Posts Tagged ‘profit’

At the core of every reverse logistics process, there are five fundamentals that you must get right in order to ensure you maximize the value of the assets flowing through your reverse supply chain.  By “maximize the value of assets” I mean to process returns the most cost efficient manner that results in the highest net recovery value for each item.  In order to do this, you must have the five fundamentals “Right”.

The “Five Rights of Reverse Logistics” are:

Identify the right source of the returned assets – Determining who returned the product is perhaps the most critical step in any returns or reclamation process.  In a returns process, the receiving process is what triggers the financial transaction with the customer.  The customer can be impacted directly, or in the case of retail returns, the store’s inventory will be negatively impacted.  Crediting the right entity for the assets they returned is critical.

Diagnose the right condition of the goods returned – By condition, we are talking about whether the item is new, used, defective, abused, etc.  Recognizing the condition will drive proper dispositioning of the goods.  Properly diagnosing the condition of any returned asset will impact the OEM / ODM, subsequent recovery rates if liquidated, or will increase disposal costs.  If, for example, an item is new and has never been used, it might be returned to the OEM / ODM for full cost credit.  But if the condition is mis-diagnosed, it may end up in the dumpster.  This results in a loss of value on the item plus additional rubbish removal fees.

Determine the right disposition of goods processed in the reverse pipeline – There are only six dispositions for any asset flowing through any reverse logistics pipeline.  The six dispositions are:

• Return to OEM / ODM for full or partial cost credit
• Return to warehouse for distribution next season
• Sold on the secondary market for anywhere between 2% and 90% of original value
• Donated to charity
• Recycled
• Destroyed – sent to a landfill or incinerated

As you can clearly see, determining which “disposition bucket” returned goods end up in will have dramatic impact on whether a company pays additional costs or if they receive significant credit for parties down the line.

Design the right process to efficiently process returned assets in a timely fashion - Returns processing is critical to ensuring companies maximize the value of goods flowing through their reverse logistics / reclamation pipeline.  Many companies do not appreciate the importance of timely processing of returned goods.  Keep in mind that returned assets are not like wine.  They don’t get better with age.  Typical returns don’t come in good packaging and their condition will deteriorate over time, as will their value.  For example, electronic returns will lose 10% of their value per month on the secondary market.  Similarly, the percent of product that has to be recycled or thrown in the dumpster will grow the longer product sits on the dock.  Processing goods efficiently and learning to deal with seasonal spikes is critical to the overall contribution from the reclamation center or returns process.

Ensure the right amount is charged to the right party for the processed returns – Once the goods have been received, sorted, and processed, the final step is to ship product to the next party in the reverse supply chain.  With returns, this is more complicated than in distribution because the value of the goods will vary based on disposition, the ship to point will depend on the disposition, and the charges for the items depend on the returns agreement and the party receiving the goods.  There are some companies that give credit for goods but only want specific models sent back to them.  The other models not returned to the OEM / ODM might be recycled, destroyed, or liquidated.  The variations are endless and often there are consolidation fees, disposal fees, and packaging fees that complicate the final billing even more.

For the uninitiated, returns can be a confusing and costly part of their supply chain.  If, however, you approach developing your reverse capabilities around the Five Rights of Reverse Logistics, you may find significant amounts of hidden profits you can recover.

Today I am launching my new web site under the new company name of Greve Consulting, formerly known as Metreks.  The focus of my practice is to help companies develop their returns management, aka reverse logistics capabilities.  Viewers will find a lot of useful information on returns including the Reverse Logistics Podcast, which will feature industry leaders from the world of reverse logistics, and my blog which is packed with articles and information to help service providers, manufacturers, retailers, and liquidators make more money.

Register to get the blogs sent to your desktop automatically or save www.GreveConsulting.com as a favorite on your browser.  Your comments, questions, suggestions and feedback are encouraged.  I will use your feedback to improve the value delivered from the site.

Check in from time to time to see what is new.  For example, you might want to check out The Cost of Doing Nothing.  This is a form you can fill out to find out how much opportunity you and your company have in developing your reverse logistics capabilities.

Whether you call it returns management or reverse logistics, it’s all about improving returns and maximizing profits.  I hope you enjoy the new site and get a lot of value out of GreveConsulting.com.

When transferring into the logistics department at Wal-Mart, the first subject I was taught was Manpower Planning. I remember thinking,”I thought I was going to learn about running a warehouse and managing transportation.” Little did I realize then that manpower planning was the key to everything.

If your warehouse and transportation leadership team has not incorporated manpower planning into their daily rituals, you are spending a lot of money on labor that could be avoided. Every person managing a function or team of people should be planning their work load using some form of the following variables:

1. U = Total Units of work per shift ( labels, cases, cube, or deliveries, etc.)
2. P = Units per hour/shift/day per person or FTE (Full Time Equivalent)
3. H = Number of hours worked per day/shift
4. F = Total Employees or FTE’s needed

Once you have the variables, each manager/supervisor/functional leader uses the following calculation:

• F = U / (PxH)

If you had to pick 8,000 units, in an 8 hour shift, with a standard productivity rate of 100 units per hour the calculation of  the number of workers you need in the area would be:

• 8,000 units / (100 uph x 8 hours/shift) = 10 FTE’s Needed

Each manager/supervisor completes the manpower calculation prior to the start of the shift and brings the numbers to the Staff Meeting each day.  In the Staff Meeting each supervisors reviews their numbers and the number of people they need to complete the workload, based on the standard productivity.  Those that need more people are loaned people from other areas that are overstaffed based on their workload.

If everyone has more work than people, temps are called in or overtime is planned for that day or week, depending on the operation.

