Collaboration: The Future of Reverse Logistics (Part 2 continued)

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Closed Loop Supply Chains

Customer focused strategies making it simple to return products and expedite credits or warrantee repairs.  Using technology to collaborate across the supply chain will help the consumer receive optimized service by expediting the process.  “Managing returns is not just about making a return as pain free as possible for the customer, but developing an opportunity to recover more money from returns and ultimately reducing the number of returns” (Harp, 2002, para. 34-40). 

Product returns can arrive from any number of reasons aside from product malfunction whether the merchandise be incompatible with older versions, the wrong color, customer expectations not met as a result of product description, photographs or some other communication. Thrikutam and Kumar (2004) warn manufacturers of the indirect costs associated with controlling reverse supply chains including “customer retention efforts, product reworking, redistribution, inventory maintenance, overheads, and cost of disposal”.  It is recommended to streamline the entire management process by having a system capable of tracking and controlling inventory throughout the supply chain, streamlining operations to reduce the number of touch points transferring some activities to vendors, partnering with supply chain partners, and outsourcing returns processing to third party logistics providers.  This may in some cases make sense depending on the controls, policies, or other concerns addressed in developing a reverse logistics strategy.  Developing a clear return channel can differ depending on the product and business objectives.  Some common themes to take into consideration might be a centralized return center, multiple methods for the customer to make a return.

When examining policies and procedures in the reverse flow of materials or goods, the forward flow will be impacted.  Field and Sroufe (2007) conducted research on the use of recycled materials against virgin materials in the manufacture of corrugated cardboard packaging material.  The manufacturer invested in a mini-mill that could process and recycle cardboard as a strategy to cope with inventory shortages. Raw material suppliers were unable to fulfill orders during the busy season.  After the mini-mill was implemented, the company had slashed transportation costs.  Prior to using recycled materials, the company purchased from vendors up to 500 miles away.  Once recycled pulp was introduced, all materials needed were able to be procured within a 150 mile radius.  Consider how this impacts the supply chain by broadening the base of suppliers.  There is more competition which could open up pricing negotiations, as well as an ability to mitigate shortages by establishing alternate sourcing options. “Imbalances from market power can result from conditions that give suppliers more bargaining power than their customers” (Field and Sroufe, 2007, p.6).

Partnerships with suppliers will be strengthened as manufacturers develop waste management strategies to keep materials in the supply chain.  Resource managers will be identifying opportunities to sell or dispose of unwanted byproducts to suppliers and distributors for processing and re-entry into the supply chain.  “Companies must continue to openly discuss best practices and work together to brainstorm uses for challenging byproducts” (General Motors News, 2012, P.6).  Both formal and informal networking and collaboration will help managers identify and drive new initiatives for their organization ultimately reducing waste and identifying opportunities to increase efficiency. 

One of the drivers determining how a product will be handled is directly tied to the product value.  High value items will be remarketed rather than marked down.  It is more cost effective to manage unsold leather or fur coats at the end of the season by remarketing in the southern hemisphere where winter is just beginning rather than mark them down.  Good data management must consider all of the variables rather than just product value and transport costs.  If the leather coat was returned by consumers because of a manufacturing error, it might not be beneficial to transport the merchandise to another marker.

Policies and procedures will need to flexible to accommodate changing needs within an organization and across the supply chain with continual process improvements relying on good data management.  “The processes that materials undergo may differ dramatically in your business by facility, product type, the condition or materials, and the reason for return” (Norman, 2007, para.11).  Some of the significant changes manufacturers face has been the rising cost of fuel and driver shortages.

Companies began offshoring manufacturing because the cost saving benefits saved companies on average 25% of the cost to manufacture compared to domestic manufacturing (Information Week, 2001).  As we face rising fuel costs and economic struggles, this trend is reversing with manufacturing returning to the United States.  “Wal-Mart, which pioneered global sourcing to find the lowest priced goods for customers, said it would pump up spending with American suppliers by $50 billion over the next decade – and save money by doing so” (Foroohar, 2013).  Labor relations in areas that experienced the offshoring boom is fighting for higher wages, along with increased transport costs is encouraging manufacturing to reduce fuel consumption for cost savings.  It is important to identify optimal location for manufacturing, distribution, and collection from a geographic standpoint to minimize transport costs in the reverse logistics cycle. 

Customers are a primary driver in developing closed loop supply chains.  The returns experience impacts product brand.  The Aberdeen Group conducted a consumer survey specific asking consumers how the returns process would affect their likelihood of becoming a repeat customer.  “85% indicated if they received poor returns service they would not return as a customer while 95% indicated they would return if they received good customer service” (Greves Davis, 2010, p. 9).  When developing or improving upon reverse logistics operations, intangible benefits such as customer satisfaction, loyalty, and public relations associated with positive environmental impacts should be considered.

Both physical infrastructure combined with good data management will aid in the effective reduction, reuse, and recycling of product achieving optimal returns.  The savings achieved through reducing the number of returns would lower cost, cycle time, and waste. 

Repairs and Reuse

The essence of supply chain management is to provide products to the consumer at the right time, and the right cost.  When examining the reverse supply chain, a company must examine whether or not they are meeting those same customer expectations with return, repair, reuse, and warrantee management initiatives.  “How much service level can I give my customers before everyone screams about what it costs?”(Boston Consulting Group, u.d., p.3). 

 Despite the difficulties associated with disconnected data, the military was able to improve predictability, reliability, and visibility in the supply chain.  The military developed a significant improvement to utilize data, despite disconnects of communication, to plan rather than react to maintenance and repair requests.  Shipment tracking was improved through the use of RFID technology, despite the fact that logisticians were utilizing multiple data sources to track that item.  A manufacturer would want to identify the most cost effective way to predict and control their return process.  “Knowing what is returned and where it ends up will make it easier for companies to deal with regulatory issues and evaluate returned stock for possible secondary sales channels” ( Greve and Davis, et al, u.d., p.5).  By strategically planning military returns, they ability to plan for maintenance and reissue to the unit, or plan to have the item enter the army reutilization program prior to final disposition.

To reduce repair time, tight control and adherence to processes and maintenance of an inventory system should be consistent.  Maintaining tight control, taking inventory samplings and mini-audits conducted at regular intervals will ensure control over inventory is maintained ultimately reducing costs associated with excess stock as well as increasing the quality and efficiency of the facility.  Manufacturers are looking to move returns as quickly as possible resulting in more collaboration with retailers in areas of product testing, marketing and liquidation to save the expenses associated with the transport and collection of returned and excess products (Konrad, 2012).  Products with a shorter life cycle, such as electronics, lose value very quickly.  The best advantage is to develop a collaborative relationship with retailers to test returns, and re-enter them back into the supply chain as soon as possible.  75% of returned televisions, digital video recorders and video cameras are a result of buyer’s remorse and expected cyclical returns rather than malfunction.  By testing returns at the retail level, Konrad (2012) identified an estimated recovery rate of 20 – 40%.  Secondary markets should not be overlooked as they represent 2.28% of the Gross Domestic Product (GPD) and 40% of all secondary market goods are exported (Greve Davis, 2010, p. 14).  Software was developed by the industry called “reflash” that allows a laptop, desktop computer, or other wireless device to have the drive and memory chip wiped higher up the supply chain, bringing it back to the supply chain potentially within hours of receiving the return.

In a case study, the military identified exposure to counterfeit parts that infiltrated the supply chain which has “threatened National security, the safety of our troops, and American jobs” (Shaughnessy, 2012).  The problem America faced could not solely be blamed on the Chinese for the manufacture of substandard parts, but could be traced to a continued lack of consistency with inventory control and accountability.  Different organizations within the military have different levels of commitment surrounding inventory maintenance and control.  Property accountability managers often spend a significant amount of time trying to obtain accurate paperwork, records, and facilitating reconciliations.  Without commitment and support from the top levels encouraging compliance with the process and clearly communicating the goals for tight inventory control, frustration and resistance could work against the effort leading to gaps filled with low inventory, excess inventory, error, damage, theft, loss or the opportunity for counterfeit parts and substandard quality of the repair.  Although the military manages a database for tracking and accountability of equipment that is consistent, the processes in managing and capturing data as well as identifying location of the equipment are not.  Some military units may have bar code scanners while others will manage inventory manually with pen/paper and checking items off from a master report.  An organization overseeing a repair facilities across many different business divisions, must think about planning operations to eliminate inconsistencies and implement automation that will focus on decreasing the time a product is not operational.

By establishing organizational objectives and an acceptable wait time for a repair, data can be used to identify customer clusters to optimize location and warehouse of repair personnel.  Data can also help anticipate and plan for common repairs, coordinating physical parts and labor to expedite the process and increase customer service.  Amini, Retzkaff-Roberts, and Bienstock (2005) conducted a study involving the planning, design, and implementation of medical laboratory devices.  The company identified parameters for repair to minimize risk to the laboratory guaranteeing a six hour turn around on repairs for most customers with exceptions being those in remote areas making compliance with the standard economically unsound or impossible. The company designed a self-diagnostic tool in the equipment that would expedite the process.  The tool would determine the cause for the repair reducing down-time. 

Controlling inventory data as well as dispatch data were the two challenging parts to coordinate to meet the six hour repair window.  By identifying common repairs, managing inventory and storage of parts decisions were made as to what parts could be stored at a customer site, warehouse, or repair technician’s vehicle.  The data was taken apart and examined using many “what if” scenarios valuating costs and identifying an optimal path to gain the most value for the least expense. 

Recovering products, refurbishing goods and reutilizing parts early in the return flow of goods will optimize efficiencies and will often recapture the most value.  By eliminating unnecessary transportation of products, a company can introduce the return into the supply chain faster recovering more value, eliminate the transport costs (Roach-Partridge, 2011, para. 1-12).  Palm, Inc., an electronics manufacturer, implemented reverse logistics processes with a focus on refurbishment of returned inventory to resell using on-line secondary markets.  “Palm decreased processing costs by fifty percent, reduced goods to inventory turn around to less than two weeks, and tripled product recovery rates achieving up to an eighty percent recovery of retail value” (Partridge-Roach, 2011, para. 14-16). 

Fast turn-around to manage the return and expedite the receipt, handling and refurbishment will recapture the most value when that product returns to the supply chain.  “Fast turn-around if goods can dramatically reduce the volume of goods which cannot be resold because it is obsolete or out of style as well as reducing carbon costs for warehousing returns” (Burgess & Stevens, 2010, p.4). 

 Recycling and Zero Waste

The future collaboration trends and relations continue to evolve optimizing the use of recycling and reduction of landfill.  Waste from one organization will become a resource for another.  “The circular economy is a generic term for an industrial economy that is, by design or intention, restorative” (Iles, u.d.).  The circular economy deals with two types of material flows, the first being biological nutrients designed to reenter the biosphere safely.  On example might be a seed manufacturer packaging seeds on a biodegradable card that can be planted which will break down as the seed germinates and grows providing nutrients back to the soil.  The other type of material is considered a technical nutrient where they are designed for recycling, refurbishment and reuse.  An example might be the deconstruction, reuse, and recaptured value from electronic waste.  By reducing the amount of waste, it will often enhance productivity, quality, and efficiency throughout the organization increasing profitability.  “The goal of reverse logistics and creating a greener, sustainable business model is also what makes it smart from an economic perspective: getting rid of waste, which is costly to profits and harmful to the planet” (Partridge-Roach, 2011, para. 19).

Companies are recognizing the value of developing Zero Waste initiatives that have benefited the profitability of their organization.  Dupont identified countertops that were not suitable for use in construction.  A collaborative partnership was developed with a third party vendor that accepted the defects and unsalable countertops to grind into a lower grade material.  The material was sold to municipalities and state governments to be used as aggregate in road construction projects.  Aside from developing a new stream of income, they were able to eliminate 2,000 tons of waste from hitting the landfills (Excel, u.d. para 6-8).

