Reverse Logistics Standards Efforts Moving Forward

Lack of Standardized Terms and Best Practices Hurts Reverse Logistics Processes

Reverse Logistics Magazine, July/Aug 2008

In the world of Reverse Logistics, there can be a lot of room for frustration, but spending time with suppliers, customers, and people in your own company just to agree on the meanings of words and terms should not be one of them. The Reverse Logistics Association (‘RLA”) Standards Committee is working to try to improve this situation.

Members of the Standards Committee recently spoke with some RLA members, to see some of the problems caused by a lack of standards, and how they could benefit from them.

How Can Standards Help

Many people outside of Reverse Logistics do not appreciate the challenges and issues unique to Reverse Logistics, and the lack of standardized terminology can make it even harder for them to understand.
Stop Re-Inventing the Wheel – “Time and time again I see our staff and partners trying to re-invent the reverse logistics wheel” says Tony Sciarrotta, the Director of Returns Management at Philips Electronics. “Standards or guidelines would provide us all with a baseline to begin our analysis or discussions.”

Building a Business Case – “Most people are unfamiliar with Reverse Logistics, so it is difficult to build a business case” says David Henry of the Reverse Logistics team at Home Depot. “Published Standards could make a project plan easier to understand, compare and sell.”

Identify Reverse Logistics Opportunities– “Standards could help us all learn newt practices” says John Slothower, Manager of Innovation,

Services at Best Buy. “They will allow us to compare our processes with a standard and identify areas for improvement.”

Where Can Standards Help Your Business

There are a number of ways that standards can simplify decision making and the sharing of data.

Terminology – Reverse Logistics uses lots of specialized terminology, such as RMA, NPF, Advanced Replacement or B stock. Everyone we spoke with suggested the first place they need standards help is with terminology. “Terminology often creates a lot of confusion” says Frank DeSpain, Senior Director of Business Solutions for Supply Chain and Services at Flextronics, “Standard definitions will help ensure we all understand clearly what is being discussed.”
Return Process Guidelines and Best Practices – “A common criteria for success could help us assess and set our priorities” says Slothower from Best Buy. While each company has different needs and requirements for handling returns, there is a lot of commonality to processing returns, especially within an industry segment. Standards or guidelines for some of these processes would be very beneficial to the industry.

Some suggested areas of benefit could be:
A Reverse Logistics Process and Cost Model – “An end-to-end processing and cost model would extremely beneficial as a reference tool” outlines DeSpain from Flextronics, “often our clients are not sure of the full process and what services might be available to help them, particularly if it is out of their scope of control. A Standard reference model could help them understand the entire process, assess how they are performing in that process area, and better understand how decisions in one part of the process may impact or provide considerable savings for another step in the Reverse Logistics process.”

Return Authorization Format and Data – “It would be beneficial for retailers and manufacturers to agree on the information needed when products are returned” says Sciarrotta. “Philips can more effectively reduce returns if they have good data to analyze such as serial numbers or good reason codes from the retailers.”
Grading Guidelines – Best Buy often sells open box consumer returns individually or in bulk, but there are no guidelines to grade the items. “Best Buy could recapture a much higher value for the online resale of returns if there were reliable grading standards for the condition of returned goods. Currently an online buyer of 24 pallets of “B Grade” laptops has a difficult time assessing what he is buying until he actually receives and inspects the goods.”

Return Guidelines – With hundreds of vendors at hundreds of stores, returns processing still involves a great deal of judgment by the staff person handling the items. Standard Guidelines for returning goods to vendors would be helpful to retailers by reducing judgment decisions with specific rules, processes or defined criteria.

Guidelines for Reconciliations – Sciarrotta at Philips suggested that “discussions between retailers and manufacturers to outline guidelines for reconciliations would be helpful,” so agreement can be reached ahead of time for the treatment of issues. For example, in the case of a missing component such as a remote control, the retailer may not be entitled to receive a full credit on the returned unit.

