reversing logistics

REVERSE LOGISTICS: IMPORTANT

OR IRRITANT?

Estimated $100 billion industry in 2006

“In an ideal world,

reverse logistics would not exist.”

Jim Whalen, “In Through the Out Door,”

Warehousing Management, March 2001

Reverse Logistics - What is it?

The Army’s Definition

The return of serviceable supplies that are

surplus to the needs of the unit or are

unserviceable and in need of rebuild or

remanufacturing to return the item to a

serviceable status

Reverse Logistics - What is it?

The Commercial Perspective

Reverse Logistics is the process of moving

products from their typical final destination to

another point, for the purpose of capturing value

otherwise unavailable, or for the proper disposal

of the products.

Typical Reverse Logistics Activities

Processing returned merchandise - damaged,

seasonal, restock, salvage, recall, or excess

inventory

Recycling packaging materials/containers

Reconditioning, refurbishing, remanufacturing

Disposition of obsolete stuff

Hazmat recovery

Why Reverse Logistics?

Competitive advantage

Customer service

- Very Important: 57%

- Important: 18%

- Somewhat/unimportant:23%

Bottom line profits

Reverse Logistics - New Problem?

Sherman

Montgomery Ward’s - 1894

Recycling/remanufacturing in 1940s

World War II - 77,000,000 square feet of storage

across Europe with over $6.3 billion in excess

stuff

Salvage and reuse of clothing and shoes in the

Pacific Theater World War II

Key Dates in Reverse Logistics

World War II – the advent of refurbished automobile parts due to shortages

1984 - Tylenol Scare - Johnson and Johnson

1991 - German ordinance that put teeth in environmental reverse pipeline

Summer 1996 – UK Packaging and Packaging Waste Legislation

1998 - first real study of reverse logistics in the US - University of Nevada, Reno

2001 – EU goal of 50-65% recovering or recycling of packaging waste

REVERSE LOGISTICS

A US Army Perspective

Operation Iraqi Freedom

The US Army moved the equivalent of 150 Wal-

Mart Supercenters to Kuwait in a matter of a few

months

Military Operations and Excess

“In battle, troops get temperamental and ask

for things which they really do not need.

However, where humanly possible, their

requests, no matter how unreasonable, should

be answered.” George S. Patton, Jr.

Jane’s Defence Weekly

“Recent report (Aug 2003):

There is a 40 hectare (~100 acres)

area in Kuwait with items waiting

to be retrograded back to the US.”

From GAO Audit Report

Does this create a problem?

From GAO Audit Report

REVERSE LOGISTICS

The Commercial Perspective

Reverse Logistics

Rate of returns?

Cost to process a return?

Time to get the item back on the shelf if

resaleable?

Costs - above the cost of the item

Merchandise credits to the customers.

The transportation costs of moving the items from the

retail stores to the central returns distribution center.

The repackaging of the serviceable items for resale.

The cost of warehousing the items awaiting

disposition.

The cost of disposing of items that are unserviceable,

damaged, or obsolete.

Costs

Process inbound shipment at a major distribution center = 1.1 days

Process inbound return shipment = 8.5 days

Cost of lost sales

Wal-Mart: Christmas 2003 - returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers

PalmOne - 25% return rate on PDAs

More Costs

Hoover - $40 Million per year

Cost of processing $85 per item

Unnamed Distribution Company - $700K items on

reverse auction

2001 - over $60 billion in returns; $52 billion

excess to systems; $40 billion to process

Is it a problem?

Estimate of 2004 holiday returns: $13.2 billion

% of estimated 2004/2005 holiday returns: 25%

Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day)

Electronics: $10 Billion annually in returns

Personal Computers: $1.5 Billion annually = approximately $95 per PC sold

79% of returned PCs have no defects

Home Depot ~ $10 million in returns in the stores alone

Local Wal-Mart ~ $1 million a month in returns

Is it a Problem?

