What It Takes To Become A Walmart Supplier
Walmart and Sam’s Club will bring on board literally thousands of new suppliers every year. These new suppliers are only 2% of the manufacturers that attempt to become a supplier to the world’s largest retailer. Manufacturers across the globe work hard to join this elite club. While they will work pricing and sales pitch to perfection, they often over look a critical part of the program every Walmart Supplier must bring to the table to finalize the deal. We are talking about their program to handle returns, end-of-life product, and recalls.
Due to the huge number of companies wanting to pitch their service, Walmart developed a process to “qualify” potential suppliers. This process is detailed and can be difficult to navigate for those who are unfamiliar with the “Walmart way.” Having a product that would look good on a store shelf is just the beginning. A manufacturer’s ability to provide a comprehensive support program for their goods is as important to Walmart or Sam’s as is the item and the price.
Once a supplier has the required paperwork in hand and has completed the online questionnaire, they can then attempt to set up a meeting with a Walmart Buyer. This meeting will determine if your item will be sold in a Walmart or Sam’s club, or not. All the stories you’ve heard about going to the Walmart Home Office to pitch your product are true. For many, their company’s future will come done to 45 minutes with a Buyer who is tired, overworked, and has no time to waste. You have a limited window to get the Buyer excited and you must be prepared to make the most of it.
Just imagine; the meeting is going well, the Buyer seems excited about your item, you talk about price and seem to be close to a deal, then you get blind sided. The Buyer asks, “How are you going to handle returns?” The meeting comes to a complete stop. If you don’t have an answer the Buyer will ask you go do you homework and come back another time. Have fun flying home, knowing that you will have to reschedule another trip to Bentonville and try again to make a deal. All the way home you will be kicking yourself for not having the answers to the Buyer’s questions. If you had a plan to handle returns you would be flying home with a deal.
Within the Supplier’s Agreement, there is a large section that address returns. However, according to Walmart associates this is often overlooked or poorly addressed, which reduces the supplier’s chances of success. You will need to be prepared to quickly explain how you will handle returns and negotiate the terms in the returns section of the Supplier’s Agreement. You will need to have a plan to deal with customer returns, end-of-life, and recalled products.
There are two requirements in the returns section of the Walmart Supplier Agreement, and eleven different variations of returns terms that you’ll need to quickly negotiate with the Buyer. The processes and terms used can vary greatly depending on the product. In addition, the terms for end-of-life and recalls are often different from terms to cover customer returns or damage.
Do not assume that these terms are inconsequential just because they only apply to returned goods. According to a study conducted by the Aberdeen Group in 2010, manufacturers spend between 9% and 14% of sales on returns. Poor preparation and negotiation of return terms can have a huge impact on the bottom line of a new Walmart or Sam’s supplier. In fact, the returns terms can impact a manufacturer’s bottom line by as much as five percent of sales. It is worth the extra effort to get it right.
Remember the motto of the Boy Scouts of America – Be Prepared. If you want to be part of the 2% of manufacturers that become Walmart or Sam’s Club suppliers, do your homework. You will need to have a program to deal with customer returns, end-of-life, and recalls. You will also need to have a competitive returns fee structure in hand and ready to quickly discuss with the Buyer. The purchase price is critical but it is not the only number you will need to have in hand.
To find out more about how the terms and conditions of a Walmart Supplier’s Agreement and the program you will need to have ready for you meeting with the Walmart Buyer, check out our Walmart Supplier Returns Program.
Aftermarket Services – Opportunity for Growth
Aftermarket Services have been in high demand for a number of years now. With the explosive growth in consumer electronics and offshoring of many factories, Aftermarket Service providers have seen demand skyrocket. According to Livingston Partners, the Aftermarket Services sector has grown over 20% since 2006. Furthermore, they expect the Aftermarket Service sector to keep on this growth trajectory for the next five years. While demand for Aftermarket Services has been strong for quite a while, the service providers are still a fragmented lot with no dominate player emerging as the “Go-To” Aftermarket Service provider of choice.
Aftermarket Services traditionally include returns processing, repair and refurbishment services, and end-of-life services that include recall processing and product recycling services. Over the last few years, however, Aftermarket Services have expanded to include warranty management, customer service, and comprehensive reverse logistics programs.