IT Capabilities, Communications and Reporting – “Communication, data transfers, reporting, forecasting methods and data are all different with each manufacturer. Unfortunately the differences are often driven by a lack of IT capabilities rather than best practices,” explained DeSpain from Flextronics. “These IT restrictions often inhibit change or an ability to evolve.” Standards for data exchange, processing and forecasting would be very helpful to enable Reverse Logistics improvements and progress.

Industry Problem

John Slothower at Best Buy said that they work with hundreds of different vendors, and many of the vendors have different terms and definitions. It can be very confusing to work and to keep track of what each vendor means by the various terms.

Common Terms and Best Practices
One of the ways the RLA is trying to improve life for RLA members is by working to develop a “Lexicon” of consensus definitions of reverse logistics/warranty terms and best practices. Many terms have different meanings in different industries, and the RLA Standards Committee is working to come up with a common set of definitions for the whole reverse logistics vocabulary.

The Standards Committee is developing an online set of terms, definitions, and best practices at
http://tikiwiki.reverselogisticstrends.com/tiki-index.php?page=Reverse+Logistics+Lexicon.

Helping someone figure out what the possible meanings of a term is often the first step. For example, does “EOL” mean “end of life” or “end of lease?” Clicking on “EOL” brings up a page where the person gets a choice of these two possibilities.

Best Practices

Another important aspect of this Lexicon is that it will become a place to store and share best practices on all kinds of Reverse Logistics activities. In addition to collecting terms and definitions, the Lexicon will eventually become a place to turn to see what other Reverse Logistics professionals have suggested as the best practices for a particular activity.

The Importance of Warranty Activities

One of the areas of particular interest for the group is in the area of warranties. As an earlier article by Ken Purfey outlined, (“Warranty Standards Using XBRL,” March/April 2007, pp. 43-45), a new standardized language for sharing business information is being developed, called XBRL (for extensible business reporting language, if you wondered). This language is still fairly early in the development process, and the reverse logistics community has an opportunity to have input in the development of terms and processes related to reverse logistics and warranties. Look to learn more about XBRL in the next issue of this publication.

The Financial Accounting Standards Board (FASB), which develops the Generally Accepted Accounting Principles (GAAP) that all accountants have to abide by, are also interested in warranty activities, because different companies are currently using very different methods and practices. One company may hold 6% of its revenues for warranty reserves to cover warranty-related expenses, while another firm might hold 12%. Is this because one company has twice as many warranty expenses, or is it that the second company just puts more of expenses under the “warranty costs” heading? The answer is important, because the amount of warranty reserves can influence the stock price, in the end, which means that the Securities and Exchange Commission (SEC) is also interested in this issue.
These other organizations are interested in defining what are warranty activities, and best practices for warranty activities, despite the fact that the personnel in those organizations may not be involved in the day-to-day execution of vvv activities.
By developing the Reverse Logistics Lexicon, we may be able to define these terms for ourselves, and have these organizations use our definitions, instead of having them define our industry for us.

How You Can Help

The first goal of the Standards Committee is to create a list of all of the terms Reverse Logistics professionals need access to, and to keep the list as accurate, relevant, and up to date as possible, as the world and the field change and evolve.
To keep it current, the Lexicon is set up as a “Wiki,” which means that any registered user can edit it. Unlike Wikipedia, which can be edited by anyone on the planet, our wiki can only be edited by Reverse Logistics professionals. We hope it will become a place for debate about best practices and standards.

We are looking for volunteers to help add more terms to be defined, and to refine the definitions for the terms we already have. If you would like to get involved in the process or participate in the conversation, send an email to Ron Tibben-Lembke at rtl@unr.edu, or Paul Rupnow at paul@andlor.com, and we will get you a password to join the conversation.

If you don’t want to become directly involved, we would still very much like to hear any feedback you may have about new terms that need to be added, corrections to existing terms, other improvements to the Lexicon or how the Standards Committee can help you improve your Reverse Logistics operations.

Dr. Ron Tibben-Lembke, Associate Professor, Supply Chain Management, University of Nevada and Chairman of the Reverse Logistics Association Standards Committee

Paul Rupnow is the Director of Reverse Logistics Software Systems, Andlor Logistics Systems Inc. and Editor at ReverseLogisticsProfessional.com and Reverse Logistics Standards Committee member