Maximizing Performance at Your Reverse Logistics Operations

by Paul Rupnow, Director, Reverse Logistics Systems, Andlor Logistics Systems Inc.

Reverse Logistics Magazine, Winter/Spring 2006

How do you monitor the pulse of your Reverse Logistics operations? How do you monitor your Returns processing activity? What measurements do you use to benchmark and improve your performance?

Successful Reverse Logistics performance requires more than a few month end reports. In this article we look at ways to maximize your Reverse Logistics performance by:

1. Developing an Operational Framework to analyze your Reverse Logistics
2. Designing Reverse Logistics monitoring and measurement techniques specific to your operations
3. Looking at the best practices, goals and benchmarks that several leading companies, like Nintendo, use to maximize their Reverse Logistics performance.

Monitoring Performance at Nintendo

Joe Conklin, Field Service and Product Support Manager at Nintendo of America Inc. has invested considerable time and energy into developing good systems to provide the detailed information he requires to monitor product returns. Conklin uses three key measures to monitor his returns:

1. Returns Percentage of Gross Units Shipped – In total and broken down by retailer and by product line
2. Returns Cost per Gross Units Shipped – in total and broken down by product line
3. Cost per Unit Returned - with Returns costs including Returns prevention, Returns handling and processing, Returns repairs, related overheads, and the original cost of the returned units. This total cost per unit is net of any sales of Refurbished goods.

Nintendo derives their measurements from a segregated monthly Returns Profit & Loss statement. "It took us a long time to develop accurate monthly Returns P&L statements, since many returns costs were embedded in other processes" says Conklin, who now uses these detailed financials to monitor the performance of his Reverse Logistics operations.

In order to maximize performance you need to be able to easily put your finger on the pulse of your operations. The high level measurements, such as those used at Nintendo, often need to be driven by more detailed measurements and monitoring. Like Conklin did at Nintendo, you will need to develop your own framework to analyze and monitor the performance of your operations to enable you to rise above the day to day transactions, activity and issues. Start by segregating your operations into a framework of its key components. Conklin breaks his operations down into three key cost areas:

1. Returns Prevention
2. Returns Processing
3. Refurbishment and Repair

Use this operational framework to start defining your goals for each area. Use the goals for each area to start defining the metrics you need to measure your progress.

Reverse Logistics Monitoring and Measurement Techniques

There are many more transactions and touch points in Reverse Logistics than there are in forward logistics. The more times a returned unit gets touched or passed to a different processing party, the more opportunities there are for processing delays or errors. As a result, the benefits of good systems, good data collection, visibility and constant monitoring are very significant. To maximize operational performance in each area of your returns operations, you need use the good systems and data to monitor:

1. Activity – such as the number of receipts per day, the number of repairs per day or the top five products returned in the last seven days.
2. Balances – such as the number of units in the repair process, the number of units in the processing backlog, or the number of units in finished goods awaiting resale
3. Trends – watch closely for swings in activity or balances
4. Tasks – since returned units are touched many times by many different people in many different places, ensure your system helps the processing staff to be aware of their processing tasks, so items do not get held up or forgotten.
5. Alerts – a good system with defined processes should have the data available to create alerts, such as time based alerts when something gets off track or goes missing.
6. Real Time – in the old days your staff would spend hours to help you prepare month end reports. Today, good systems should be able to provide you with real time activity and reports so you do not have to wait till the end of the month to identify and deal with an issue.
7. Performance Dashboard – each member of your Returns team, from the C-level executives to your shop floor personnel, should have their own operational dashboard to help them monitor the measurements, tasks and alerts they need to be successful.

Look at Best Practices and Goals to help Maximize your Performance

You may wish to monitor your operations differently from the Nintendo examples provided above. Leading Reverse Logistics professionals derive their measurements based upon their goals. Depending on your key priorities, the key statistics you may wish to measure may also change or evolve over time. Here are some key goals and metrics that are helping other leading companies succeed:

• Reduce overall returns – there are no processing costs required if there are no returns. Tony Sciarrotta, Director of Returns Management at Philips Consumer Electronics closely monitors the Consumer Electronics "Industry Returns Rate" benchmark to ensure Philips return rates are lower.
• Reduce cost to process returns – Steve Morris is the Global Quality and Reverse Logistics Manager at US Robotics, a connectivity solutions company. Morris manages multiple reverse logistics suppliers around the world. He receives daily activity and inventory levels from his partners in multiple locations around the world (including backlog and comparison to target stock levels). By closely monitoring his Reverse Logistics activity on a daily basis, Morris is able to maintain successful partner relationships and significantly reduce his processing costs.
• Increase recovery – achieve higher cash recovery on the resale of your returned goods. Lexmark printers utilize a "yield" measure to monitor and maximize the recovery rate achieved from processing their returned goods.
• Reduce inventory – Brian Abe is Vice President at Reverse Logistics and Electronics Repair provider, Mitsubishi Warehouse Corporation of California. Abe provides all his customers with a login to real time visibility of all work in process returns and refurbished finished goods inventory. This enables their customers to reduce inventory and plan their refurbished inventory disposition.
• Increase velocity or turn around time - Lori Sibert was hired to improve the returns processing at Avaya, Inc., a communication networks company. One of her initial goals was to reduce processing time. A measure she utilized was "Time to Receive" in order to address a significant backlog. In doing so she also discovered that measuring and monitoring the "% of Receiving Exceptions" significantly assisting in reducing her "Time to Receive" goal from 28+ days to under 24 hours.
• Increase customer satisfaction – Microsoft Xbox team sends out a survey form with every return to create direct feedback statistics from their customers.

Review your key goals as they relate to each area of your operations processing. Then create the measurements you need to monitor your progress towards that goal. Use your system to share real time progress toward your goals with the staff people who can impact that process and who have the power and ability to help you achieve your goals and maximize your Reverse Logistics performance.

Good Luck!

Paul Rupnow Director, Reverse Logistics Systems Andlor Logistics Systems Inc. (604) 687-1130 www.Andlor.com

Reverse Logistics Magazine, Winter/Spring 2006