Due to rising costs and pricing pressures retailers, distributors, and OEM’s have looked to outsourcing Aftermarket Services. They outsource because of a general lack of expertise in the services needed and to limit potential liabilities. There are other benefits but for the most part, companies outsource Aftermarket Services because the service providers can provide the services for a net lower cost, with lower capital requirements, and a higher quality result.
The question remains to be “Why hasn’t a dominate Aftermarket Service provider emerged?”
We think the answer is because of the wide variety of services and sectors that would be considered Aftermarket Services. There are a number of 3PL’s that offer returns processing but these services are often no more than gate keeping processes to receive and ship returned goods.
There are many companies that repair and refurbish aftermarket goods, but these companies are usually narrowly focused on a limited number of categories. Most repair and refurbishing companies operate on a local basis and do not have the infrastructure required to handle the large volumes that come with a comprehensive nation wide program.
Few reverse logistics companies understand end-of-life processes at all, much less have comprehensive solutions they can take to the market. Going beyond these three basic Aftermarket Services into the newer solutions such as warranty management, customer service, or comprehensive reverse logistics is a bridge to far for the Aftermarket Service providers of today.
There are a number of 3PL’s who are looking to expand their services and develop differentiating services. The market is looking for a service provider that can provide comprehensive Aftermarket Services. When the two intersect, growth and prosperity will abound for both. The question is “Is there any provider out there who has the vision and the capability to be the dominate Aftermarket Service provider?”
Outsourcing Reverse Logistics
Reverse logistics is the part of the supply chain that is often outsourced to third party service providers (3PL’s). Many companies that have best-in-class supply chain functions outsource reverse logistics. If these industry leaders can run very complex global distribution networks, why don’t they operate their own return centers? For the last two decades, we have worked with Fortune 500 Companies who have outsourced their reverse logistics to 3PL’s and we have found they do so for one of three reasons:
- To get reverse logistics expertise quickly and with less risk
- To achieve greater flexibility and faster speed to market
- To create a protective barrier against outside forces and limit potential liabilities
Many companies outsource reverse logistics because they do not have the expertise within their management ranks to run the area, or they don’t want to use these resources on the function under consideration. Retailers, for example, want their top executives working on ways to improve traditional core supply chain functions, or store operations, or merchandising systems. Manufacturers want their top talent running manufacturing plants, working with customers, managing imports, managing parts or just about anything other than focusing on returns.
Reverse logistics is more often treated like the red headed stepchild of the supply chain. No one wants to deal with returns. When I first got involved with returns, Lee Scott, now retired Walmart CEO and then VP of Logistics had to promise me that I would not have to spend any more than two years running reverse logistics for Walmart before I would agree to take the position. That was over 25 years ago and for me it became a career. The point is that reverse logistics is outsourced because there is no internal expertise and/or the company is unwilling to invest in the team and technology needed to develop reverse logistics.
This is the main reason why retailers and manufacturers outsource their returns processing functions. A qualified 3PL can have a significant impact on a company simply because of their experience in returns. They can also help leap frog the competition by leveraging systems, liquidation networks, and by sharing best operations practices that will reduce the processing costs.
The key, however, is to outsource to a firm that is experienced and has a broad view of the issues. Many 3PL’s claim they “process returns”, few actually do and fewer still have any idea about what happens upstream or downstream from the actual returns processing function and how they must be coordinated to achieve maximum results.
When you are selecting a 3PL, it is important to do your homework and select a provider that has real experience providing reverse logistics services in your market. Can they help you improve the product flow upstream so you can process more efficiently and maximize the value of the returned assets downstream? Do they understand the impact of returns on customers, suppliers, stores, DC’s, and how they effect the financial well being of the company? Do they have existing operations repairing product that is similar to your returned items.
WARNING: Watch out for the 3PL who wants you to be the first. Often 3PL’s who repair phones will spin their experience and try to convince a TV manufacturer that they really can process, test and repair TV’s because they have been in the consumer electronics repair business for years. In reality, they have never fixed anything other than cell phones and they are looking for a customer to fund their technical development. Buyer be ware.
Lack of on point experience is often why companies outsource reverse logistics, but speed and flexibility also drive many to outsource. Companies outsource reverse supply chain functions not because they don’t have the leadership or experience but because they need a solution fast and going to a 3PL with the focus, motivation, experience, existing technology, capital resources and staff can get things up and running much faster than the company could do it on their own. A quality 3PL will be able to start up a new reverse logistics operations within six months. Most companies who decide to develop reverse logistics internally will take at least twice that long.