Dupont also created other initiatives at the associate employee level developing educational programs that would reinforce their goal of achieving “zero waste”.  A composting awareness program was implemented and composting bins were strategically placed in break rooms.  The compost was used on DuPont property to fertilize grass, trees, and other plants (Excel, u.d.).  A program seemingly unrelated to the operations of their facility was a significant contribution to reinforce their commitment to develop a zero waste initiative and communicating a strong, consistent message to keep associate employees actively engaged in conservation efforts. 

GM implemented a landfill free goal examining the byproducts throughout their operation to find new ways to use and market byproducts.  Global purchasing and vendor management supports the effort by collaborating with key partners to identify how waste can still be useful and marketable.  “GM continues to manage byproducts in one electronic tracking system with a goal of recovering all resources to their highest value” (General Motors News, 2012, p. 2).  GM examines each process in their zero waste program and identifies those which are not revenue generating or cost neutral.  If there is not a benefit to the process, it is reconsidered and other approaches such as material substitutions, logistics, geography, or other electronic processing technology improvements.  “GM generated $2.5 billion in revenue between 2007 and 2010 through various recycling activities” (General Motors News, 2012, p.3).  Long term commitment and continual process improvements generated a significant additional stream of income. 

Conclusions

Web based technologies will be a critical component to developing transparency and accountability with reporting throughout the supply chain.  Access to data will be needed throughout the supply chain to enforce best practices established by supply chain partners. 

Implementing an aggressive returns management program will have costly hurdles and should be approached as a long term goal.  Once the initial investments into the waste management system are made, long term benefits will recover that investment and save on long term operating costs (GM, 2012, p.2). Identifying overall financial savings of repair verses buy new will play a prominent role measuring return on return investments.  Consistent and transparent data management will be an evolving practice for continuous process improvements toward achieving maximum efficiency. 

Information will be captured at the store or vendor level identifying return reasons and through collaboration will share that information throughout the supply chain to identify opportunities to reduce the likelihood of returns as well as reintroducing the item back into the supply chain at the optimal point.  “To ultimately convert data into action, data must be made assessable not to just one reverse logistics person in the organization but to anyone that is an influencer on returns” (Doughton, 2013, para. 4).  Strategic communications will play a role to identify what information should captured and shared to limit stakeholders confusion and frustration with receiving too much irrelevant information to their piece in the supply chain.

Returns management will transition from focusing on short term financial returns to long term organizational needs and growth.  Sustainable business models will begin in the board room and will expand throughout the supply chain.  Collaborative environments will identify and produce opportunities and risks to improve operations and manage returns and excess materials at the lowest cost meeting consumer demand, consumer values, resource constraints, and government regulations. 

Re-processors and recyclers will be seeking more opportunities to identify manufacturers that can purchase recycled materials in their operation.  Procurement professionals will be more focused on cost savings associated with transport and expanding potential supplier bases without reducing quality of their goods. 

Reverse logistics will evolve with continuous improvements to operational efficiencies reducing risk, cost, and environmental impacts across the supply chain relying on collaborative relationships.  These collaborative relationships will produce improved flexibility throughout the returns process.  Reclamation programs will be designed to fit customer needs and costs will be minimized through collaborative partnerships with vendors and suppliers. 

 References

 Amini, M., Retzlaffroberts, D., & Bienstock, C. (2005). Designing a reverse logistics operation for short cycle time repair services. International Journal of Production Economics, 96(3), 367-380. doi: 10.1016/j.ijpe.2004.05.010

Banks, R. (n.d.). Defining and improving reverse logistics. Retrieved from http://www.almc.army.mil/alog/issues/MayJun02/MS745.htm

Bilodeau, J. (2013, May 24). Reverse logistics vs. green logistics: Is there a difference? Reverse Logistics Talk. Retrieved May 26, 2013, from http://reverselogisticstalk.wordpress.com/

Burgess, W., & Stevens, C. (2010). Reducing environmental impact of returns. In Canadian Encyclopedia of Environmental Law. Retrieved June 17, 2013, from http://www.returntrax.com/site/ywd_returntrax/assets/pdf/RTX_Environmental_White_Paper.pdf

The business case for zero waste [PDF]. (2012, October 19). Detroit: General Motors News.

Carolina Supply Chain Services, Inc. (2006). A closed loop returns management system: Turning failures into profits [Brochure]. Winston-Salem, NC: Author.

Casotti, L., N., & Lindaman, J. (2004, Fall). Ford pinto case study. Retrieved May 26, 2013, from www.cofc.edu/~blocksonl/…/Ch.%2012%20-%20Ford%20Pinto.ppt

Creating the optimal supply chain. (n.d.). Boston Consulting Group. Retrieved June 27, 2013, from http://knowledge.wharton.upenn.edu/papers/download/BCGSupplyChainReport.pdf

Diener, D. (2004). Measuring the reverse logistics process. In Value recovery from the reverse logistics pipeline. Santa Monica: Rand.

Excel. (n.d.). Collaboration drives waste to zero [Brochure]. Author. Retrieved June 13, 2013, from http://www.exel.com/exel/exel_customer_successes.jsp?page=1

Field, J. M., & Sroufe, R. P. (2007). The use of recycled materials in manufacturing: Implications for the supply chain management and operations strategy. International Journal of Production Research, 45(18/19), 4439-4463. doi: 10.1080/00207540701440287  EBSCO

Foroohar, R. (2013, April 11). How ‘Made in the USA’ is Making a Comeback. Business Money How Made in the USA Is Making a Comeback Comments. Retrieved June 08, 2013, from http://business.time.com/2013/04/11/how-made-in-the-usa-is-making-a-comeback/

Greve, C., & Davis, J. (n.d.). Recovering lost profits by improving reverse logistics (Tech.). UPS.

Greve Davis. (n.d.). Future trends that will impact reclamation [Brochure]. Author. Retrieved June 8, 2013, from http://grevedavis.com/files/2010/09/Future%20Trends%20in%20Reverse%20Logistics%20Sept%202010.pdf

Iles, J. (n.d.). Re-thinking progress: The circular economy. TED-Ed. Retrieved June 01, 2013, from http://ed.ted.com/on/2Yy019iv

InformationWeek: The Business Value of Technology. (2001, December 10). Informationweek. Retrieved June 08, 2013, from http://www.informationweek.com/companies-reconsider-offshore-outsourcin/6508358

Konrad, T. (2012, October 01). New Trends in Reverse Logistics – Tim Konrad [Interview by B. Bowman]. Retrieved May 26, 2013, from http://www.youtube.com/watch?v=UQIXxrfd90w

Liu, F. (n.d.). Reverse logistics matters: Impact of resource commitment on reverse logistics and customer loyalty (Unpublished master’s thesis). University of Maastricht. Retrieved May 26, 2013, from http://arno.unimaas.nl/show.cgi?fid=11285

Login – Community – The Sims 3. (n.d.). Login – Community – The Sims 3. Retrieved June 26, 2013, from https://www.thesims3.com/webLogin.html?redirectTo=http://www.thesims3.com/registeragame.html&forceLoginMessage=login.force

Norman, L. (2007, May/June). Five Considerations for Evaluating Returns Software Solutions. Reverse Logistics Magazine -. Retrieved June 02, 2013, from http://www.rlmagazine.com/edition06p29.php

Reverse Logistics Today Blog. (2013, May 14). Reverse Logistics. Retrieved June 08, 2013, from http://www.blumberg-advisor.com/reverse-logistics-today/?Tag=Reverse%20Logistics

Roach-Patridge, A. (2011, June). Full circle: Reverse logistics keeps products green to the end. - Inbound Logistics. Retrieved June 15, 2013, from http://www.inboundlogistics.com/cms/article/full-circle-reverse-logistics-keeps-products-green-to-the-end/

Rogers, D. S., & Tibben-Lembke, R. S. (1999). Going backwards: Reverse logistics trends and practices. Reno, NV: University of Nevada, Reno, Center for Logistics Management.

Shaughnessy, L. (2012, May 22). Probe finds ‘flood’ of fake military parts from China in U.S. equipment. CNN Security Clearance RSS. Retrieved December 26, 2012, from http://security.blogs.cnn.com/2012/05/22/probe-finds-flood-of-fake-military-parts-from-china-in-u-s-equipment/

The Springville Museum Quilt Show. (n.d.). The Springville Museum Quilt Show. Retrieved May 26, 2013, from http://www.americaslibrary.gov/es/ut/es_ut_quilt_1.html

Weeks, K., Gao, H., Alidaeec, B., & Rana, D. S. (2010). An empirical study of impacts of production mix, product route efficiencies on operations performance and profitability: A reverse logistics approach. International Journal of Production Research, 48(4), 1087-1104. Retrieved May 29, 2013, from EBSCO.

Collaboration: The Future of Reverse Logistics (Part 1)

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Historically, reverse logistics can be dated back throughout history where unwanted items would be reused or recycled into new items.  Early settlers used whatever they had to make life easier such as the women who made quilts from old clothing and rags.  Montgomery Wards, an American furniture shop, established in 1872 was the first company to have a 100% customer satisfaction or your money back guarantee (Liu, u.d., p.15).

World War II was plagued with shortages across the supply chain.  The government created the first recycling program.  “Economizing initiatives seemed endless as Americans were urged to conserve and recycle metal, paper, and rubber” (World War II Rationing, u.d., para. 11).  The automotive industry was forced to recycle and reuse parts for vehicles as a direct result of the materials shortages associated with World War II.

The first major product recall involved the Ford Pinto in 1978.  The designer, Lee Iacocca, wanted to build a competitive compact, low cost vehicle.  There was a considerable safety risk that caused the gas tank to explode when there was a rear impact on the vehicle.  Iacocca was known for saying “safety does not sell” (Casotti, et al, 2004, slide 9).  Although the vehicle failed safety tests and a solution to prevent gas tanks from exploding was a one dollar piece of plastic to reinforce the bolts, it was rejected placing priority on reducing the weight and of the vehicle. Several law suits brought by victims and their families involving injury and wrongful death impacted the way the industry viewed safety, risk mitigation, and recall management improving accountability and communication throughout the supply chain.

Historically we can find many examples of re-use and recycling, however, it was not recognized as a reverse product or material flow until the 1970’s.  Prior to the seventies reverse product flows was lumped with green or environmental logistics.  Returns management continued to evolve recognizing the complexities of the reverse flow compared to that of forward flows (Bilodeau, 2013, para.2).  Reverse logistics began to separate from forward logistics and was defined as “the process of planning, implementing, and controlling the efficient and cost effective flow of raw materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal” (Rogers and Tibben-Lembke, 1998, p.2).

Reverse logistics continues to evolve improving transparency across the supply chain, efficiencies by reducing risk, cost, and environmental impacts across the supply chain by focusing on developing collaborative relationships.

Approaching Reverse Logistics

 Defining reverse logistics has been an evolutionary process.  The complexities associated with the reverse flow of goods extend into many operational areas within an organization that can significantly impact the forward flow of goods.  “In a traditional supply chain, a non-optimized management process results in the production of less than optimal output, which leads to solid and hazardous waste, as well as additional operating costs throughout the supply chain” (Weeks, et al, 2010, p.1090).  Operations managers often do not understand the full impact across the organization from waste reduction and recycling programs because it is often difficult to quantify returns on investment.  Some of the cost savings are projected such as transport savings, reduced energy costs, and understanding other benefits from effective returns management decisions.  A reverse logistics specialist can be dedicated to research and determine quality control, customer service, warranty repair, warehousing, or other financial implications throughout the returns process.

The Department of the Army launched a Reverse Logistics Process Action Team who was tasked with measuring velocity management (VM) and defining process methodologies for define, measure, and improve (DMI) initiatives (Banks, u.d., para 5).  The initial progress was compared to skeet shooting, constantly aiming at a moving target.  This is a fair assessment as the variables of reverse logistics are constantly changing whether they are associated costs, environmental regulations, or consumer demand.

