Reverse Logistics: Important or Irritant?
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Transcript Reverse Logistics: Important or Irritant?
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.”
Does this create a problem?
From GAO Audit Report
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 resaleable 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 4
Quality
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.
What Is Quality?
“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
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
Dimensions of Quality (Garvin)
4. Conformance
Meeting pre-established standards
5. Durability
Life span before replacement
6. Serviceability
Ease of getting repairs, speed & competence of repairs
Dimensions of Quality (Garvin)
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
Service Quality
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
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.
2.
3.
4.
Create constancy of purpose
Adopt philosophy of prevention
Cease mass inspection
Select a few suppliers based on
quality
5. Constantly improve system and
workers
6. Institute worker training
Deming’s 14 Points
7. Instill leadership among supervisors
8. Eliminate fear among employees
9. Eliminate barriers between
departments
10. Eliminate slogans
11. Remove numerical quotas
Deming’s 14 Points
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)
4. Act
Institutionalize
improvement;
continue the cycle.
1. Plan
Identify the
problem and
develop the plan
for improvement.
3. Study/Check
2. Do
Assess the plan; is it
working?
Implement the
plan on a test basis.
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 quality
Internal failure costs
Scrap, Rework, Process failure, Process downtime, Pricedowngrading
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
Measurement
Faulty
testing equipment
Environment
Old / worn
Inadequate training
Quality
Problem
Defective from vendor
Not to specifications
Dust and Dirt
Tooling problems
Lack of concentration
Improper methods
Machines
Out of adjustment
Poor supervision
Incorrect specifications
Inaccurate
temperature
control
Human
Materialhandling problems
Materials
Also known as Ishikawa Diagram or Fish Bone
Poor process design
Ineffective quality
management
Deficiencies
in product design
Process
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)
Upcoming Events
Final Exam due by Saturday
Harley Papers by Saturday