The third reason companies outsource supply chain functions, including reverse logistics, is to have a layer of protection and minimize their risk. Many companies outsource operations to avoid unwanted attention from labor unions. It is against the law for companies to fire employees who attempt to organize a labor union, however, a company can fire a 3PL and replace them with another if the 3PL doesn’t meet performance metrics. This is true even if the 3PL did not achieve it’s goals because of a strike or other union activities.
Companies also outsource to cap and control other risks and liabilities such as inventory shrinkage, workers compensation expenses, medical benefit costs and other “non-controllable” expenses. Companies protect themselves by either negotiating a fixed fee arrangement for multiple years or with some form of variable pricing. This enables companies to limit these risks by negotiating caps within their outsourcing agreement.
Outsourcing reverse logistics is often the best way to develop returns processing capabilities for many manufacturers and retailers. You will need to employ experienced resources to help select the 3PL and negotiate an acceptable contract. However, with in six months you will have a best-in-class reverse logistics process that maximizes the value of returned assets, with limited risks and controllable costs.
Product Recalls – Preparation is Key
In 2009 the Consumer Product Safety Commission (CPSC) issued 465 mandatory recalls. In 2010 the CPSC issued 433. While the CPSC was ordering product off the market, the FDA was busy pulling drugs off the shelf. Over the last 10 years the FDA has recalled over 250 drugs off the market every year. The reality is that recalls are here to stay. In fact, you can expect the number of recalls to trend up over the coming years as regulations continue to increase.
In addition, many manufacturers and retailers voluntarily recall products. There are many reasons for voluntary product recalls. Bad buying decisions, seasonal changes, packaging issues, and taking proactive action to minimize risks and liabilities drive companies to pull inventory off the market. ”Stuff” happens and product recalls are a fact of life for retailers and manufacturers. Therefore, it is critical to have a comprehensive recall program in place to deal with these unfortunate yet inevitable events.
Just as manufacturers and retailers have insurance for their people, property and customers, they need insurance for recalls. This insurance is a recall program that lays out a clear plan to deal with recalls when they occur. The financial liability and the risk to human life is too great not to have a well defined recall procedure in place, before it is needed. If a you wait until you need it, the costs and the additional liability could literally put your company out of business.
Recalls can increase exposure to many different risks. Recalling an item due to a known quality problem, or because a regulator ordered the item off the market exposes companies to obvious potential liabilities such as law suits from customers, clean up costs, and fines. However, there could also be even greater risks created by how your organization reacts to the problem and processes the recall. These risks often have a greater impact on customers, employees and stockholder than the actual item itself.
In order to minimize these risks companies must have a buttoned up recall procedure that addresses the following five key areas:
1. Internal communications procedure
2. External communications procedure
3. Physical process to remove the recalled goods
4. Product sorting, accounting and disposal processes
5. Data gathering, reporting and record keeping
Communications is the most critical component of any recall process. The internal communications procedure for a mandatory recall must include emergency communications chain. Key people need to know who has to be notified and each person must know what their roll is in the recall communications process.
Speed is critical.
There must be a clear line of communications and the internal communications must be fast. The first hours after being notified of a recall will determine if the rest of the plan has a shot at succeeding and actually avoiding risks and liabilities. The internal communications process is the start gun to the race to get the recalled goods off the market. This is also where you decide who is going to speak for the company, what they are going to say, and who they are going to say it to.
External communications is the most critical component to minimize the impact of a recall on customers, employees, and shareholders. Honest is the best policy. It is actually the only option. Even companies that try to spin the facts or dodge the truth always end up telling the truth. It is only a matter of time and in some cases that means jail time.
In high profile situations, employees will want to hear from the CEO directly. They will want regular updates and they will want closure when it is over. Remember, employees have families so you must arm with enough information so they can tell their children why their mommy and daddy are good people working for a good company. Many organizations underestimate the impact of bad press and lack of internal communication will have on employees. It is a big deal to them and can cost a company more than just money for years to come. Shareholders have similar concerns and they have a legal right to know about potential liabilities and actions that could impact the value of their investment.
Talking to the press can be very tricky when dealing with recalls. Remember journalists are there to get a story. They aren’t necessarily concerned with right and wrong, or giving your company a fair shake. A professional PR person can be worth their weight in gold during a major recall or any negative event.