The military defined the beginning of the reverse logistics cycle at the point of property turn in, however it was more difficult to define where the reverse cycle ends.  Manufacturers and retailers face similar issues throughout the supply chain as they examine reutilization programs, repairs, maintenance, warrantee management, as well as many other aspects associated with the reverse flow of goods.  The military faced a unique challenge that a private manufacturer should consider while negotiating terms of lease products.  Government contractors often act as a third party furnishing equipment to perform specific tasks and whose costs may be absorbed by the government customer further complicating ownership, handling, and disposition issues at product end of life.  At the end of the product lease, consider the financial implications of independent disposal, refurbishment, or resale of the used equipment.  Some leased items may provide the most value having the vendor manage disposal and salvage, while other items might have after market value worth considering.  When approaching reverse logistics, it is important to examine the organization and develop a plan to find the most cost effective way to manage and reduce returns.

Product returns fall under many different categories making the approach to examining the issues an organizations faces much more challenging.  Product returns can be for any reason making it important to capture this information to determine return trends for process improvements.  Returns management should begin with a clear written policy that identified product life cycle, and what point is a consumer not eligible to return that merchandise.  Without a clear guideline, there will be a point where the costs will outweigh the benefits.  Consider how strategic communication of policies and collaboration will impact organizational efficiencies throughout the product life cycle.

When approaching a reverse logistics operation, it is beneficial to take the return one step back in the supply chain throughout the reverse flow to find the optimal point to reintroduce the product back into the forward supply chain.  This process is used to recapture the most value.  Products with short shelf lives such as seasonal merchandise or quickly changing technology rely of the speed decision making and expedited handling to reduce costs of managing the returns.

Cooperative Relationships Sharing Data

Larger organizations are beginning to understand the power of collaboration across the supply chain.  Kellogg’s reduced the amount of unsaleables by 75% in an effort to not only reduce returns but increase profitability (Carolina Supply Chain Services, 2006, p.2).  Before implementing any changes, two years had been spent collecting data.  “Kellogg’s and Carolina Supply Chain Services (CSCS) developed a plan to collect data for Kellogg throughout the supply chain and at the customer, including warehouse, retail store, and reclamation centers” (Carolina Supply Chain Services, p.4).  Identifying all critical points in the supply chain will help improve decision making processes.

A level of trust must be developed for collaboration to function as it is.  It is important to institute cross divisional teams not only to keep them vested in the project, but to benefit from the way they interpret the data relevant to their division.  “Kellogg’s and CSCS senior level managers worked together to fain knowledge about each other’s operating processes, including knowledge of CSCS’s complete audit processes and Kellogg’s processes and internal structures of the Kellogg’s organization” (Carolina Supply Chain Services, 2006, p.4).  Examining various interpretations of data relevant to different areas across the organization both internal and external will help in the development of scorecards to measure decisions and opportunities to reduce returns.

Separate scorecards were developed by Kellogg’s addressing potential improvements in manufacturing, plants, and distribution as well as marketing, sales, and quality control.  Tools were created to measure and identify improvements in manufacturing and defect free shipments.  Older equipment was identified using the methodology that identified production error in the manufacture of the food.  The scorecard approach was able to identify the profitability to replace or repair the older equipment.  In a second area, Kellogg’s recognized “sweating” in the frozen food cases at the customer’s warehouse which weakened cardboard packaging and damaged product.  In this situation, Kellogg’s was able to assist their customer by providing data that reflected optimal storage temperatures for better control and continued monitoring temperatures to assist their customers as an ongoing continuous improvement strategy.  Multiple improvements were made in packaging and shipping from improvements to adhesive that was failing with routine retail handling, to secondary packaging that caused creasing the food containers as well as increased product exposure to the elements.  When implementing improvements to packaging, a gold star was placed on the improved packaging to quickly identify and compare products during random audits in retail and warehouse locations.  Marketing found the gold star promoting best quality packaging was a marketing tool to improve sales (Carolina Supply Chain Services, 2006, p.7-11).

Wal-Mart implemented new policies in their procurement strategies to recapture values from returns and excess merchandise.  If the manufacturer wants to reclaim merchandise, they must pay for costs associated with transport.  If the manufacturer chooses to have Wal-Mart liquidate or dispose of their product, Wal-Mart keeps all profits earned and charges the manufacturer for disposition costs (Greve Davis, 2010, p 8).  With increased customer demands, it is important to share and manage data.

Some of the challenges faced in the military has been an ongoing disconnect between various military inventory and financial databases.  Different data collection systems provide different functions such as Unit Supply Logistics (ULL), Standard Army Maintenance Systems (SAMS), and Standard Army Retail Supply Systems (SARS).   Although each system addresses inventory in different stages throughout the supply chain, they do not communicate with each other.  “Disconnects in data management are further exacerbated by separate systems between quartermaster, ordinance, and transportation” (Banks, u.d.).  With data manually moving from one information system to another, there is more room for error and created an inconsistency throughout the supply chain resulting in lost man hours, increased repair times, and increased operational costs.  Other challenges surrounding data inconsistency issue is evident in the military’s Total Asset Visibility (TAV) which is designed to track RFID items as it moves from point to point throughout the shipping process.  “The item is also entered into the Logistics Support Activity data center (LOGSA) which does not use RFID tag numbers, but document ID numbers creating confusion when trying to access records” (Banks, u.d.).  Although there are instances where government supply chain processes may face issues of regulatory control, security concerns, or other operational issues that may justify multiple data sources, a private company with more flexibility in their supply chain would find rare situations where benefits of utilizing independent systems would outweigh potential cost savings.

Strategic data management planning and collaboration will help the organization to develop consistency throughout a complex returns process.  Data collected might identify the reason for return is the inability for the customer to use the product.  This information could be used to redesign the product, implement a toll free number to troubleshoot set up, or create a pictorial image of set up procedures to reduce the likelihood of the return.  Ultimately, consistency in returns handling will expedite the reverse logistics flow, recapture more value, reduce returns handling costs, and improve customer satisfaction.

Data management will act as communication tool between manufacturer and retailer improving gate-keeping identifying the validity of the return and ensuring proper credit is issued as a result of the return.  Without a system designed to act as a gatekeeper and help customer service representatives at the point of return to stay within established parameters, the costs could start exceeding the benefits.  Many game manufacturers have offered on-line upgrades, free access to private social media communities and other added bonuses for the customer to register the product right away and create a cohesive inventory control system (Sims3 Login Community, u.d.).  Establishing communication policies, no matter what the product may be, outlining the returns policy is setting expectations throughout the supply chain and significantly reduces the likelihood of a customer returning a product after the warrantee period has expired.

Data is critical in any organization because a manager cannot manage what is not measured and tracked.  Good business decisions come from good data management.  “Tracking data across all operations, where returns or recycling infrastructures may not be fully developed, allows for lessons learned” (General Motors News, 2012, p.3)  and collaboration to improve material management in the reverse supply chain.

Automation Facilitating Communications

Data management and automation of processes will drive the management of returns developing a closed loop supply chain.  It is important to identify what data should be collected, and limit decision making to those are in a position to see the big picture through data analysis, and provide tools to assist with gatekeeping of returns.  Return policies and procedures are often confusing and not communicated outside the area which is directly involved with returns.  It becomes more problematic across the supply, especially at the point of collection in retail outlets where employee turnover is traditionally high.  When considering a strategic automated communication plan, many aspects should be considered identifying criteria associated with product quality, servicing instructions, transport costs, potential profit recovery, and potentially hazardous material risks.  Additionally, data capture forms can bring improved and consistent reverse logistics operations by encouraging customers and service or repair representatives to capture why the product was returned.   Identifying return trends for further analysis will be essential for continual process improvements.

Automation will help facilitate transparency in the supply chain, provide real time data for continual process improvements, and communicate information providing guidance across the supply chain when the information is needed.  “Strategic communications should be developed to define rules, acceptable action, and decision points on whether to accept or reject the return” (Norman, 2007, para.6).  The benefits of automated decision making are at the initial point of return.  The ability to manage high turnover staff providing the tools to quickly and consistently assess the return and isolate the item for testing, repair, refurbishment, decommissioning, as well as ensure compliance with environmental laws.  Well managed data and documentation collected will be the backbone of decision-making throughout the reverse logistics cycle.  “An item is assigned a document number that remains with it until it reaches the reverse pipeline endpoint and leaves the system” (Diener, 2004).  As the item takes one step back in the supply chain, a decision point can be communicated on how to manage that item.  Information can be transmitted from the document numbers that will help develop consistency in how returns are managed.

It is important communicate a sustainable culture not only to demonstrate commitment to reverse logistics and sustainable business models, but to engage employees and build a desired culture.  This will reinforce the policies and procedures and help employees contribute to continuous process improvements to reduce waste and recapture value.  Collaborating across divisions with employees has proven effective with General Motors (GM).  “An employee identified an opportunity to reduce costs by utilizing recycled cardboard packaging into Buick Verano and Lacrosse headliners to provide acoustic padding that reduces noise in the passenger compartment” (General Motors News, 2012, p.4).  Another employee initiative included “mixing plastic caps that protect vehicle parts during shipment with other post-consumer plastics like bottle caps to make air deflectors for Chevrolet Silverado and Sierra pickup trucks” (General Motors News, 2012, p.4)

The customer should be considered while implementing communication strategies that reflect consistency and clear communication throughout the supply chain.  In one case study, an electronics manufacturer failed to quantify the weight of return management decisions that would impact that customer.  The high tech electronics manufacturer decided that they wanted to send customers replacement items quickly, but did not trust their customers implementing fraud prevention without quantifying the impacts or likelihood of fraudulent returns.  The manufacturer required a consumer to provide a credit card number to facilitate the return and the card would be credited if the damaged unit was returned within a specified period of time.  This alienated customers who may have received the item as a gift, used a pre-paid credit card, or cash payments.  Customers complained claiming they were not credited the charge when the item was returned and some were billed multiple times for the same return creating a poor customer experience.  The company failed to conduct a risk analysis to determine the level of fraud they could expect, and failed to mitigate that risk by building the cost of the return in their pricing as a form of customer self-insurance.  These were drastic measures for a fraud rate of less than 1% creating a “self-fulfilling prophesy where their customers distrust them as they distrust their customers” (Blumberg Advisory Group, 2013, para. 2-4).

Web based technologies will play a significant role, to facilitate communications.  Each organization throughout the supply chain may use varying internal data management systems that are effective in their line of work.  Creating a common, standard platform that can communicate information while customizing the data entry, business rules, or organizational needs will be essential to the success of managing returns and creating new opportunities to improve efficiencies.  Data sharing across the supply chain can be used to keep supply chain partners working efficiently, controlling inventory, reducing excess or out of stock items, and more closely manage demands for promotional items ensuring products are available when the consumer needs them. Web-based technologies will help control unauthorized product returns as well as provide shipping and packing labels to ensure the return is managed and shipped correctly.

Retailers are facing new challenges with returns.  Lawsuits against retailers for hazardous material handling violations have included claims of improper storage, transportation, and disposal of bleach, paint, pesticides, batteries, light bulbs, and other products that may contain hazardous materials. While the forward supply chain, any company handling hazardous material is required to have designated HAZMAT personnel who have training and are qualified to classify, package, mark, and shop hazardous materials.  In the reverse flow, returns are more complex and it can become costly and problematic to train personnel in in hazardous material handling due to high employee turnover.  When it comes to returns and the reverse logistics process, retailers and consumers may be mishandling returns containing hazardous materials unknowingly.  Web based technologies providing real time assessment, shipping, and handling instructions to the customer or retailer providing proper handling instructions will help mitigate these risks.

Many industries are looking to outsource returns management activities which are placing a higher demand for web-based solutions that will span multiple organizations across the supply chain, multiple time zones, and multiple work shifts to provide information on demand.  “Nearly 70% of telecom and utility companies currently outsource repair/refurbishment functions with 44% who rely on partners for asset recovery functions” (Norman, 2007, para. 19-20).

