansion and don’t have the manpower nor the infrastructure in place to expand as needed. Others are looking to cap exposure to worker comp expenses, inventory shrinkage, or hiring costs when starting up a new operation.
All of this can be done by outsourcing to a qualified third party logistics organization (3PL). However, to do this successfully the 3PL agreement must clearly articulate the level of service (LOS) goals, budgets, and the other metrics. LOS goals used by the 3PL must be in alignment and support the company’s goals. The incentive systems and payment terms for performance must parallel and support the same financial impact on the outsourcing company. In other words, contract terms and conditions must incentivize the 3PL to perform the stated duties in a manner that is in the best interest of the company.
- The level of service requirements and scope defined in the contract are not in alignment with the financial justifications used to outsource initially.
- The recovery rates on returned inventory, which justified higher 3PL costs and fees, are below expectations.
- The volume and timing of the flow of returns is much higher and more condensed than anticipated, causing problems with customer service, space, and escalating processing costs.
- The contract does not provide the flexibility necessary for a reverse logistics operation.
Many companies new to outsourcing don’t include key metrics in the contract. Often they don’t have good benchmarking data for items such as damage rate, inventory shrinkage, annual inventory turns, and thru put numbers to ensure they are getting what they expected from the 3PL returns operation. These details have to be carefully spelled out along with who will be responsible for the associated costs if the LOS goals are not met.
Reverse logistics operations are much different than distribution operations or transportation. The contract that governs outsourcing to a 3PL must be specifically designed to ensure these differences are addressed. Many executives new to outsourcing returns to a 3PL make a big mistake by using “the standard outsourcing agreement” used when outsourcing warehouse operations. Reverse logistics contracts must provide flexibility to the 3PL and that must be reflected in the financial terms and conditions.
Remember, nobody orders returns. You don’t know what you will get until it shows up at the door. It isn’t a good contract unless it is flexible. 3PL outsourcing agreements should include language addressing how costs will be paid based on a wide range of unique returns related metrics, the biggest of which is volume. Many companies use volume bands to calculate variable costs. Some companies use a fixed dollar fee for the provider. Many 3PL contracts are cost plus with a budget cap. All of these methods can work in the right situation, with the appropriate means of adjusting the T’s & C’s built into the contract.
There are two reasons for signing a contract with a 3PL when outsourcing reverse logistics. The first reason is so there are clear terms and conditions for running the operation and billing. The second reason is to have a framework to dismantle the operations if it fails.
Many companies that outsource don’t seem to think about the details and what they are going to do if they have to fire the service provider. Make no mistake, terminating a contact with or without cause can cost millions. You need to think about what happens to the inventory, the capital equipment, the building, ongoing worker comp issues, shut down and closing costs and what you are going to do after the 3PL is gone. All of these and many more issues need to be considered and you must spell out who is liable for each issue under each scenario. Once you’ve decided to end the relationship, you could save yourself millions if the contract addresses the shut down process correctly. There are many valid reasons to outsource reverse logistics to a 3PL. The key is to have a good contract that will protect everyone’s interest, achieve the original goals that drove the decision to outsource, and ensure a win/win relationships between the parties.
When the manager of a 3PL or aftermarket service provider looks at the logistics world, why on earth would he or she want to get into reverse logistics? It is the opposite of traditional or forward logistics. It is like flushing things up the pipe, not a natural thing to do. Reverse logistics providers deal with unusual problems. Nothing is in a new box. Everything is “broken” or “unwanted”. The service offerings seem unrelated and fragmented. There are no beautifully cubed out truckloads riding on pallets. Yet reverse logistics is becoming an ever more important link in the supply chain. 3PL’s and aftermarket service providers would be wise to think about the possibilities. Some would argue that the changing supply chain landscape makes adding a strong, state of the art, reverse logistics offering a survival move, not just a strategy to add incremental revenue.
The cost of fuel and the lack of qualified commercial drivers are causing the buyers of 3PL and aftermarket services to include reverse logistics more and more into their planning. The rise of sustainability initiatives and the confusing morass of state level end-of-life regulations for Consumer Electronic manufacturers are a big cause for concern.
These are all important factors. However, in the future the largest driver behind the need for reverse logistics and the least understood, is the coming shortage of rare earth minerals. This shortage will force manufacturers to examine their entire supply chain to uncover ways to reclaim, not only the parts, but the minerals and metals as well. This process will compact and shorten the supply chain and those 3PL’s and aftermarket service providers who can’t provide this service in an integrated way run the risk of becoming as extinct as dinosaurs.
Hafnium – 5 to 10 years of supply
Indium – 5 to 10 years of supply
Platinum – 10 to 15 years of supply
Silver – 15 to 20 years of supply
Antimony – 15 to 20 years of supply
Tantalum – 20 to 30 years of supply
“Earth Audit” by David Cohen – New Scientist – May 2007
In the future, we believe, we will see many more distribution centers that have reverse logistics centers co-located within them. These facilities will handle the reverse logistics function of maximizing the value of the returned product through product disposition management. Cleaning, parts and raw material harvesting, refurbishing, product liquidation, recycling, repackaging, repair and remanufacturing will all occur alongside the much less complicated process of shipping products to customers. These high end, technically complex processes will command a higher margin than simply shipping pristine cases to customers.
Todays distribution and reverse logistics network was built on the foundation of fuel prices at $2.00 per gallon and on the concept of unlimited natural resources. We now know that foundation was built on shifting sand. Fewer miles must be driven and raw materials must be recovered and reused at a much higher rate in order to provide electronics at an affordable price. The challenge for 3PL’s and aftermarket service providers is to understand what these changes mean to their customers and how they can develop their capabilities in order to deliver cost effective services that will meet the future demands of their customers.
If you work for a 3PL or you are considering outsourcing to a 3PL you are probably thinking about issuing an RFP or responding to an RFP. RFP’s and RFQ’s are a way of life for many involved in the reverse logistics world. Most companies come up with a long list of providers to include in the first round, with hopes of culling the list down to the top three or four for the next round.
There are basically two approaches companies can take in selecting a third party to provide reverse logistics services. 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, with low amount of variations in the 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.
The second approach to developing supply chain 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, one that will work with you and is willing to agree to contract language that will ensure the providers interest are in alignment with 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. VP’s of Procurement often hate “Relationship” RFP’s and the resulting contracts because they are “fuzzy” and require a significant amount of subject matter expertise. Procurement folks also don’t like the RFP’s for “Relationship” providers because they usually have to ask a lot of questions about culture, customer experience, references, intellectual capacity, questions that get to the depth and breadth of the 3PL but don’t say much about how much it will cost.
Selecting a provider with the idea of building the proverbial Win / Win relationship usually comes down to the two senior guys getting along. The senior decision maker basically hires the senior solution provider based on trust that is developed during the vetting process. So, if your company is going to outsource this year and you are putting together an RFP, you need to carefully think about what kind of service are you outsourcing.
You should begin with the end in mind and 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……
This short list of questions should help get the gray matter working. The one important component in developing an RFP and later, a contract is to ensure that you have someone on your side of the table that is as knowledgeable as the supply chain solution provider sitting on the other side of the table. If you are equally matched and you end up with a professional service provider that hits it out of the park, you will come to see outsourcing as a career building step second to none. But remember, it all starts with the RFP.
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.