The obvious group to consider in any external communications plan are the regulators. There are two ways management teams can deal with regulators. One way is to treat them as adversaries. Don’t offer any help. Answer only the exact question asked. Make them get a court order for everything, etc. This is a terrible way to deal with people who decide the size of the fine and the scope of the investigation.
The other way to deal with regulators is to politely cooperate with them. This means be polite, escort them around, ask if they need help. This means politely saying things like “Sir, I was told to get you a cup of coffee and set you up in my office until our Vice President of Loss Prevention gets here. This is a big deal and we want to cooperate fully.” While you are waiting, talk to them like the intelligent professionals they are.
This is the only way to deal with any kind of public authority figure. You must ensure that your entire staff is trained to be respectful and cooperative. They must have a clear idea of what they can and cannot say, as well. They must know the difference between being cooperative and saying things that will can cause your company harm. Training your staff on who is authorized to speak to regulators, along with what, how, and when to speak to regulators is a prudent, operational best practice. Don’t leave this up to your staff to figure out on their own. Train your management team.
This training should address both verbal and written communications guidelines. Emails have become law firms favorite hunting grounds. As the team at Goldman Sachs will attest, written communications can cause significant damage in a number of ways, even if you did not do anything illegal. You must have clear policies on both verbal and written communications.
Recalls are a fact of life and every company must have a well defined recall process that is focused on doing the right thing, communicating the right message, and minimizing all the liabilities and costs associated with every recall. Your recall plan of action must clearly and directly address internal and external communications in order to minimize the damage caused by the recall.
Manufacturer Returns: Risk or Reward
Returns are a fact of life for just about every manufacturer in the world. Some see it as a necessary evil, while other see it as an opportunity to improve customer relations and improve their bottom line. The facts are that returns cost manufacturers on average 9% to 14% of sales. Manufacturers, however, are often hesitant to invest in their reverse logistics programs. This is often because the senior leadership team does not understand the actual cost and associated risks. Once they understand how much they are really spending and the risks of short changing the process, it is not difficult to get support for resources to focus on the reverse logistics pipeline.
In addition to the financial impact of returns, there can be an even bigger impact on customer satisfaction. In fact, a study completed by the Aberdeen Group in February of 2010 found that manufacturers that were rated best-in-class in reverse logistics had, on average, a 12% advantage in customer satisfaction over their competition. Another study published in the spring 2010 MIT Sloan Management Review found that focusing efforts to improve and manage customer returns actually increased overall profits, even during tough economic times. When we say “manage returns” we do not mean reject returns or make it harder for customer to return goods. This same study found that a lenient return policy actually increased total sales and profits, while a more restrictive policy has a detrimental impact on both the top and bottom lines.
Case in point, during the 2010 Christmas season Best Buy Stores revised their return policies, making it easier to return products and eliminating most restocking fees. The result was a surge in sales and profits for December. While Best Buy is not a manufacturer, this shows the impact managing returns can have on a company’s sales and earnings.
In addition to customer returns, product recalls can have dramatic impact on a manufacturer as well. For a manufacturer to have a comprehensive reverse logistics program, the program must include a robust recall process. In 2009 the Consumer Product Safety Commission ordered 465 product recalls and 433 recalls in 2010. You can expect more product recalls from this point on as well. The first piece of legislation passed by Congress after the election in November was to give broader authority to order more manufacturer recalls.
So what does all this mean for manufacturers? Simply put, the question is not if one of your products is going to be recalled but when and how many products will be recalled. Because of the very real possibility of being forced to recall product from the market and the potential for financial liability and damage to your reputation, manufacturers must have a sound plan in place to ensure they have a means to process recalls on very short notice. Johnson & Johnson can certain testify about how recalls can hurt a company. Between April and September of 2010 the value of J&J stock dropped over 13.5% due to product recalls and the way J&J handled those recalls.
Reverse logistics will have a significant impact on every manufacturer. The question is whether returns will have a negative impact or if it will provide a competitive advantage. Developing and investing in your company’s reverse logistics processes can improve sales, reduce risks, and increase profits. It takes a long term dedicated commitment to be best-in-class and proper resources but in the end it will be well worth it.