Integrated solutions will help organizations to adopt collaborative communications technologies that will drive decision-making processes and consistency throughout the supply chain.  Value can be extracted from reverse logistics processes by optimizing, tracking, and reconciliation inventory while providing decision-making support features.  Cloud computing is beginning to evolve within reverse logistics providing manufacturers, and logistics service providers delivering their goods, better control and visibility of returned or refused products with ease in a collaborative system.  These systems are designed to facilitate efficiency in collaboration and communication “complimenting SAP, Epicor, Infor, Unit 4, Microsoft Dynamics, and Warehouse/Transportation Management Systems” (Percepetant, 2010).  The cloud communicates internal data externally with more ease.  A partner in the supply chain is not faced with delays of their partner supplying reports, working with the data to integrate it into their systems, or manually analyzing those reports to capture the information they need.  This type of collaboration will maximize service levels as well as identify potential risks that would warrant product improvements or redesign.

To be continued …..

References

Amini, M., Retzlaffroberts, D., & Bienstock, C. (2005). Designing a reverse logistics operation for short cycle time repair services. International Journal of Production Economics, 96(3), 367-380. doi: 10.1016/j.ijpe.2004.05.010

Banks, R. (n.d.). Defining and improving reverse logistics. Retrieved from http://www.almc.army.mil/alog/issues/MayJun02/MS745.htm

Bilodeau, J. (2013, May 24). Reverse logistics vs. green logistics: Is there a difference? Reverse Logistics Talk. Retrieved May 26, 2013, from http://reverselogisticstalk.wordpress.com/

Burgess, W., & Stevens, C. (2010). Reducing environmental impact of returns. In Canadian Encyclopedia of Environmental Law. Retrieved June 17, 2013, from http://www.returntrax.com/site/ywd_returntrax/assets/pdf/RTX_Environmental_White_Paper.pdf

The business case for zero waste [PDF]. (2012, October 19). Detroit: General Motors News.

Carolina Supply Chain Services, Inc. (2006). A closed loop returns management system: Turning failures into profits [Brochure]. Winston-Salem, NC: Author.

Casotti, L., N., & Lindaman, J. (2004, Fall). Ford pinto case study. Retrieved May 26, 2013, from www.cofc.edu/~blocksonl/…/Ch.%2012%20-%20Ford%20Pinto.ppt

Creating the optimal supply chain. (n.d.). Boston Consulting Group. Retrieved June 27, 2013, from http://knowledge.wharton.upenn.edu/papers/download/BCGSupplyChainReport.pdf

Diener, D. (2004). Measuring the reverse logistics process. In Value recovery from the reverse logistics pipeline. Santa Monica: Rand.

Excel. (n.d.). Collaboration drives waste to zero [Brochure]. Author. Retrieved June 13, 2013, from http://www.exel.com/exel/exel_customer_successes.jsp?page=1

Field, J. M., & Sroufe, R. P. (2007). The use of recycled materials in manufacturing: Implications for the supply chain management and operations strategy. International Journal of Production Research, 45(18/19), 4439-4463. doi: 10.1080/00207540701440287 (EBSCO)

Foroohar, R. (2013, April 11). How ‘Made in the USA’ is Making a Comeback. Business Money How Made in the USA Is Making a Comeback Comments. Retrieved June 08, 2013, from http://business.time.com/2013/04/11/how-made-in-the-usa-is-making-a-comeback/

Greve, C., & Davis, J. (n.d.). Recovering lost profits by improving reverse logistics (Tech.). UPS.

Greve Davis. (n.d.). Future trends that will impact reclamation [Brochure]. Author. Retrieved June 8, 2013, from http://grevedavis.com/files/2010/09/Future%20Trends%20in%20Reverse%20Logistics%20Sept%202010.pdf

Iles, J. (n.d.). Re-thinking progress: The circular economy. TED-Ed. Retrieved June 01, 2013, from http://ed.ted.com/on/2Yy019iv

InformationWeek: The Business Value of Technology. (2001, December 10). Informationweek. Retrieved June 08, 2013, from http://www.informationweek.com/companies-reconsider-offshore-outsourcin/6508358

Konrad, T. (2012, October 01). New Trends in Reverse Logistics – Tim Konrad [Interview by B. Bowman]. Retrieved May 26, 2013, from http://www.youtube.com/watch?v=UQIXxrfd90w

Liu, F. (n.d.). Reverse logistics matters: Impact of resource commitment on reverse logistics and customer loyalty (Unpublished master’s thesis). University of Maastricht. Retrieved May 26, 2013, from http://arno.unimaas.nl/show.cgi?fid=11285

Login – Community – The Sims 3. (n.d.). Login – Community – The Sims 3. Retrieved June 26, 2013, from https://www.thesims3.com/webLogin.html?redirectTo=http://www.thesims3.com/registeragame.html&forceLoginMessage=login.force

Norman, L. (2007, May/June). Five Considerations for Evaluating Returns Software Solutions. Reverse Logistics Magazine -. Retrieved June 02, 2013, from http://www.rlmagazine.com/edition06p29.php

Reverse Logistics Today Blog. (2013, May 14). Reverse Logistics. Retrieved June 08, 2013, from http://www.blumberg-advisor.com/reverse-logistics-today/?Tag=Reverse%20Logistics

Roach-Patridge, A. (2011, June). Full circle: Reverse logistics keeps products green to the end. - Inbound Logistics. Retrieved June 15, 2013, from http://www.inboundlogistics.com/cms/article/full-circle-reverse-logistics-keeps-products-green-to-the-end/

Rogers, D. S., & Tibben-Lembke, R. S. (1999). Going backwards: Reverse logistics trends and practices. Reno, NV: University of Nevada, Reno, Center for Logistics Management.

Shaughnessy, L. (2012, May 22). Probe finds ‘flood’ of fake military parts from China in U.S. equipment. CNN Security Clearance RSS. Retrieved December 26, 2012, from http://security.blogs.cnn.com/2012/05/22/probe-finds-flood-of-fake-military-parts-from-china-in-u-s-equipment/

The Springville Museum Quilt Show. (n.d.). The Springville Museum Quilt Show. Retrieved May 26, 2013, from http://www.americaslibrary.gov/es/ut/es_ut_quilt_1.html

Weeks, K., Gao, H., Alidaeec, B., & Rana, D. S. (2010). An empirical study of impacts of production mix, product route efficiencies on operations performance and profitability: A reverse logistics approach. International Journal of Production Research, 48(4), 1087-1104. Retrieved May 29, 2013, from EBSCO.

World War II Rationing. (n.d.). World War II Rationing. Retrieved May 26, 2013, from http://www.u-s-history.com/pages/h1674.html

 

Improving Reverse Logistics

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Banks (2002) published an article in Army Logistician discussing the initial military applications of reverse logistics, defining the study of reverse logistics, and offers insight on where to improve operations.  This study can easily identify areas where commercial business can look to identify additional process improvements in managing returns.

The Department of the Army launched a Reverse Logistics Process Action Team (RLPAT) who was tasked with measuring velocity management (VM) and defining process methodologies for define, measure, and improve (DMI) initiatives.

The initial progress was compared to skeet shooting, constantly aiming at a moving target.  This was a fair assessment as the variables of reverse logistics are constantly changing whether it occurs through associated costs, environmental regulations, or consumer demand.   The military was primarily focused on reducing the time for requisition approvals, order wait times, and shipping time.  Reverse logistics is often overlooked because the savings are not necessarily visible.  United Parcel Service concurs with Banks in that “reverse logistics is one of the most overlooked elements of the complete operations cycle” (Greves, et al, u.d., p.2).

Military defined the beginning of the reverse logistics cycle at the point of property turn in, however it was more difficult to define where the reverse cycle ends.  There were many factors identified such as the Army reutilization program and maintenance.  The list could be expanded to include warrantee management and does not consider contractor furnished equipment paid for under government contract and the decisions to be made for the government to take possession of the equipment for disposition or have the contracting agency manage disposal.

Some of the challenges Banks discussed surrounded a data disconnect between various military inventory and financial databases.  It was specifically discussed that Unit Level Logistics (ULL), Standard Army Maintenance Systems (SAMS), and Standard Army Retail Supply Systems (SARS) do not communicate with each other.  There are also disconnects in data management between quartermaster, ordinance, and transportation.  The article Banks published provides insight into the necessity for a cohesive inventory control; system.  Another specific data inconsistency issue surrounds Total Asset Visibility (TAV) which tracks RFID items as it moves from point to point throughout the shipping process.  The item is also entered into the Logistics Support Activity data center (LOGSA) which does not use RFID tag numbers, but document ID numbers creating confusion when trying to access records.

Despite the difficulties associated with disconnected data, the RLPAT was able to improve predictability, reliability, and visibility in the supply chain.  The most significant improvement was the ability to plan for maintenance and rapier rather than react to an issue.  Shipment tracking was improved through the use of RFID technology, although logisticians were utilizing multiple data sources to track that item.  UPS also concurs that it is more cost effective to predict and control the return process.  “Knowing what is returned and where it ends up will make it easier for companies to deal with regulatory issues and evaluate returned stock for possible secondary sales channels” ( Greves, et al, u.d., p.5).  By strategically planning military returns, they ability to plan for maintenance and reissue to the unit, or plan to have the item enter the army reutilization program prior to final disposition.  It is important to recognize that multiple disconnected databases and information sharing may play a role to secure the supply chain in military operations, however, it would be an additional unnecessary cost in most commercial applications.

Looking to identify the hidden costs associated with reverse logistics will help quantify potential savings, identify opportunities to improve data collection, and manage that data.  The many different systems that challenge the Department of the Army in developing reverse logistics operations mirrors many of the issues commercial businesses face across the supply chain.  A commercial company many have control over integration of the supply chain within their organization, but the real challenge in returns management lies with the collaboration of managing those returns with customers and vendors outside their organization that may be utilizing different platforms.

In a recent conversation with Mr. Chi, a Director of Returns Management for Samsung, and Mr. Owens a Director of Sales, we discussed top challenges they face in returns management. Mr. Chi indicated Samsung had a 2.8% return ratio based on total sales which is extremely low for the industry.  Many of the significant problems they face are in two area.  The primary reason for return is the product does not meet customer expectations.  Samsung had identified that they need to educate retailers and have a more hands on approach to make sure the customer is buying the product they want.  Samsung entered into an agreement with Best Buy to have Samsung product specialists in their retail stores.  “Samsung sees the boutiques as an opportunity to educate shoppers about its products and sell some of its less-well-known gadgets,” one of the company’s marketing executives told The Wall Street Journal. And on Best Buy’s side, “the new departments are part of Chief Executive Hubert Joly’s effort to focus the stores on fast-selling products and strengthen relationships with key vendors.” (Maxfield, 2013).  Some feel this was decision made to develop a stronger retail presence to compete against Apple or Microsoft stores that have specialists on site to help consumers with product information or support.  Data automation could provide a significant platform for educating consumers at the point of sale by providing key pre-sales information to avoid the likelihood of return.  The second issue faced by Samsung was identified at the retail level where their customer is seeking credit for 100 returned units, but only 80 returned units arrive.  This is a sensitive area because the product is lost across the platforms.  Samsung’s challenge is to sell the return management process to the customer.  Mr. Chi discussed that the process for managing returns quickly and efficiently is in place, but is often not utilized outside their organization.  Collaboration and getting the “buy in” from their customers is a significant challenge.  Finding an automated solution to manage returns, expedite credits, and show the customer the hidden costs that they could be saving would positively impact and further reduce their returns percentage.

The conclusion of Banks study of military supply chain management systems became automated to bring instant savings by identifying overall financial savings of repair verses buy new, and encouraged the military to continue work to maximize logistics efforts.  As we can extrapolate from commercial business, the most significant challenge and opportunity to reduce return costs will come from consistent and streamlined data management.  Automating processes and will help maintain continuity in the decision making process throughout the supply chain.  It will take collaborate relationships and cooperation from supply chain partners to achieve optimal results.

