Posts Tagged ‘Reverse Logistics Best Practice’

Carrier claims for returned goods are a little more tricky than normal claims because of the trouble in valuing the goods shipped.  Traditional carrier claims are based on known items on a manifest, each with a market driven value.  In the world of reverse logistics, the shipper often does not exactly know what is in the “returned box” to begin with and the value could vary greatly depending on the SKU, product profile, condition and age of the item.  If left to the traditional means of calculating freight claims, neither the carrier and nor the shipper will have a reliable way to value freight claims because the relative value of the inventory is almost impossible to determine, once the item is lost or destroyed.

Correct values could be dramatically different and there are a host of issues that impact the real value of the returned goods for which a claim is filed.  Examples of some of the problems in valuing returned assets are if there are missing components, or if the item has been tampered with, or if the item has been abused and is broken beyond repair.  These are common finding in processing returns but if an item is missing or if the carrier smashes the case containing the item, figuring out these variables ends up being nothing more than a guess.  Collecting on claims filed can almost be impossible, at times, because of these variables.

The best, easiest and most straight forward method to file freight claims is to establish an “average value per case”.  The average value per case is based on the budgeted units and total value of the goods that are to be processed.   No company can really peg the value of any item that is going to be returned in the future.  Using a logical method to calculate an average value per case is a fair, acceptable way to base reverse logistics freight claims.  Once an average value is determined, the process used to calculate the average should be reviewed with the carrier and the average value to per case should be included in the carrier contract and reviewed on an annual basis.

A word of caution, however, if the value of an individual item is significant, traditional freight claims processes should be used.  The level of detail concerning the returns goods is much greater using this method and you must ensure the proper processes for identification at the point of origin are in place.  In order to file “normal” freight claims, an exact list of items shipped will need to be recorded, tracked, and received at a detailed level for each shipment.  You must also ensure that the proper documentation noting the value of the shipment is made, prior to shipping.  If this level of detail is not possible, using an average value per case is probably the best method.

For most companies, the cost of processing returns impacts the bottom line directly.  If they can save a buck in processing costs, their earnings will increase a buck.  For reverse logistics processors, saving a dollar in processing costs will either fall to their bottom line or worst case improve their value to their customer.  Many returns processors rely on their ability to develop process improvements to keep the business and get their customers to pay them additional fees.

If you are looking to reduce returns processing costs or wanting to find ways to increase profits, try this best practice to reduce the cost of returns.  The following process has historically been a great source of savings.  It starts by flow charting the process of top twenty sorts within the returns facility.  Just focus on the top twenty.  In the vast majority of return centers, the top twenty items impact 80% of the costs of the facility.  When flow charting out the processing path of each item, be sure to write down every detail of what happens to the item from the time it enters the four walls of the facility through to final shipment.  Flow chart each item, category, or sku separately.

Once you have the flows documented, lay them out and then start looking for functions that can be combined, differences in processing requirements from one item to the next, and steps that can be eliminated.  It is very helpful if you place people onto the chart, by name.  You will then be able to see where some people do very little, work stations should be moved, and other opportunities to combine steps that may not be seen by observing the actual operation.  After you have all the pieces to the puzzle in front of you, start experimenting with the flow of goods.  Play what if games and see what the impact would be.  Many of the best design and flow improvements come from drawing the existing flows and process on butcher paper and then brain storming about how the flow could be changed and improved.

The best way to get ideas flowing and get the most out of your brain storming session is to ask “Why?” five times.  By this we mean ask something like:

1. Why does the item have to be received this way with all this information?
2. Why do we have to collect all the profile data and causal information?
3. Why do we to sort, separate, and segregate the items the way we do today?
4. Why are the items packed, prepared, inspected, or processed they way they are today?
5. Why do we ship, scrap, recycle, or dispose of  the item the way we do today?

If you ask the five “Why’s” for the top twenty items flowing through your returns facility, you will find many opportunities to save time and money.  You will also find that the process improvements developed for the top twenty items will apply to most if not all items flowing through your returns facility.  The impact of eliminating just one step in the process of one of your highest volume returns will have an amazingly large impact on the financial performance of the facility.

Why ask “Why?” The answer is “To Save Money!”