RL Podcast #12 – Tips for Peak Returns Season
In this podcast Curtis Greve shares best management practices for peak returns season. During the first quarter, many retailers and manufacturers will receive 30% to 60% of their total annual returns volume. This is the critical time of year when reverse logistics managers can really add significant value to their company. With the seasonal spike in volumes in both customer returns and recalls, it is important for returns operations executives to focus their teams on the key areas of the reverse logistics process to ensure they maximize the value of assets flowing through the reverse logistics pipeline.
Many returns managers make the cardinal mistake of focusing all their time and attention on receiving product. While receiving is important, that is just the start. If management’s attention stops there, a cascade of issues will irrupt and a lot of money can be lost. In today’s podcast Curtis discusses three key areas that should be top priorities for every returns operations manager:
- Liquidation
- Shipping
- Quality
For over 25 years Curtis Greve and Jerry Davis have ran returns operations for manufacturers and retailers around the world. Listen to today’s podcast to learn critical management tips for peak returns season.
The Reverse Logistics Podcast
The Reverse Logistics Podcast
Guidelines for Surviving the Bi-Polar World of Holiday Sales
Many companies depend on Christmas sales to make their year. For these manufacturers and retailers, the biggest challenge to making a profit is not selling the new red widget with the Christmas tree on the side of the box, but processing Christmas overstocks in the first quarter of the year. The big high from holiday sales is often counted by a big low from high return rates in the first quarter. Welcome to the bi-polar world of holiday sales!
For companies that must live in this bi-polar world, there are two options for processing seasonal overstock and Christmas returns. One option is to outsource seasonal returns processing to a qualified third party (3PL) and the other option is to operate a temporary returns facility internally. If a company is considering outsourcing to a 3PL, the following guidelines will help ensure success:
- The scope of the project must be clearly defined with estimated inbound volumes, outbound volumes by processing category, pricing, approval processes, with clearly defined start and end dates.
- Ensure inventory processing requirements are documented in detail and given to the third party processor prior to any pricing and contract development.
- The documented processes should become part of the contract as a defined scope of work.
- The 3PL (third party processor) must be prepared to guarantee a minimum amount of processing space and storage space at a specific location.
- A fixed / variable pricing model is usually best for both parties. This is when the 3PL charges a flat monthly rate for fixed expenses such as rent, utilities, etc, plus a cost per unit for each disposition – scrap, refurbished, new, clean, or what ever the various conditions of the goods you expect to receive.
- Expectations for “A stock”, “B stock”, “Scrap”, and overall yield rates should be clearly stated and pricing should be based on these expectations. Establish clear volume bans for each category plus rules for price adjustments if the actual volumes in any one category are outside the established volume bans.
- Any 3PL startup costs and decommission costs should be clearly specified.
- Productivity incentives and penalties based based on volume adjusted budgets should be included in the contract.
- A clear change order process must be documented to address any unanticipated processing requirements that may be outside of the scope of the agreement.
- Ensure appropriate insurance coverage is in place for the inventory that will be processed.
- Avoid any lean provisions that would allow the 3PL to restrict access to the product, this includes the third party from holding merchandise over payment disputes etc.
The second option to consider is to set up and operate temporary return centers internally. In order to set up a temporary facility and operating it internally, you must have the infrastructure to support the operation and the management that can focus exclusively on the temporary operation. Once you determine you have the internal support needed and the leadership, you will want to ensure you keep the following in mind:
Define capital assets and personnel that will be required for each week the temporary facility will be open.- Define lead times and availability for both, in detail.
- Identify sources for fixed assets and facility labor. Many companies leverage their distribution staff and assets which will be available during the first quarter.
- Develop contingency plans for space, equipment, temporary employees and management in case volumes are significantly higher than anticipated.
- Identify SPOC (single point of contact) to plan, oversee and report on the project
- Ensure lead times for identification and contracting of temporary space, equipment, and employees are sufficient.
- Identify mile stones from the start of planning to decommissioning.
- Establish weekly meetings/calls to communicate progress in planning, startup, processing, and decommissioning of the temporary facility.
- Define “Red Flag” process that will be used to communicate issues during the event.
Whether you choose to outsource Christmas returns’ processing or set up a temporary solution and manage it yourself, one of the best things you can do is to conduct an “After Action Review” within 30 days after last of the seasonal returns has been processed. This meeting should include everyone who had anything to do with the temporary facility and notes should be taken and sent to everyone to ensure they improve the process the following year. Whether you are going to outsource or do it yourself, the key to handling seasonal returns processing successfully is to “Plan Your Work and Work Your Plan.”