References

 

Banks, R. (2002). Defining and improving reverse logistics. Army Logistician, 34(3), 3-5. Retrieved from http://search.proquest.com/docview/197283733?accountid=8289

Chi, and Owens. Personal interview. 27 Nov. 2013.

Greve, C., & Davis, J. (n.d.). Recovering lost profits by improving reverse logistics (Tech.). Retrieved April 3, 2013, from UPS website: http://www.ups.com/media/en/Reverse_Logistics_wp.pdf

Maxfield, John. “Will Best Buy’s Horrible Customer Service Sink Samsung?” Will Best Buy’s Horrible Customer Service Sink Samsung? Motley Fool, 6 Apr. 2013. Web. 29 Nov. 2013. <http://www.fool.com/investing/general/2013/04/06/will-best-buys-horrible-customer-service-sink-sams.aspx&gt;.

Reece, John, and Lee Norman. “The Six Hidden Costs of Reverse Logistics.” Inbound Logistics. N.p., Dec. 2006. Web. 29 Nov. 2013. <http://www.inboundlogistics.com/cms/article/the-six-hidden-costs-of-reverse-logistics/&gt;.

 

Relationship Management and Communications Mitigate Threats in the Supply Chain

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Countless gaps throughout the supply chain place consumers, businesses, and suppliers at risk. Will the development of cooperative relationships identifying and mitigating risk help enhance protection and response throughout the supply chain?

Threats to the supply chain are limitless because it is a moving target presenting unique, changing challenges to identify and mitigate risk.  Risks identified can involve theft, vandalism or tampering, counterfeiting, political unrest, drug related violence, corruption, terrorism, or natural disaster.  The more hands involved throughout the supply chain, from the movement of goods from raw material to the end consumer create a complex web impacting many stakeholders in the event of a loss.

While communications in the strategic planning and implementation process can develop a clear, concise recovery plan to bring an organization back to full operational status, it is just as critical to include the human element into any risk management and response plan to maintain morale, trust, and maintain critical relationships throughout the supply chain.  Overlooking the impact of a loss on employees create significant delays in the recovery process.           

 Financial Impacts 

After the collapse of Wall Street in 2005, the financial implications have forced manufacturers to focus on protecting the supply chain.  Lenders, insurers, and buyers are closely scrutinizing a manufacturers’ ability to deliver product on time ensuring the company has the financial ability to fulfill an order.  It is recommended practice to reassess the credit worthiness of suppliers and distributors to protect the liquidity of the organization, their ability to supply materials needed or pay the manufacturer on time.  Delays in payment, delivery of goods, or a company filing bankruptcy extend beyond the inability to fulfill customer orders.

Increasing demands are forcing businesses to manage a wide range of threats to the supply chain as part of their strategic planning initiatives.  With manufacturers fully adopting a “just-in-time” approach to reduce operating costs, increase working capital, and create a more efficient production processes, they have eliminated excess inventory.  Shipping and manufacturing delays could create significant loss.  Depending on the type of product, a company could face damage to the corporate brand, create a public health risk, or inflate costs of products.  Security initiatives muse be designed to protect customers, the public, and the corporate brand.

Under the United State Patriot’s Act, financial institutions are required to “Know Your Customer” in an effort to prevent money laundering and financial fraud that often funds terrorist activities.  Although not required by law, risk management professionals throughout the supply chain are not only encouraged to know their customer, but to know all of the entities domestically and internationally who handle a product throughout the supply chain.  Thomas (1995) reported that the fertilizer company that supplied chemicals to McVeigh and Nichols for the Oklahoma City bombing was forced to defend a class action liability suit.  Plaintiffs alleged the manufacturer had knowledge that the fertilizer sold was highly explosive and would cause significant damage if the product wound up in the hands of a bomb maker.  They also alleged the manufacturer was negligent in detecting and reporting an unusual purchase pattern (LENA R. GAINESTABB, et al., Plaintiffs, v. ICI EXPLOSIVES USA, INC., CIV-95-719-R, 1996).  McVeigh and Nichols used an alias to purchase one ton of the industrial fertilizer, followed by a second order of a ton eighteen days later.  Plaintiff’s alleged that the unusual purchase pattern should have been identified by the manufacturer and further investigated as part of their due diligence.  Although the manufacturer’s motion to dismiss the case was granted, the costs for legal defense in additional to the impact from publicity surrounding the case significantly damaged the company’s’ profitability.

Integrated software that manages the entire life cycle of a product from raw materials, distribution, defects in goods, determining profitability, as well as establishing transparency to assist in the detection of unusual activity or gaps in security.  Companies are focusing on full integration of all tracking technologies to improve their ability to detect and mitigate risk. “In perfect form, asset tracking and visibility technologies should be integrated into the Enterprise Resource Planning (ERP) systems that govern the enterprise so that supply chain professionals have control at each step rather than risk fragmented visibility due to isolated technologies in manufacturing, warehousing and inventory, and logistics and distribution” (Cuban, 2010).

Cyber Threats 

Nearly every aspect of the supply chain is interconnected through information systems tracking and monitoring goods throughout the life cycle.  Cyber Threats could cripple communications creating lost visibility, leaving goods vulnerable to theft or tampering.  A critical failure in the computer system could shut down a production line; compromise a consumer’s personal identifiable information including credit card numbers; divulge shipping times and locations; or to compromise or steal intellectual property such as product plans.    “Supply management organizations also need to understand and gain assurances from suppliers as to how they secure the data the organization is sharing with them.” (Cohen, 2012).

Written policies are critical, and it is not unusual to develop contracts or agreements that would limit the liability of an organization sharing information with a supplier or vendor.  It is difficult to assess the potential damage from a cyber-threat or to identify critical areas to enhance security without a cooperative effort.  Relying of professional relationships with business partners, industry experts, and government agencies an organization can identify areas of concern or industry trends.  By developing relationships with government, and industry professionals whose focus is protecting against cyber-crimes, a company can take immediate action to reduce the cost of recovery.  Professional organizations have the resources to conduct intensive proactive threat assessments using tools and methods designed for predictive analysis.  Manufacturers and suppliers focused on their primary business objective of developing or shipping goods and materials can not be expected to bear the full expense of complex and ever changing threats in communications.

It is critical to protect consumers’ personal information as class action suits quickly surface due to the heightened awareness and public concern over identity theft.  Zappos, an on-line subsidiary of Amazon, suffered a data breach where hackers obtained over 24 million user names, addresses, emails, passwords, and credit card information.  The company is applauded for quick response sending out emails to customers notifying them of the breach, but admonished for denying access to the company’s website for locations outside the United States and closing down customer service phone lines.  Zappos has a well-defined risk management plan, having worked with Information Technology security organizations.  The company had critical credit card and payment data was housed on a separate server not affected by the breach.  Passwords obtained were encrypted and only the four digits of the credit card number used with Zappos fell into unknown hands.  “Consumers are more likely to unknowingly give away their sensitive personal information to ‘phishing and pharming’ thieves who specialize in constructing websites and emails that mirror the brand they are spoofing” (Roman, 2012).  Despite the apparent minimal effects of the loss, a class action suit was filed by one individual on behalf of all 24 million customers incurring potentially negative publicity and defense costs.  Communications with customers will be critical in the recovery effort to regain consumer confidence and weather the long term effects of the loss.

Encouraging Clear Communications 

Integration of technology assists in quantifying risk, however, it is critical to maintain a presence and develop strong relationships across the supply chain to solidify the commitment to mitigating risk.  Relationship management will function as a deterrent to extortion or bribery.  “In some parts of the world, the payment of bribes is so common that everyday cash transactions are considered routine” (Anderson, 2011).

Development, training, and constant communication with individuals throughout the supply chain will help develop good working relationships, as well as providing opportunities for collaboration.  With the nature of threats, especially in volatile regions, changing frequently the employees who interact with others throughout the supply chain will be the first line defense to identify and report potential risk or unusual behavior with a supplier, vendor, customer, or shipper.  As a minimum, annual training is critical to help employees handling the supply chain be aware of their surroundings, identify risk, and learn appropriate response.  A good communication plan is the cornerstone for protecting a constantly moving, changing supply chain.

Ongoing rivalries between part time service men and women and full time enlisted soldiers have presented problems assessing, managing, and identifying equipment for proactive maintenance, replacement, or repair in the National Guard supply chain.  Guardsmen were often instructed incorrectly how to report inventory based on the fear that supporting divisions throughout the Department of Defense are looking for supply information to take their equipment away and give it to a full time unit.  This promulgates the problem of obtaining accurate supply information making it very difficult to strategically plan and budget for equipment needs and upgrades.  Initiatives have taken place around the country with the implementation of National Guard liaison officers who are the intermediaries working to bridge the gap of communications to overcome this undesirable division.  This rivalry was the catalyst that left an opening for corruption from within the military.  A full time individual responsible for ordering specialized military grade replacement parts consistently declined supply requests from the National Guard units based on discrepancies in the quantities listed in supply logs.  The acquisition specialist, because of his personal bias, did not investigate or ask why the parts were needed to clarify the discrepancies.  An investigation uncovered that complaints of part time soldiers looking for solutions to repair and reset equipment, opened an opportunity for individual(s) at a repair depot to commit a heinous act of financial fraud.  The significant financial impact throughout the supply chain, filtered throughout the entire National Guard, affected enlisted soldiers, civilians, and private industry across all fifty states.  Handouts were provided to National Guard units by the repair depot encouraging guardsmen to send equipment for reset and repair at that location including with an added enticement “no paperwork required and no cost to your unit”.  The depot repaired the equipment with substandard, counterfeit, and refurbished parts while the individual(s) charged the National Guard Bureau direct for the cost of new components.  It was alleged that the individual managing the money on behalf of the depot was pocketing the difference of nearly $100,000 per piece of equipment repaired.  Once the counterfeit parts were detected, the investigating team spoke to the manufacturer learning they retired the component ending the lifecycle due to the lack of demand.  The costs associated with bringing the product back on line, recalling personnel who had been laid off, as well as expediting the supply of raw materials, and costs associated with running a 24 hour 7 day a week production to quickly mitigate the threat illustrates the depth of additional financial losses for individuals, organizations, and the taxpayers.  The Department of Justice re-assigned the investigation prepare their case for prosecution, however, mistrust already festered throughout the guard because had they been deployed with the substandard and faulty equipment, they could have suffered catastrophic loss of life.  LTC Avery Leider, a National Guard Bureau liaison stated “My team identified the gaps in training for supply chain management throughout the National Guard, therefore we worked with subject matter experts to design a comprehensive training agenda for key personnel from existing on-line training modules.”  LTC Leider as was pleased that the Department of the Army approved the  implementation of a mentor-ship program between full time and part time personnel with on-site visits to assist part time personnel identify proper procedure and detect unusual activities” (2012).  The primary focus in the aftermath of corruption in the supply chain is to bridge relationships and trust between full time and part time soldiers.

Benefits of developing clear communication methods with key stakeholders throughout the supply chain will assist in identifying new and emerging risks while solidifying the commitment to protect the supply chain.  Ryder Trucking took the lead hosting annual cross border security conferences demonstrating a strong commitment to employees, customers, and vendors to control emerging threats.  Ryder’s centralized risk management department coordinates annual conferences that bring together government representatives from Homeland Security, Customs and Border, and law enforcement with key stakeholders throughout the supply chain.  The conferences serve to strengthen relationships, facilitate communications and feedback from local management to identify and evaluate emerging risks in their region.  “While corporate security has a role of establishing policy and guidelines to minimize confusion across all location, local management is implementing the security strategies, measuring their success, and the first to identify potential gaps” (Anderson, 2011).