This simple, quick exercise will ensure that your supply chain operates efficiently and this will ensure you avoid having people standing around in one area while other areas fall behind.  This will ultimately save you money, improve moral, and help ensure productivity targets are achieved.  This requires NO technology or additional reporting, just basic numbers and disciplined leadership.

You’ve probably heard a lot of people say “now is the time to buy a house”, or “you will never get a better deal on a car than you will right now.”

Let me add one to the list.  Now is the time to negotiate new long term rates with your carriers.  In fact, there has never been an opportunity if you are buying transportation,  like there is today.  You will find that many carriers will jump at the chance to sign up for three and sometimes five year contracts for less than a buck a mile.

If you have a private fleet, now is the time to think outsourcing.  In 90 days you could have your fleet outsourced and realize savings of up to 50% of costs you were paying.  Carriers are fighting to survive and they are not only willing to give unbelievable rates and terms but they will buy or help sell your equipment, negotiate revenue sharing on back hauls, and will be using the newest, most fuel efficient equipment in many cases, all of which puts money in your pocket.

Carriers are having a tough time.  Many are seeing volumes down as much as 80%.  According to industry experts, bankruptcies are at record levels for carriers and the survivors are looking to simply survive.  They are getting pressure from all sides, including their bankers who are pushing them to go after long term contracts that provide steady, reliable income until things get turned around.

All of this spells opportunity for you.  If you have a private fleet, now is the time to consider outsourcing.  If you outsource today, now is the time to renegotiate and lock in record setting low rates for the next three to five years.

You could dramatically reduce the cost of transportation this year.

Have you ever gotten your family ready to go on vacation, packed the car, started driving down the road and asked “so where do you want to go on vacation this year kids?”  If your company doesn’t have an effective strategic planning process that is exactly what you are doing with your business.  Many companies spend a lot of time and effort developing strategic plans only to end up with a binder that nobody reads. The problem is that for a lot of companies, producing the big three ring binder is the only result they will get out of strategic planning.

The most effective strategic planning process is one developed by Bill Bean CEO of  Strategia and starts with a honest ground up appraisal of where your company is in every major facet of business. Getting this clear, honest feedback from your team, at all levels, will tell you where you really are. Next, you boil the feedback down into actionable items. This is all done prior to the big strategic planning meeting. Going into the meeting, every member of the strategic planning team has to read the results of the survey.  This preparation is critical to developing a realistic plan that address issues in the real world.

The first part of the strategic planning meeting starts with the CEO presenting their  vision for the next three to five years.  They cover the number of customers, P&L expectations, market penetration, or whatever makes sense for their business. After everyone understand where the ultimate destination is, the team reviews and discusses the issues that come from the surveys.  At this point, issues are defined and the team is ready to develop strategic action plans.

Strategic action plans are plans that will drive the change needed to take your company from where you are to where you want to be. When the team debates the plans the creative juices really start flowing.  When properly facilitated, ideas will bubble up from everyone on the team like never before and often results in real breakthrough thinking.  I’ve been in meetings where ideas discussed lead the CEO to dramatically increase strategic growth goals.

Actions dictated by this discussionbreak down into two groups. First is the “go do’s”. These are steps, tasks, or actions that don’t take planning or a team to accomplish, you just assign them to somebody and they have to go do them.  The second group are those things that require a plan to complete. Action plans are assigned to an individual in the room who will pull together a team and produce an specific action plan with milestones and delivery dates. The person assigned to lead the plan is responsible for delivering the anticipated result and this responsibility is incorporated into their personal evaluation for the year.

Action plans are written, submitted and approved usually within 30 days of the strategic planning meeting.  This is your Strategic Plan.  No big binder, just a collection of pragmatic action plans that are in alignment with the long term vision of the company, woven into the leader’s goals, and they are focused on the key opportunities and weaknesses of your organization.

The final and MOST IMPORTANT part the strategic planning process is to conduct quarterly strategic planning meetings, where strategic planning members update the team on the progress of their plan. These meetings should not take more than two hours. This will ensure that the team is focused on accomplishing the plans and driving the process.

Good strategic planning has enabled companies to experience dramatic, profitable growth in a controlled fashion, on purpose, not by accident.  You avoid disasters and take advantage of opportunities your competition didn’t know existed because your are driving the business with your head up, focused on where you want to be.  If your current strategic planning process is not delivering results, stop fooling around and start planning on purpose.

In these days, most executives are looking under every stone for any savings possible.  I have a suggestion that could put significant dollars on your bottom line, with virtually NO risk.  What is it?

Have your construction contracts and supply chain contracts audited.  This is a good way to maximize the benefits from outsourcing, ensure you got what you paid for and, most importantly, ensure you paid what you were suppose to pay, according to the agreement both parties signed.

The really good news is that internal audit companies will audit these agreements on a gain sharing basis.  If they don’t find anything, you don’t pay anything. Typically, the gain sharing is 33% to 50% of the savings depending on the size and complexity of the agreement under review.

Contract audit findings would be like finding money on the street when you need it most.

You do have to have a few things in order,  before you call in an auditor.  First, you have to have the right to audit spelled out in the contract.  Sounds basic but if you don’t, you could just create a basis for a law suit and get in a big argument with a key vendor, which nobody wants.

Second, the contract must be a type that is worth auditing.  If change orders are part of the process, variable costs get passed on to you for payment, and/or the billings under the agreement could materially increase or decrease based on timing, materials, or variable expenses, you need to have those contracts audited.

Most importantly, you have to be willing to support the auditor in getting your contractor to provide what the auditor requests in terms of documentation.  Regardless of the findings, it will be up to your management to collect any money owed so they need to understand and support every finding.

If you haven’t audited major contracts, you could have left money on the table that could really help your organization this year.  Now is the time to ensure your agreements were executed according to the written agreement.  Under a gain share agreement with the auditor, your risk is as small as it could get.    Good suggestion?