European influence – spread to US - Green Laws

Estee Lauder - $60 million a year into land fills

FORTUNE 500 Company - $200 million over their $300

million budget for returns

Same Provider - 40,000 products returned per month;

55% no faults noted

K-Mart - $980 million in returns 1999

Warranty vice paid repairs

More consequences

Increased Customer Wait Times

Loss of Confidence in the Supply System

Multiple orders for the same items

Excess supplies in the forward pipeline

Increase in “stuff” in the reverse pipeline

Constipated supply chain

Impact?

Every re-saleable item that is in the reverse

supply chain results in a potential stock out or

“zero balance” at the next level of supply.

Creates a “stockout” do-loop

Results?

This potential for a stock out results in additional

parts on the shelves at each location to prevent a

stock out from occurring.

More stocks = “larger logistics footprint” = the

need for larger distribution centers and returns

centers.

Reverse Logistics

According to the Reverse Logistics Executive Council, the

percent increase in costs for processing a return, as

compared to a forward sale, is an astounding 200-300%.

“In the U.S. alone, the cost is an annual $100 billion.”

Forbes, March 2005

Typically, as many as 8-12 more steps per item in the

reverse pipeline than items in the forward pipeline

“The truth is, for one reason or another,

materials do come back and it is up to

those involved in the warehouse to

effectively recover as much of the cost for

these items as possible.”

- Whalen, “In Through the Out Door”

RFID and Returns

Visibility Tracking

Component tracking

Data Warehouse on what, why, when

Altered products

Not for every product

Impacts of Reverse Logistics

Forecasting

Carrying costs

Processing costs

Warehousing

Distribution

Transportation

Personnel

Marketing

CHAPTER 4Quality Management

Quality is a measure of goodness that is

inherent to a product or service.

Bottom line: perspective has to be from the

Customer – fitness for use

Out of the Crisis

“Failure of management to plan for the future

and to foresee problems has brought about

waste of manpower, of materials, and of

machine-time, all of which raise the

manufacturer’s cost and price that the

purchaser must pay.

More Deming

The consumer is not always willing to subsidize

this waste. The inevitable result is loss of market.

Loss of market begets unemployment.

Performance of management should be

measured by potential to stay in business, to

protect investment, to ensure future dividends

and jobs through improvement of product and

service for the future, not by the quarterly

dividend….

Deming’s solution

The basic cause of sickness in American industry

and resulting unemployment is failure to top

management to manage. He that sells not can

buy not.”

The job of management is inseparable from the

welfare of the company.

“The degree of excellence of a thing”

(Webster’s Dictionary)

“The totality of features and characteristics

that satisfy needs” (ASQ)

Fitness for use

Quality of design

What Is Quality?

Quality

Quality Management – not owned by any

functional area – cross functional

Measure of goodness that is inherent to a product

or service

FedEx and Quality

Digitally Assisted Dispatch System –communicate with 30K couriers

1-10-100 rule 1 – if caught and fixed as soon as it

occurs, it costs a certain amount of time and money to fix 10 – if caught later in different department

or location = as much as 10X cost 100 – if

mistake is caught by the customer = as much as 100X to fix

Product Quality Dimensions

Product Based – found in the product attributes

User Based – if customer satisfied

Manufacturing Based – conform to specs

Value Based – perceived as providing good value

for the price

Dimensions of Quality (Garvin)

1. Performance Basic operating characteristics

2. Features “Extra” items added to basic features

3. Reliability Probability product will operate over time


4. Conformance Meeting pre-established standards

5. Durability Life span before replacement

6. Serviceability Ease of getting repairs, speed & competence of repairs


7. Aesthetics Look, feel, sound, smell or taste

8. Safety Freedom from injury or harm

9. Other perceptions Subjective perceptions based on brand name, advertising, etc

1. Time & Timeliness Customer waiting time, completed on time

2. Completeness Customer gets all they asked for

3. Courtesy Treatment by employees

Service Quality

4. Consistency Same level of service for all customers

5. Accessibility & Convenience Ease of obtaining service

6. Accuracy Performed right every time

7. Responsiveness Reactions to unusual situations

Service Quality

Quality of Conformance

Ensuring product or service

produced according to design

Depends on Design of production process

Performance of machinery

Materials

Training

Deming’s 14 Points

1. Create constancy of purpose

2. Adopt philosophy of prevention

3. Cease mass inspection

4. Select a few suppliers based on

quality

5. Constantly improve system and

workers

6. Institute worker training


7. Instill leadership among supervisors

8. Eliminate fear among employees

9. Eliminate barriers between departments

10. Eliminate slogans

11. Remove numerical quotas


12. Enhance worker pride

13. Institute vigorous training and

education programs

14. Develop a commitment from top

management to implement these 13

points

The Deming Wheel(or PDCA Cycle)

1. PlanIdentify the

problem and

develop the plan

for improvement.