When identifying risks and developing procedures to mitigate those risks it is important to send a continuous message throughout the supply chain that sets the expectations for key stakeholders to actively participate in securing the supply chain.  Some of the strategies successfully used have been establishing a clear timeline of security activities, holding meetings, developing web based tools to house documents, creating a knowledge library, and facilitate ongoing discussions have been successful developing a conscientious commitment to security on a day to day basis adding a layer of protection to the supply chain.   Day to day strategies keeping the lines of communication open should not take the place of physical on-site inspections to ensure that the proper safeguards are being implemented and contractual obligations are being met.  It is not unusual for foreign agents to have their own representatives on the docks to ensure control measures are in place to protect the shipment.  Developing a clear communication plan that coincides with ongoing training initiatives will encourage and empower employees to keep a watchful eye and properly report suspicious activity.

Discouraging Illegal Activity 

Undocumented workers for the most part do not present a threat of terrorism, but provide opportunity to those who would commit an act of terrorism.   Illegal immigrants create a demand for the underground production of false documentation and identities that terrorists could take advantage of.   Undocumented workers are typically living at a level of poverty that a terrorist could exploit.  A cash payment could be offered to the undocumented worker to tamper with the supply chain without them understanding the impact of what they are doing.  For example animals intended for human consumption could compromise public health if a vial of chemicals or bio-toxins entered the feed or water supply.  “Illegal immigrants across U.S. borders makes it difficult to identify and stop dangerous people and contributes to an infrastructure designed to weaken the integrity of U.S. borders” (Customs and Border Patrol, 2009).  By developing relationships with professional organizations and vendors and selecting those with similar values and levels of commitment to properly documenting workers will limit the overall risk of throughout the supply chain by eliminating the demand for false identification, and the potential for worker extortion or corruption.

Post-Loss Communications 

In the event of a loss, most organizations are focused on continuing operations and often forget about human assets that may have suffered psychological effects.  It is relatively simple to implement recovery strategies by following processes and procedures that have been identified in the risk management process, but it is more difficult to identify employee’s needs in advance.   The needs of the employee will vary depending on the type of loss.  Acts of terrorism or other man-made losses will have a different impact than a natural disaster.

Positive employee attitudes result in high performance, quality, and productivity with a low absenteeism rate.  After September 11, 2001 employees reprioritized their lives focusing more on family.  Some employees were afraid to return to live and work in Manhattan, relocating or finding positions in surrounding states.   Reade (2009) discusses a survey conducted in the months following September 11 reporting employees felt disconnected after the disaster and was looking for a way to become reconnected.  The survey also indicated they could not find the connection at work and sought it through family and friends.  The effect on personnel hindered companies during the recovery process as a result of increases in leave taking, absenteeism, and job separation.  Other employees were angry with supervisors and the organizations as a result of what was perceived as false communications prior to the terrorist attack.  Employees commented that their employers had communicated their commitment to their employees, provided security communications, and created a culture that their well-being mattered.  After the attacks, employees believed the organizations did not care about their well-being because they failed to communicate changes in security measures, offer assistance, or help them as they struggled to refocus on their work.  Employees felt they were no longer trusted or valued during organizational changes which created additional stress, anxiety, and depression.

Consistency and follow through on previous communications is critical to the recovery process.  Companies often go to lengths educating employees on company brand and commitment to them before they are hired.  Organizations often have elaborate orientation programs to integrate employees into the workforce and quickly transition new staff into a productive routine. In the aftermath of an event, a break in communication or failure to demonstrate the commitment creates animosity towards the organization.  Companies rely of the experience and expertise of staff and partners to perform the work required to resume operational capabilities.  As part of the risk management and recovery plan in the supply chain, it is just as critical to demonstrate that the organization values the well-being of their employees.  A company should consider flexibility on treating the employees, allowing them to reconnect with their jobs after an event.  By communicating and implementing a basic framework allowing for employee assistance is a critical step in the organization’s recovery process.   Some successful programs have included establishing donation systems, offering counseling, or working with partners to assist those who may have suffered catastrophic loss.  The benefits from consistent communications and implementation of emotional well-being programs have developed employee and business partner loyalty which hastens the recovery and encourages commitment in the prevention of incidents.

In the aftermath of the shooting at Fort Hood, soldiers felt betrayed by one of their own and feeling of resentment and mistrust started to fester.  It affected many that saw battle within a secure military installation as they watched armed soldiers running down the streets, snipers taking positions, and SWAT teams taking position across the installation, including armed guards at the daycare center.  Civilian families and workers not directly involved suffered a psychological stress hearing a loudspeaker every ten minutes instructing people to go inside and lock the doors.  Within hours, the lockdown was lifted followed by a day of mourning allowing the organization and community to come together and reconnect.  Operations fully resumed the following business day.  Ongoing consideration and support was provided to victims, their families, and the affected community at Fort Hood.  Continued communications not only at Fort Hood, but across all branches of service, included active shooter designed to instruct civilian employees on what to do in the event of a crisis as well as empowering them with confidence working to eliminate fears.   Additional training was provided to identify potential threats with clear instructions on what constitutes suspicious behavior, and how to report a person confidentially for further investigation.  By providing the training, it eliminated misconceptions about terrorist activity and allowed staff to understand differences from radical behavior that should be of concern.  Similar training was conducted for suicide watch and other threats to maintain cohesiveness and develop an expectation that civilians and soldiers alike should look out after each other.

The psychological services, assistance, and training provided to the families, soldiers, and employees directly and indirectly affected by the shooting communicated a consistent message of caring which minimized negative attitudes and helping others cope with natural feelings of betrayal.  The consistent communications in response to the event mitigated new risks of discrimination and suspicious of others in the military preserving the unified culture.

Conclusion 

The supply chain is a very complex web of tangible and intangible goods and services that are inter-dependent upon each other.  It is impossible to independently close the countless gaps throughout the supply chain that place consumers, businesses, and suppliers at risk. It is impossible for one organization to be in a position to identify, mitigate, and respond to every possible threat scenario that affects the supply chain making it critical to develop cooperative relationships to secure operations.

The impacts of a loss can be devastating and long reaching with limitless possibility not only threatening economic stability, but of catastrophic loss of life.   Relationship management will help proactively identify risks, develop strategies to eliminate the threat or reduce its impact, as well as managing the recovery process by identifying clear communication channels throughout the supply chain.

Consistent communications throughout the entire supply chain is critical.   Communications begin with the establishment of the relationship to train and encourage stakeholders to identify and report risks.  Throughout the lifetime of the relationship consistent communication is used to encourage collaboration in developing strategic plans to mitigate threats. During recovery and responding to an event, the consistent communications need to be demonstrated by actions while resuming business continuity and encouraging all stakeholders to unify and recommit to the prevention and mitigation of future risks.

REFERENCES

8 ways to… Reduce supply chain risk. (2011, February 15). CIMA Financial Management Magazine. Retrieved April 28, 2012, from http://www.fm-magazine.com/feature/list/8-ways-reduce-supply-chain-risk

Ahern, J. P. (2009). Secure borders, safe travel, legal trade U. S. Customs and Border Protection fiscal year 2009–2014 strategic plan (United States, Customs and Border Protection, Office of Policy and Planning). Washington.

Anderson, B. (2011). Supply chain security innovations to adapt to emerging threats. Leadership and Management, 48(6), 28,30. Retrieved April 18, 2012, from http://search.proquest.com.ezproxy2.apus.edu/docview/872199237/fulltextPDF/1362D3A5456527B35ED/1?accountid=8289

Closs, D., Speier, C., Whipple, J., & Voss, D. (2008). A framework for protecting your supply chain. Logistics Management, 47(9). doi: 197209740 Proquest

Cohen, M. (n.d.). The best offense is a good defense. Inside Supply Management, 23(2), 14. Retrieved April 28, 2012, from http://www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=22240

Cuban, N. (2010). The dot on the map: The symbol for supply chain intelligence from beginning to end. Cargo Security International Magazine. Retrieved April 22, 2012, from http://www.onasset.com/Data/Sites/1/documents/whitepapers/Article%20on%20Cargo%20Security-InfraTrac.pdf

Enslow, B. (n.d.). Risky Business: Tackling the Rising Supply Chain Risk Threat. MMC.com. Retrieved April 23, 2012, from http://www.mmc.com/knowledgecenter/viewpoint/Tackling_the_Rising_Supply_Risk_Threat.php

Higgins, J. K. (2012, April 3). Federal agencies struggle with protecting IT supply chain. Technology News: Government:. Retrieved April 27, 2012, from http://www.technewsworld.com/rsstory/74768.html

LENA R. GAINES-TABB, et al., Plaintiffs, v. ICI EXPLOSIVES USA, INC., a Delaware corporation; IMPERIAL CHEMICAL INDUSTRIES, PLC, a foreign corporation; ICI CANADA INC., a foreign corporation; DOE CORPORATIONS 1 THROUGH 99; DOE COMPANIES 1 THROUGH 99; JOHN DOES 1 THROUGH 99, and JANE DOES 1 THROUGH 99, Defendants., CIV-95-719-R (UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA July 2, 1996).

Mitigating next generation cyber threats with open source threat monitoring [White Paper - Booz Allen]. (2011). Abu Dhabi, United Arab Emirates.

National Guard Bureau Investigations [Telephone interview]. (2012, April 20).

Roman, J. (2012, January 19). Zappos Sued Over Data Breach. Retrieved April 29, 2012, from http://www.bankinfosecurity.com/articles.php?art_id=4422

Supply chain fraud managing the risks dealing with the fallout. (2011). Retrieved April 20, 2012, from http://www.fraudconference.com/uploadedFiles/Fraud_Conference/Content/Course-Materials/presentations/22nd/ppt/11K_van_Drunen.pdf KPMG International Companies

Thomas, J. (1995, November 2). Lawsuit files in bombing now includes 384 plaintiffs. The New York Times. Retrieved April 24, 2012, from http://www.nytimes.com/keyword/ammonium-nitrate

Walsh, S. (2009, November 6). US house marks tragedy. Austin American Statesman, p. A7.

Direct and Indirect Impacts of E-Waste

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Electronic waste (e-waste) has been a rapidly growing problem as many of the components in electronics contain toxic substances that can harm the environment and pose significant health threats on the population.  New Jersey implemented e-waste legislation signed into law January of 2009 (Lawson, u.d., p.3).  It was found that 2% of the municipal solid stream waste was due to growing e-waste in our communities.  The significant concern pertained to groundwater contamination from lead, mercury, cadmium, and brominated flame retardants (Lawson, u.d., p.2).  It was also recognized that many manufacturers taking back obsolete or broken electronic equipment was shipping e-waste to impoverished countries where the infrastructure to safely manage the waste was non-existent and creating global health concerns.

The dumping of e-waste in developing countries was often considered the “green passport” because it offered economical and convenient means for manufacturers to manage returns and obsolete electronic goods (Pinto, 2008, para. 4-5).  The laws implemented required manufacturers of consumer electronic devices to register with the state paying an annual $5,000 fee and “submit a plan to the State Department of Environmental Protection to collect, transport, and recycle covered electronic devices based on its return share in weight” in June 2010 (Lawson, u.d., p 4).  On the manufacturing end, if a manufacturer recycles in excess of their share of weight, they are permitted to sell their excess credits.

Profits In Reverse Logistics highlights the current recapture of precious metals from e-waste that was once lost to overseas dumping.  “Consumer Electronic device manufacturers use 320 tons of gold and more than 7,500 tons of silver every year to meet consumer demands for iPads, Galaxy Tabs, notebooks, PC’s, smartphones, and other devices” (Burger, 2012).

By January 2011, all approved plans were implemented and consumers were no longer allowed to dump e-waste but required to handle e-waste separately.  Some communities offer an annual e-waste collection week at the curb, while others require residents to transport their e-waste to a recycling facility.  Regardless, the state does not require fees for consumers to encourage compliance.

