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Returning Thoughts
Reverse Logistics Magazine, Edition 14
Breaking Old Reverse Logistics Habits: Identify Opportunities to Create Pennies and Gold
Reverse Logistics habits are hard to break. Shifting your team away from the status quo is not an easy task. Convincing your corporate senior management to allocate resources to your team to accomplish change is an even more difficult task.
An excellent way to break old bad habits is to identify your highest profit change opportunities. Some opportunities generate penny savings, but you want to find the improvements that also generate the gold. Some of the best places to look for high profit opportunities can be found in the return financial values that are based upon the unit cost or unit selling price.
Understand the Profit Impact of Reverse Logistics Changes
While many organizations have identified endless opportunities to improve their Reverse Logistics, few understand the enormous profits and savings that can be generated or how to prioritize the opportunities available to them. Assessing your opportunities by their impact on profits is a great way to start and a better way to sell your plan to your CEO. Even some small "penny" changes can have enormous profit impact and project Return on Investment (ROI).
Look for the Pennies and the Gold
Not all profit improvement opportunities result in equal savings. Some opportunities generate pennies, others generate gold. Three key areas of opportunity are:
- Reduce Processing Costs: such as labor savings from process automation
- Increase Recapture Cost: such as generate higher resale by reducing cycle time
- Reduce Returns: such as lowering retail returns from product improvements
Increasing recapture cost and reducing returns have a much higher profit impact than a processing change because these two values are based upon the selling price of a unit. A processing cost on the other hand is typically a much, much lower value. One is pennies, the other is gold. Look for the golden opportunities, but do not forget, however, that many of these penny saving changes are needed to drive the ability to generate the golden opportunities.
To compare these three key areas for improvement, use the following scenarios: Labor savings of, say 10 minutes/unit with a $15/hr labor rate; increase recapture by, say 10% of $250 retail; avoid returns by, say 10% resulting in no need to issue credits (not including processing cost savings).
Even on a single unit basis, the savings can be significantly different. However, when a saving that is based upon the cost or selling price of one unit, the monthly impact can be very substantial especially when multiplied by the high volumes processed by a manufacturer. For instance further building on the example above using 10,000 returned units per month:
As you can see, not all changes yield the same results. You will need to run your own scenarios and use them to help assess your priorities and build a business case showing a clear ROI. Remember to pay very close attention to the high values you can generate from your numbers that are based on your unit cost or unit selling price, so you can generate pennies and gold.
Good Luck!
Learn and Share Reverse Logistics best practices, insights and strategies with Paul Rupnow at ReverseLogisticsProfessional.com