Christmas Returns Checklist – 31 Things To Do
Whether you are a retailer or manufacturer, Christmas returns are on the way and executives responsible for handling these returns should get prepared. The 31 Point Christmas Returns Checklist below will help ensure that all preparations have been made for processing Christmas returns. There is something to do for every day in December.
The 
Christmas Returns Checklist
- Update defective returns based on sales since Thanksgiving
- Update seasonal recall volumes by SKU and vendor / OEM / ODM
- Review existing processed inventory waiting to ship
- Prioritize shipments by value and cube to reduce inventory and create space
- Contact primary and secondary temp agencies and review requirements
- Review management staffing and organization chart for the first quarter
- Review volume estimates and plans for outbound shipping with carriers
- Contact the provider of storage trailers and ensure adequate supply will be available
- Inspect temporary space that will be used during peak season
- Review plans for temporary space and storage trailers with Loss Prevention
- Contact top 20 vendors / ODM’s to review plans and estimates
- Review manpower plans for quality assurance and inventory control
- Review plans with Systems to ensure NO major systems changes are planned during peak season or with any systems that directly interface with the RMS
- Review plans for leasing temporary fork lifts and other power equipment
- Review all parts supplies and ensure procurement plans and sourcing is ready
- If additional shift are anticipated, procure addition lift batteries if needed
- Review shipping plans and requirements with top salvage buyers
- Review inbound sortation plans and shipping plans with internal Liquidation Department
- Test all risers, security systems, and emergency procedures immediately
- Schedule preventative maintenance ASAP for all equipment and conveyor systems prior to January
- Review first quarter manpower plans by function, by shift
- Review plans & volumes with recyclers and with waste management companies
- Send any special instructions to all stores, branches, etc.
- Notify all stores, branches, customers, and/or vendors contact information during peak
- Review plans of all outsourced repair vendors,
- Get reports of existing backlogs for all repair vendors or outsourced support areas
- Review weekly communications plans with key internal and external teams
- Review aged files for any claims or disputes to clear up prior to year end
- Meet with financial support systems management and review plans
- Contact high volume vendors and ask if they have any plans to shut down during the first quarter for retooling
- Have a merry Christmas! – Enjoy your family while you can!
With a good plan for peak returns season, and working through the 31 point Christmas Checklist, you can be assured the reverse logistics function is well prepared for this most critical time of the year.
Christmas Returns Survival Guide
Beginning the first week in January, retail returns rates will increase dramatically as compared to the normal rate of return prior to Thanksgiving. In addition to the customer returns, seasonal merchandise recalls will also hit peak volume levels. Just as retail return center volumes peak in January and February, manufacturer’s returns peak in the third week of January and maintain that level through February and March.
Executives responsible for processing returns must make special plans to handle this tidal wave of volume heading their way. This year, because of the improved economy, return rates are projected to be 12% to 15% higher than last year. The impact could be significant and companies must prepare.
In order to prepare for peak return season, three critical elements must be included when planning for year end returns. These three elements are:
Manpower planning- Space
- Transportation
The most important part of preparing for peak return season is to determine how many more people will be needed, what shifts they will work, and who will supervise the additional staff. This often means making arrangements with temp agencies, hiring part time employees and adding to base staff. In addition to increasing your head count, you must make arrangement for training new workers and adding trained supervision.
Supervision, especially if you are adding new shifts or operating in temporary space, is critical. You must ensure they are trained in basic supervision and that you have adequate leadership in all areas, on all shifts, for the entire peak season. Do not short cut your people or your leadership.
Space is a critical element that requires forethought and preparation. Temporary space comes in two forms. The first type of temporary space is storage trailers that are parked on the lot and used for storage of inbound or outbound freight. The second type of temporary space is short term leased buildings. In general, if additional space is only needed for a “short time” trailers usually make more sense unless there is exaggerated spikes in volumes. However, arrangements for either trailers or short term space usually must be made at least thirty days prior when needed. Once product starts flowing and returns are processed at often two or three times normal rates, it is critical to have carriers prepared to provide trailers and drivers as needed to keep the product flowing.
