Reverse Logistics and the Total Product Life Cycle

by John Walsh

Reverse Logistics Magazine, Nov/Dec 2007

Article Reprint – Originally published in the August/September 2006 issue of Trading Partner Practices

While making significant strides in establishing a more efficient forward logistics pipeline, vendors often fail to place the same emphasis on creating an integrated and seamless reverse logistics process, which means they are winning only half the battle.

To correct this, vendors need to gain a better understanding of the disposition process for returned goods, making it part of the total life cycle of their products, stated Peter M. Rukavina, general manager at Roadway Reverse Logistics, Inc. Speaking at a recent Vendor Compliance Federation Supply Chain Conference, Rukavina said there are some companies who see no end in sight to their efforts in creating a system to manage product returns. Expressions such as "My transportation expense is escalating," "My warehouse is overcrowded," "My credits and deductions seldom match," "My plant scheduler just produced what’s being returned," and "My receiving records are out of control" are common among companies, he said. "Even if you have a perfect order, you still have to deal with reverse logistics," Rukavina said. Currently, he said, there are numerous barriers to successful returns programs, including poor processes, no overseer of the reverse logistics pipeline, lack of systems and information visibility, inability to quantify costs of returns, "loose" company return policies, poor internal cross-functional communication, and insufficient resources allocated for reverse logistics. Likening the image of a poor returns process to "having dad watch the child," Rukavina said the reverse logistics process is not perceived by many companies as a core business process in need of attention and for most is a necessary evil. Displaying a picture of a child eating out of a dog food bowl with the caption, "Why men shouldn’t baby-sit," he joked that the lack of reverse logistics oversight at many vendor companies results in returns programs that are equally disturbing and messy.

The solution is to create a multi-pronged strategy aimed at producing an integrated reverse logistics process, he said. To begin with, vendors need to have a vision for managing their product returns and to establish ownership of the process. They need to look at what their competitors are doing, consider outsourcing if they lack the resources to tackle the project, understand how reverse logistics impacts the supply chain and create a communication strategy whereby all affected departments understand what their role is in streamlining the returns process.

This means improving relationships and communication between the retailer, the vendor and the consumer, he noted. Retailers and vendors need to establish up-front written agreements on how returns will be processed (what returns will be accepted back, return authorization procedures, direct returns or through return centers, freight payments, credit disbursement and carrier routing – including who pays for freight). Retailers and vendors must also make sure consumers understand their return policies, he added. Once the returns contracts, or agreements, are in place, he said, trading partners need to execute them by maximizing communication through all control points – the consumer at the point of sale, the retailer through return authorization and the vendor during receipt validation and inspection of product.

Innovations

Rukavina then discussed some of the reverse logistics innovations designed to assist vendors in gaining the maximum value out of returned products:

Investment Recovery Management – what to do with returned items. There are various disposition possibilities such as refurbish and resell, donate to charity, destroy in-field, etc.
3rd Party Logistics – consider utilizing reverse logistics specialists who have warehouse management systems in place and can carry out various product disposition tasks
Automated Web Pages - all of your business rules can be laid out on your web page. This needs to be integrated with your systems, he said.
Special Returns Software – allows for the inspection of returns and facilitates the disposition process. It also enables companies to collect valuable information about why products are coming back and take corrective action (improved quality, packaging, etc.) to reduce future instances of returns.
Warehouse Management Systems – designed to handle returned goods efficiently.

Rukavina noted that information and systems integration can greatly reduce errors in the reverse logistics pipeline. The key features of this integration, he said, are a returns web application that establishes visibility and a returns warehouse management system. The web application provides real-time information, reduces manual paperwork, provides returns history and reporting functionality, establishes control of shipping frequency and provides data integrity and electronic data transfer, he said.

The returns warehouse management system includes password protected access, RF data capture of shipment detail, customized methods for data extraction for analysis, process automation, work forecasting and an interface with the enterprise system. This system enables companies to gain better control of how goods are returned, he said, and results in greater productivity, freight cost reduction, reduction of paperwork, better inventory and record accuracy, improved data entry, control of shipments, fast and accurate credit reimbursement and increased speed through electronic data transfer and data integrity.

Value-Added Services

Rukavina said companies looking to improve their returns transportation management (pick-up, routing and administration) should seek a system that provides value-added services. They should seek a 3rd party provider who "understands your policy and your customers," has 1-800 numbers for assistance, employ returns specialists well-trained in reverse logistics, can provide comprehensive transportation services with routing via multiple modes, who understands customized bills of lading and invoicing and can provide information visibility reporting, he added.

Value-added services can include proactive calls to arrange pick-up, validation of returns authorization numbers, screening of non-program products, lift gate pick-up tracking, customized information interface options (i.e. EDI), audit and payment of freight bills, one master invoice and specialized return pick-up management.

He said the benefits of an effective returns transportation management system include a single source control that removes hassles, accurate bills of lading, information visibility, routing to proper destination, reduction of transportation and handling costs through screening of non-program products and freed-up cash flow as well as reduced administration resulting from audits, payments and one master invoice.

Customized Warehouse Management

He said features and capabilities of customized warehouse processing and solutions should include product receipt and validation, unbiased product inspection (which makes 3rd parties valuable), sorting and segregation, consolidation, data collection and administrative reporting, inventory management, pallet configuration, labeling/relabeling, certified disposal, kitting and packaging/repackaging.

The benefits should include the reduction or elimination of unauthorized returns, increased availability of your labor and warehouse space, disposition of returns to proper destination, improved customer satisfaction through reduced credit cycle, elimination of warehousing/transportation cost of unusable products, reduction of transportation cost by consolidating product into volume shipments and a single source of transportation across North America. Rukavina closed by urging vendors to integrate their various strategies into a "total reverse logistics strategy." He added that reverse logistics is a "complicated process that should have a closed-loop." He cited an average example of retail returns at 8% where reverse logistics costs account for 4.5% of its total logistics cost. He said by improving reverse logistics, that company can reduce that cost by at least 10% - 15%, which would mean millions in savings.

The question he posed to those in attendance is, "Who will lead the returns initiative in your company?"

Journal of Trading Partner Practices is a publication of Trading Partners Collaboration, LLC.