2. DoImplement the

plan on a test basis.

3. Study/CheckAssess the plan; is it

working?

4. ActInstitutionalize

improvement;

continue the cycle.

Also known as the Shewart Cycle

Six Sigma

Quality management program that measures and

improves the operational performance of a

company by identifying and correcting defects in

the company’s processes and products

Six Sigma

Started By Motorola

Define

Measure

Analyze

Improve

Control

Made Famous by

General Electric

40% of GE executives’

bonuses tied to 6 sigma

implementation

Malcolm Baldrige National Quality

Award

Category 3 – determine requirements,

expectations, preferences of customers and

markets

Category 4 – what is important to the customer

and the company; how does company improve

Cost of Quality

Cost of achieving good quality

Prevention

Planning, Product design, Process, Training, Information

Appraisal Inspection and testing,

Test equipment,

Operator

Cost of Quality

Cost of poor qualityInternal failure costs

Scrap, Rework, Process failure, Process downtime, Price-

downgrading

External failure costs Customer complaints,

Product return,

Warranty, Product

liability, Lost sales

Employees and Quality Improvement

Employee involvement

Quality circles

Process improvement teams

Employee suggestions

Cause-and-Effect Diagram

Quality

Problem

Out of adjustment

Tooling problems

Old / worn

Machines

Faulty

testing equipment

Incorrect specifications

Improper methods

Measurement

Poor supervision

Lack of concentration

Inadequate training

Human

Deficiencies

in product design

Ineffective quality

management

Poor process design

Process

Inaccurate

temperature

control

Dust and Dirt

Environment

Defective from vendor

Not to specifications

Material-

handling problems

Materials

Also known as Ishikawa Diagram or Fish Bone

Hot House Quality

Lots of Hoopla and no follow

through

ISO 9000:2000

Customer focus

Leadership

Involvement of the people

Process approach

Systems approach to management

Continual process improvement – GAO

Factual approach to decision making

Mutually beneficial supplier relationships

Implications Of ISO 9000

Truly international in scope

Certification required by many foreign firms

U.S. firms export more than

$150 billion annually to Europe

Adopted by U.S. Navy,

DuPont, 3M, AT&T, and others

ISO Accreditation

European registration

3rd party registrar assesses quality program

European Conformity (CE) mark authorized

United States 3rd party registrars

American National Standards Institute (ANSI)

American Society for Quality (ASQ)

Registrar Accreditation Board (RAB)

Wabona Logistics

Contact DetailsChris Magagula - Group Chairman

Wabona Offices

Head Office

Durban Office: Suite 811 Salmon Grove Chambers

407 Anton Lembede Street Durban 4001 South Africa

P.O. Box 1901 Durban, 4000 South Africa

OperationsChris (Group Chairman) [email protected] [email protected] [email protected]: +27(31) 301 9489 Fax : +27(86)512 8520 Cell: +27(72) 578 7638

Port Elizabeth Branch:27 Goedehoop Street

Windsor Port Elizabeth, 6200,

South Africa

Email: [email protected]

Johannesburg Branch:

44-48 Fountain Road2nd Floor Adoni's Centre,

Fordsburg, Johannesburg, 2092,

South Africa


Cape Town Branch:Business Unit 28B Foreshore, Lowershore, Cape Town, 8001, South Africa Email: [email protected]

Benoni Branch:Suite 21c, 2nd Floor

71 Woburn Avenue,

Benoni, 1500,

South Africa


Business Development ExecutivesCarl LupkeTel/Fax: +27(31) 301 9489

Cell : +27(82) 464 8139


Dashen

Tel: +27(31) 301 9489

Cell No: +27(71) 873 3878


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