Part 2 – State of the Art Reverse Logistics Systems
In the first part of our four part series on Reverse Logistics Systems (RMS) we pointed out that the system used to process returns is the critical component to every reverse logistics pipeline. Show me an efficient, well oiled reverse logistics process and I’ll show you an operation that relies on a well constructed RMS.
In this four part series, our goal is to help the uninitiated understand what to look for in a quality returns system. We will describe critical capabilities needed in a state of the art RMS. We will explore what differentiates a state of the art reverse logistics systems from lesser “returns processing systems”. In the first part of our series, we covered the receiving process. In this second part of the series we will discuss processing requirements to disposition assets, drive repair practices, as well as direct and monitor physical processing. In the upcoming third chapter of our series we will cover the processes that drive shipping, financial transactions, and quality assurance. The last of our four part series will discuss visibility requirements and key reporting capabilities that will be needed.
Processing
Once or twice a year, logistics trade publications will come out with a list of third party service providers and/or logistics software companies that show a matrix of “solutions” offered by each company. Practically every company that appears on these lists will have the box for reverse logistics checked. However, there are less than a dozen companies, IN THE WORLD, that actually have a credible reverse logistics software solution. Many third party service providers (3PL’s) claim to offer reverse logistics solutions, but the reality is that they simply transport, unload, and store used or broken stuff. This is hardly a “reverse logistics solutions.”
What differentiates the pretenders from the true reverse logistics solution providers is their ability to process goods in a manner that maximizes the value of the assets flowing through the reverse pipeline. Simply unloading and counting broken stuff is as close to having reverse logistics capabilities as play catch in the back yard is to being a major league baseball player. However, look at the annual reports on logistics capabilities and you will see hundreds of companies that say they have a reverse logistics solution.
The processing capabilities of an RMS determines how a reverse logistics process maximize the value of an asset. To understand this concept, you need to understand the basic difference between a traditional distribution operation and a returns operation.
In distribution, orders for new goods are placed, a PO is cut which tells the DC operations what to expect and a general idea of when it is going to arrive. When the goods are received, they are check in against the PO and put away in a predetermined location. When orders are cut, a pick ticket is generated, the items are picked, consolidated, loaded on a truck and shipped to their predetermined location. Items are typically segregated by SKU and are stored in the same part of the warehouse, picked using repeatable processes and shipped. What is inside of the box almost doesn’t matter. DC’s receive, putaway, pick and ship large, medium, and small boxes to the same locations on a scheduled basis.
Centralized returns facilities operate with a completely different process. First, nobody orders returns so you have no idea, really, what will be on the truck until you unload it. After you get the items in the building, you must account for the specific item, BUT, you must also determine the condition and profile of the item so it can be sorted. This sorting process and the processes that follow is what drives the value recovery in a returns operation.
For example, let’s say you receive a box of white coffee cups. Two cups are in the original packaging and have never been opened. One of the cups is broken in half and cannot be repaired. Another cup appears to have been used but has no visible flaws or defects. A quality RMS will ultimately returns the first two cups to the vendor for full cost credit, the second cup will be thrown away and the last cup would be sold on the secondary market for ten percent of the original sales price As you can see from this example, processing all four cups the same way would either cause problems with the vendor or a loss of value for three of the four cups processed.
It is an RMS’s ability to identify not only the item, but the condition that differentiates a quality RMS from a low end gate keeping solution. This process of identifying the item, condition, and where it should be shipped to maximize the value of the asset is referred to as “dispositioning” the item. The interesting thing about dispositioning is that there are only FIVE dispositions for anything. Whether the returned item being processed is a top of the line hi-tech server or a white coffee cup there are only five possible dispositions for the item. Those dispositions are:
- Returned to the vendor or OEM for credit
- Sold on the secondary / salvage market
- Donated to charity
- Returned to a warehouse for redistribution later
- Destroyed either by being recycled or disposed of in a landfill or incinerator
There are many variations in the processes used to flow assets through any company’s reverse pipeline, but there are only five different final destinations for any item. Some companies repair goods and sell them on the secondary market, for example, while others don’t repair anything. They have a simple, yet important controlled destruction process. Some new items are repackaged and stored for next season while other items are donated to charity. Some companies are very concerned about brand protection while others are much more interested in keeping costs down and getting the most for the item returned. The options and variations are as numerous as the companies and the items they sell.
The 3PL or RMS provider, however, must have the ability to capture the information needed to ensure the item is sorted and prepared properly in order to achieve the customer’s goals, while minimizing the risks that might result from improper dispositioning of the returned item.