A special word of caution – if you are adding shifts or planning on working on Saturdays and Sundays. Do not assume that your carriers will pick and deliver trailers during these times. You must contact your carriers and outline service level expectations for your new schedule of operations. In addition, back up carriers must be selected to ensure the flow of goods is not interrupted.
Finally, if you liquidate product and rely on salvage buyers to pick up significant volumes of product during peak season, ensure that you watch them closely and ensure they pick up purchased loads in a timely manner. Liquidators are notorious for using return centers for free storage of purchased goods. Seller be ware.
The key to economically processing year end returns is to properly prepare and plan for the two or three month spike in volume. The critical elements of peak return season planning are people, space, and transportation. If your organization has not made preparations for peak season, it is not too late but you need to action now.
Part 4 – State of the Art Reverse Logistics System
In this final installment of our four part series on components of a state of the art reverse logistics system (RMS), we will discuss critical reports and visibility requirements. The prior three parts of this series have described capabilities an RMS must have to receive, process, verify, and ship assets that flow through a company’s reverse logistics pipeline.
Before we go too much farther, it should be pointed out that there are two basic infrastructures used to process returns. One we will call the “Direct” model and the other we will refer to as the “Centralized” model. The Direct model is simply processing returns directly from the field to it’s final destination. This is a decentralized design that relies on people in the field or store to prepare and ship goods. A good example are small, mall based retailers that take back returns and sends the goods directly to the vendor or OEM. The second infrastructure is the Centralized model. This model revolves around a central location where all returned goods are shipped to from the field. Goods are then received, prepped, consolidated by final destination/disposition, and shipped. The vast majority of large retail chains use a centralized model to process returns.
Whether an organization should use the Direct model or the Centralized model depends on a number of factors. These include:
- Volume of returns
- Disposition of returned assets
- Residual value of returns
- Number of field or store locations
- Amount of labor required to process returns in the field vs centralized processing costs
- Risk from processing errors
- Regulatory risks
- Existing field systems
- Cost of centralized facilities
- Transportation costs
- Corporate infrastructure
Whether a company has a centralized model that relies on an RMS for processing and visibility or if they use a direct model that relies on a point of sale system or some other back office application to process returns, the visibility requirements are the same. The following is list of reports or visibility requirements broken down by functions:
Receiving
- Advanced shipment notification – receipts in transit by date, store/field/customer, carrier
- Receipts by store/field location/customer - by receiving, RMA, month, quarter, year
- Returns by SKU/Category/OEM – by RMA, month, quarter, year
- All reports will need to show quantity and value per unit and in total
Processing
- Total units processed – by day, week, month, quarter, year
- Units received and processed by disposition – Return to OEM, liquidated, repaired, restocked, donated, recycled, destroyed – by day, week, month, quarter, year
- Manpower reports showing hours worked within each function
- Thru Put – In returns facilities thru put is typically calculated as follows:
Total Units Received / Total Variable Hours
Shipping
- Shipments waiting for return authorization – by date, value, quantity
- Pick tickets outstanding
- Hazardous material manifests ready for shipment – by class
- Manifests – by date, OEM, liquidator, recycler, charity
Quality Assurance
- Inbound receipt verification
- Cycle inventory
- Physical inventory – in total, by OEM, category, dollar, units
- Process verification – by function, employee, month, quarter, year
- Location verification – by type of location: bulk, rack, flow rack, shelf, security, etc, day, week, month, quarter year
- Outbound verification – by OEM, liquidator, hazardous shipments, recalled/regulated shipments, random manifest
When it comes to visibility there are endless variations for each type of report listed above. The first RMS put in Walmart’s returns center in 1988 had a total of 26 reports. Today, the average RMS has over 100 reports out of the box and many now incorporate an easy to use report writer.
Best in class reverse logistics systems today offer all reports via the net and can be accessed from anywhere in the world. As with all reporting, however, executives responsible for RMS report development should be careful not to get too caught up in developing new reports or constant reformatting of existing reports. Visibility is only valuable when decisions are being made that impact the business in a positive manner.
Over the next five years, every company will have to rethink their existing reverse logistics network, infrastructure, and systems. As the cost of transportation continues to escalate, the cost of processing will drive dramatic changes in disposition. The decisions around these changes must rely on quality data that comes from an organization’s reverse logistics system. This system will be your only source for the accurate data needed to revise existing returns networks and will be critical in maximizing the value of returned assets and minimizing associated risks in the future.
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