The immediate direct impact locally is the reduction of landfill waste, and the protection of harmful substances entering the water table.  When e-waste is shipped overseas without the infrastructure to safely manage, the environmental and health risks are increased significantly in that region as these countries often landfill or incinerate e-waste creating persistent bio-cumulative toxins (Dittke, u.d. p. 8).  The toxins are dangerous because they linger in the environment and accumulate in living tissues impacting not only human health, but the food and water supplies.  As the concentration of toxins build up and increase as it enters the food chain, especially in fish, contributing to an increase of cancer, nerve damage, and reproductive disorders in the region (Pinto, 2008, para 19-22). By restricting manufacturers from sending e-waste overseas, it is directly improving environmental conditions and reducing health concerns of people in developing countries.

“The United State Environmental Protection Agency reported that in 2005, 2.63 million tons of e-waste was generated increasing at a rate from 8% the previous year” (Renckens, 2008, p. 286).  Only 12.5% or 330,00 tons had been recovered through recycling  Manufacturers are finding added benefits to deconstructing electronic goods to keep precious metals and raw materials in the United States for reuse in new products.  “The United States alone generates 249.9 million tons of municipal solid waste each year with 25% being plastics” (Kanellos, 2012).

A thermal process has been developed for plastic in an oxygen deprived environment that depolymerizes plastic into synthetic crude oil.  What is beneficial is that any grade plastic can be used and does not need to be separated.  Waste from the process is used to produce energy, liquids are treated, and solid residue is made available for commercial use.  “Roughly 8.5 pounds of plastic can generate a gallon of crude oil” (Kanellos, 2012).  Approximately 5.6 barrels of crude oil would be processed from every ton of plastics at a price point of $40 a barrel dramatically impacting operating costs associated with highway construction vehicles and equipment.

Consider the indirect impacts as a result of new innovations both on local, regional, and global scales aside from the.  The cost of fuel impacting the larger supply chain transport costs will slow inflation, if not reduce costs of manufacturing and transporting of goods.  By harvesting plastics, and waste from landfills, there will be a slower rate at which we fill precious landfill space as well as lowering disposition costs.  The cost savings using recycled materials will impact procurement activities.  By purchasing recycled materials rather than harvesting raw materials, a manufacturer could feasible find all materials within a smaller region reducing transport costs.  As the demand is lowered for raw materials, the price point will begin to fall.

When the thought pattern of waste management transitions to a resource management approach to identify and benefit from reducing underlying expenses that filter throughout the entire organization.

References

Burger, Andrew. “Urban Mining: Billions in Precious Metals Discarded in Landfills.”Triple Pundit RSS. N.p., 9 July 2012. Web. 28 Sept. 2013

Dittke, S. (n.d.). The health and environmental impacts of e-waste. Retrieved July 13, 2013, from http://inece.org/ewaste/01_dittke.pdf

Kanellos, M. (2012, March 15). A New Player In Oil: The Garbage Dump. Forbes. Retrieved July 13, 2013, from http://www.forbes.com/sites/michaelkanellos/2012/03/15/a-new-player-in-oil-the-garbage-dump/2/

Lawson, D. (n.d.). New Jersey’s electronic waste recycling program. Retrieved July 13, 2013, from http://www.state.nj.us/dep/dshw/ewaste/ewastepowerpoint.ppt

Pinto, V. N. (2008, August 12). E-waste hazard: The impending challenge. US National Library of Medicine – National Institute of Health. Retrieved July 13, 2013, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2796756/  EBSCO

Renckens, S. (2008). Yes, we will! Voluntarism in US e-waste governance. Review Of European Community & International Environmental Law, 17(2), 286-299. doi: 10.1111 EBSCO

Planning and Communications Decreases Expenses, Increases Profitability and Develops New Markets with Reverse Logistics Strategies

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Reverse Logistics is not a new field, but is under-utilized by smaller and mid-size businesses.  Businesses are not prepared to invest in the expertise and planning to establish a policy to reduce, return, and recycle unless the action is mandated by a government agency.  Businesses are missing opportunities to efficiency, productivity, while avoiding costs or reducing expenses.  While reverse logistics costs typically represent 5% of the total logistics expenses, companies are not seeing the benefits or the profitability of the entire organization.  “After companies have downsized, reengineered, TQMed, ratcheted up customer service, and wrung out every conceivable cost efficiency it [reverse logistics] may well be the last frontiers business can conquer” (Meyers, 1999, p.27).

While third party logistics firms can be utilized throughout the supply chain to outsource some of the functions, many opportunities are lost to maximize recaptured value.  Companies can increase the benefits of handling returns by developing a plan early and monitoring progress, while working with vendors to set expectations, performance goals, and open the lines of communication to maximize and expedite efficiencies.

The most significant issue faced across all industries is a lack of communication and information sharing between key stakeholders.  In a manufacturing environment, gathering information from various sources about returns, warrantee repairs, and managing the dissemination of that information could dramatically reduce the number of future service calls and returns.  “To collect service information and relay that to product design and engineering to make better sourcing and design decisions to further reduce costs, basically establishing a reverse logistics network that supports life cycle design” (Supply Chain Management Review, 2011)

Product Recycling and Reuse

 

The development of a product recycling and reuse plan is becoming more critical as the costs of landfill and disposition of product skyrockets.  Third party transport companies have been making efforts to capitalize in reverse logistics through added value services.  Sales executive Grace Maher, of Nolan Transportation shared that freight forwarding account managers have just started setting themselves apart by offering forward and reverse transportation contracts over the past year.  They are able to haul returns for a fraction of the cost by picking up returns at the point of delivery.  This helps Nolan defray costs on moving empty trucks or cargo containers and provides an added benefit to their customer.  Lerol (2012) recognized that third party logistics providers have recognized the value they can add and business they can develop but they are not taking full advantage of their position because they are providing transport for returns, but not maximizing their ability to maximize end of life activities which include reuse, recycling, and data destruction.

In the financial services industry, they are struggling to reduce procurement costs and increase profitability.  One key executive interviewed from a global financial services company is facing challenges in the disposition of obsolete electronic equipment.  In the financial sector, Blackberry’s and laptop computers are replaced every two years.   A proposed bill called “Electronics Responsible Recycling Act” has been sent committee review in an effort to improve e-waste legislation.  Although many vendors offer to remove obsolete equipment, they are not recapturing any value and a risk is opened because of regulations pertaining to the safeguarding of electronic data.  The company is paying significant fees to various third parties who specialize in the sanitization and destruction of hard drives.  Manufacturers and retailers are missing out on this opportunity to bring added value by offering limited destruction services, if any.  Lerhol also discusses this bill and reflects that “e-cycling is being discussed in boardrooms across the United States” (2012).

There will come a time that handling waste responsibly is no longer an option.  Many regulations have been implemented to start changing the way we do business.  This trend will continue.  “Germany currently holds the producer responsible for end of life destruction of products and the United States and Europe have proposed similar legislation” (Rogers, Tibben-Lembke, 1998, p.1002).  It is critical to be prepared for these changes in the way we handle end of life products by developing strategies to manage returns.  Many companies are voluntarily entering into a Zero Waste policy which eliminates landfill waste.  The Department of Environmental Protection publishes “the zero waste philosophy aims to minimize waste and resource consumption in order to conserve energy, mitigate climate change, reduce water usage, prevent toxins creation, and minimize ecosystem destruction.”  General Motors demonstrates voluntary action by making changes in both materials and production in their paint shop.  These changes allowed for the reuse of recycled wastewater treatment sludge that had been previously sent to landfills.  Other initiatives GM took on was reutilizing cardboard from packaging as padding for acoustics in a vehicle, selling of scrap metal, and increasing the use of landfill gas to power their plants.  Innovative thinking and commitment to seeking new ways to reduce waste throughout an organization is quickly becoming the standard across all industries.

The Impact of European Directives

 

The European Directive focuses on sustainability throughout the European Union with waste management.  One of the challenges the United States faces exporting goods specifically deals with packaging laws.  The European Packaging and Packaging Waste Directive require a manufacturer that sells products in Europe to recover any secondary packaging.

Secondary packaging is rather complex and includes any packing materials other than the actual container holding the primary product.  Secondary packaging includes any foam or cardboard packaging materials used to protect the goods, plastic bags containing small parts or directions, any wrapping used to package products on shipping pallets. A manufacturer looking to do business in Europe can either create and internal returns program themselves or they can pay a licensing fee to enter the Green Dot program to accept the return of these items.  One of the most significant problems businesses face in exporting goods as reported by the United States International Trade Commission, is the cost and lack of financing available to comply with foreign laws and regulations.  One of the most cost effective solutions is to develop a relationship with a partner to conduct and coordinate export activities and managing the mandated returns program.

Another export challenge is managing the return of reusable shipping containers.  Smaller businesses are crippled limiting their exports because of transportation costs that could be avoided if a well-constructed reverse logistics plan could be implemented for the proper return of shipping containers.  “Subject matter experts noted that containers are often bottlenecked on the East Coast, and must be repositioned to West Coast ports for use in exports” (US International Trade Commission, 2010, P. 17).  An exporter can either invest in purchasing shipping containers which would beneficial for consistent point to point shipments, or they can lease cargo containers for one-way use.

What causes the trade imbalance in the return of containers?  Le Dam Hahn (2003) concluded that shippers are often placed in a position to accept returned containers by contractual obligation whether they are filled or not.  “It is evident that carriers’ interests have given more strategic consideration to the logistics of forward-flow (loaded containers) than to the reverse movement of empty containers” (Le Dam Hahn, 2003, p.12).  The imbalance in transport containers at shipping ports is based on the costs associated with the return of empty shipping containers.  The best solution presented in this study is for the manufacturer to create ongoing relationships with local shippers in the country they are exporting to.  By planning the movement of goods and services, freight forwarders could coordinate more cost effective solutions for managing the containers.  It may be in the freight forwarders best interest to absorb some of the cost the manufacturer may bear to transport the goods from their facility to the shipper if there are empty containers in another nearby port.  Carriers are willing to interchange or lease equipment to other parties, often at no cost, if the delivery destination is a place with a shortage.  Shippers are hesitant to enter into agreements of use of shipping containers for fear of opening up liability risks on the goods transported as well as a fear that the shipping containers will not available for their customers causing them to lose the business.  The savings achieved by avoiding the movement of empty containers are minimal compared to the lost revenue.  The factors not considered by Le Dam Hahn’s research are the intangible savings and opportunities to create new business development.

Financial and Marketing Advantages

 

Forward logistics keeps the economy moving with the production and distribution of goods and services.  Very few companies have begun to tap the true potentials in creating a substantial return on their investment by maximizing opportunities and benefits through transparency.

With the downturn of the economy, many families are increasing use of secondary markets.  By negotiating sales price and identifying preferred methods of disposition, a manufacturer is afforded the opportunity to select the most profitable options.  Third party liquidators can often broker deals for fee typically recovering between 20-25% of the estimated values.  If a retailer owns and operates their own secondary market through a discount store, that value increases typically up to 50%.

New charitable giving programs are becoming popular because the tax write offs are significant, and the additional benefits associated with developing good will campaigns are significant through cross marketing initiatives.  By donating surplus merchandise to a non-profit, 100% disposition, shipping, and manufacture costs in addition to 50% of the estimated retail value is a deductible.  There are some limitations to the tax rule as there are caps on the limits that can be claimed based on the manufacturers total revenue.  This is just one tool to maximize recaptured value.

Communications and transparency across an organization by coordinating marketing efforts is critical to the success of developing customer loyal, new business opportunity, and brand recognition through cross-venture advertising.

In countless personal discussions, public appearances, and lectures, Kerry Brietbart, co-founder of North American Power, states he firmly believes the success of his company is the transparency of the organization, a consistent branding message, and by actively engaging customers in the charitable giving program.  The company sells renewable energy and natural gas in the retail markets.  When dealing with an intangible product such as a utility service, it was initially difficult to gain ground in the marketplace because consumers did not see the value in saving a few pennies off their utility bill.  There were countless stories from the sales field who were talking with residential utility consumers and they did not care about saving a few dollars on their bill, reducing dependencies on oil, creating jobs, nor doing the right thing for the environment.  They seemed to be exhausted from “green marketing” and had already tuned out from the message.  The company took a philanthropic turn launching Missions to Millions in April 2011 partnering with well-known global charitable organizations and actively engaging customers in making a difference through the customer referral program.

When a customer decides to switch utility service to clean energy, they are actively engaged in making a difference in the world around them sending a very clear message of social responsibility.  The customer is walked through a process and asked to select a charity where $1 of that bill will be donated.  A customer can also add their own favorite charity such as a church, local animal shelter or food bank to the giving program. Each customer is encouraged to share the giving with their friends and family to help raise money for the charity of their choice and company provides free websites and tools to help them spread the word.  Additionally, the program gives a thank you check each and every month as long as the person remains a customer for their referrals.  Mr. Breitbart believes that the consistent message of giving is attracting positive recognition globally.

To create a successful green marketing plan and maximize the value to develop new business opportunities and customer loyalty, indirect marketing strategies are necessary.  Telling a story of how the company has made a difference and finding unique ways to actively engage and solicit customer loyalty through the program is more powerful.  “This is empowerment and it lies at the heart of green marketing” (Ottoman, 2011, P. 110).  If the communication and actions of the company does not make the consumer feel as if they are making a difference by purchasing a green product, they wouldn’t but it in the first place.

Consumers are tired of seeing “green marketing” because it has been misused.  Good will and charitable contributions in advertising solely designed to create a sense of social responsibility with bare minimal impact will no longer work.  Too many lawsuits have arisen and consumers are wise about package labeling that make specific claims.  The most impactful marketing campaigns are indirect and through cooperative effort showing the outcomes, rather than the intents.  “Consumers want to see green themes in marketing messages in addition to traditional promises associated with a better life” (Ottoman, 2011, P. 108).

Conclusion

 

The practice and implementation of reverse logistics goes far beyond a manufacturer’s responsibility.  This is a new way to create a more efficient, less costly, and socially responsible organization.  Manufacturers can not be expected to comply with every law governing every industry, such as data protection within the financial sector, but they can work with industry leaders to develop a plan to meet the customer’s needs.  This is why we must strive to constantly improve communications throughout the supply chain both forward and reverse as a holistic approach to business.

There are countless areas where a business can implement strategies to reduce waste, while increasing efficiencies and it should be an ever-evolving process improvement to be continually measured and analyzed.  As we improve and implement strategies to reduce waste, reuse or recycle goods, we can develop critical relationships to unearth new opportunities for cost saving measures, improved efficiencies, and potentially developing new business opportunities or sharing risk.

References

 

Breitbart, Kerry. “North American Power Conference” 5 Feb. 2012.

“European Commission.” - Environment. Web. 22 Feb. 2012. <http://ec.europa.eu/environment/waste/packaging_index.htm&gt;.

“Green Dot & Packaging Waste Directive Compliance in Europe.” Global Medical Device Regulatory and QA Consulting. Web. 22 Feb. 2012. <http://www.emergogroup.com/resources/articles/packaging-waste-directive-compliance-europe&gt;.

Le Dam Hahn, P.I. “The Logistics of Empty Cargo Containers in the Southern California Region.” Metarans. Mar. 2003. Web. 23 Feb. 2012. <http://www.metrans.org/research/final/01-05_Final.pdf&gt;.

Lerohl, John. “Ethical Electronics Recycling – a Key Piece of the Reverse Logistics Industry.” Reverse Logistics Magazine Jan. 2012: 12-14. Web. 18 Feb. 2012. <http://viewer.zmags.com/publication/4eb9daec#/4eb9daec/14&gt;.

Maher, Grace. “Grace Maher.” Personal interview. 27 Jan. 2012.

Meyer, Harvey. “Many Happy Returns.” Journal of Business Strategy 20.4 (1999): 27-31. Web. 15 Feb. 2012. <http://search.proquest.com/docview/202721948?accountid=8289&gt;.

Ottoman, J. Amazon Books. San Francisco: Berret-Koehler, 2011. The New Rules of Green Marketing Book: Strategies, Tools, and Inspiration for Sustainable Branding. Web. 23 Feb. 2012. <http://www.greenmarketing.com/our-book/&gt;.

United States. International Trade Commission. By Deanne T. Okun, Charlotte R. Lane, Daniel R. Pearson, Shara L. Aranoff, Irving A. Williamson, and Dean A. Pinkert. July 2010. Web. 22 Feb. 2012. <http://www.usitc.gov/publications/332/pub4169.pdf&gt;.

Clear Procedures, Strategic Communication, and Consistent Decision Making Lead to Success in Returns Management Programs

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The landscape of business is changing from a micro-managed, proprietary organization to one that is more collaborative, transparent, and relationship oriented.  Some of the changes in the landscape of business management has been to create collaborate work environments and benchmark performance based on the individual contributions and goals achieved rather than measuring those employees against each other.  Businesses are moving towards a more collaborative environment sharing information to improve their profitability and efficiency across the entire supply chain with business partners, customers, distributors, and other key stakeholders.

Sales professionals have been working in an advisory capacity using leveraging relationships to increase revenues.  Companies are developing relationships with their employees, striving to increase productivity in the workplace.  Employers have implemented flexible hours, relaxed the social media police, and have provided opportunities for employees to own their job allowing creativity rather than micro-management.  “In your organization, you’re better off giving employees challenging assignments and standing back than managing them like assembly-line workers” (Ryan, 2010).  In a reverse logistics program, the collaborative environment encouraging creativity and dedication will lead to success.  Employees need to feel trusted and comfortable with coordination and collaboration within their company and be empowered to brainstorm developing creative solutions to achieve objectives.  This will provide organizational confidence that will serve well as those employees collaborate with other supply chain partners.  “Inter-firm coordination and collaboration is almost impossible if not preceded by intra-firm coordination through information sharing” (Olorunniwo, et al, 2010, p.456).  Relationships and information sharing with business partners demonstrate commitment.  The culture of ownership and trust derived from collaboration throughout the reverse logistics program can be nurtured offering mutual benefits for long term business growth.

“A supply chain is a complex network that consists of suppliers, manufacturers, distributors, retailers, and end customers, working together to convert raw materials to work-in-process inventory to final products” (Olorunniwo, et al, 2010, p. 454).  Consider what happens to a return throughout the reverse logistics process and the impact returns may have on each partner across the supply chain.  Products sold to the retailer that are defective will impact the number of returns the retailer must manage.  Furthermore, it is often the retailer that will be negatively impacted by customer dissatisfaction and consumer complaints for selling a faulty product.  The capabilities are available and utilized to share information in a collaborative environment to manage returns or recalls with an eye towards continuous improvements to reduce or eliminate returns.  “Firms must develop reverse logistics related capabilities: handling return operations, managing information technology (IT), sharing information, and collaborating with partners” (Olorunniwo, et al, 2010, p. 454)

Organizations must develop a well-constructed reverse logistics plan, ensuring they prepared to launch the operation integrating it into the corporation by educating staff and establishing expectations with partners in the supply chain.  Best Buy’s “BuyBack” program was pre-maturely launched and lessons can be learned from their failed reverse logistics program.  The program encouraged consumers to pay an up-front fee to return merchandise for credit to upgrade their electronics.  There were several significant issues that led to financial losses that included poor relationships with their vendors, poor communication with customers, a lack of communication and consistency at the point of sale and point of return.

Marketing purchased a multi-million dollar ad during the Super Bowl to launch the program when the information technology was not in place.  The company contracted to a third party, TechForward, who was contracted to finish developing the software for the program.  This was quick fix relationship where Best Buy rescinded on business agreements.  “TechForward sued Best Buy for stealing proprietary software two months into the project where a jury awarded the firm $22 million in damages” (Phelps, 2012).  Media coverage surrounding the lawsuit damaged Best Buy’s reputation in the eyes of the consumer, therefore, the company had very little room for forgiveness as they worked out the details of the buy back program with process improvements.

The price point of the pre-paid plan was not a good value to consumers unless they were returning and buying new electronic products every six months.  Consumer complaints illustrated the program was customer unfriendly as the value of return reduced if it was not returned with all parts or instruction manuals in the box.  The program did not educate consumers on restrictions, terms, or a condition, leaving the impression the program before its termination, was predatory.  “The buyback program is custom designed to squeeze money out of the laziest gadget-obsessed people, and a scam to keep you a customer by giving cash back in the form of Best Buy gift cards” (Van Camp, 2011).

Employees were not educated to advise consumers, and there was no consistency in determining condition of the item to gage the amount the consumer should receive.  One consumer published a report describing how customer service pointed them to the store for problem resolution and the store pointed them back to the customer service number.  “The store and customer service hotline really need to collaborate their information” (Ang, 2010).  Reports mounted from many consumers negatively impacting the retailer.

The lesson learned is to develop a well-constructed plan that is consistent throughout the supply chain to develop ongoing trust and collaboration with internal and external stakeholders.  For a returns program to be successful, service from one location to another must consistent.  A system to automate decision making, especially at a retail level where high employee turnover presents new sets of challenges.  It is extremely difficult to train retail staff to make consistent decisions and communicate the same information throughout their footprint.  Once the returns are handled consistently, it is much easier to effectively manage those returns and meet objectives.  Clear communications both internally and externally within an organization with only serve to strengthen relationships, bring new perspective, and new value to the company.

There are some areas where a company may feel information is proprietary, and others who may wish to release information in stages as the relationship, commitment and trust grows into a mutually beneficial long-term partnership.  “Results show that information sharing leads to greater collaboration in Reverse Logistics and directly [by itself] leads to greater revere logistics performance” (Olorunniwo, et al, 2010, p. 460).

Collaboration and communication throughout the supply chain must be strategized and management must consider how the reverse logistics program will improve the customer experience.  “Whether a company establishing a reverse supply chain will have to work towards educating customers and establishing new points of contact with them, make decisions which activities to outsource or manage internally, while keeping costs to a minimum and discovering innovative ways to recover value” (Guide, et al, 2001, p.25).

References

Ang. (2010, May 26). Best Buy employees not properly trained. Best Buy Unboxed. Retrieved March 15, 2013, from http://forums.bestbuy.com/t5/Mobile-Phones-Broadband/Consumers-Beware-Employees-not-properly-trained/td-p/114210

Carmichael, S. (2011, February 7). The Buy Back Program at Best Buy: Is It Worth it? DailyFinance.com. Retrieved March 15, 2013, from http://www.dailyfinance.com/2011/02/07/best-buy-buy-back-program-is-it-worth-it/

Guide, V. R., & Van Wassenhove, L. N. (2002). The reverse supply chain. Harvard Business Review, 80(2), 25-26. doi: 00178012 EBSCO

Olorunniwo, F. O., & Li, X. (2010). Information sharing and collaboration in reverse logistics. Supply Chain Management: An International Journal, 15(6), 454-462. Retrieved March 15, 2013. EBSCO

Phelps, D. (2012, December 29). For Best Buy, buy back program was a costly dud. For Best Buy, Buyback Program Was a Costly Dud. Retrieved March 15, 2013, from http://www.startribune.com/business/185103761.html?refer=y

Ryan, L. (2010, February 10). Ten management practices to axe. Bloomberg Business Week. Retrieved March 15, 2013, from http://www.businessweek.com/managing/content/feb2010/ca2010024_442061.htm#p2

Van Camp, J. (2011, February 28). Best Buy’s genius gimmick: Buy Back trade-in program is a total ripoff. Digital Trends Best Buys Genius Gimmick Buy Back Tradein Program Is a Total Ripoff Comments. Retrieved March 15, 2013, from http://www.digitaltrends.com/mobile/best-buys-genius-gimmick-buy-back-trade-in-program-is-a-total-ripoff/

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