Posts Tagged ‘Strategic Planning’

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.

As the first quarter is coming to a close many companies are happy to see the volume of returns slow down to a more reasonable rate. Some are happy to be finished with processing peak volume while others are wondering how they will ever get caught up.

There is one truism about returns, regardless of whether you are talking expensive hi-tech gear or a plastic toy and that is that returns don’t get better with age.  In fact, for hi-tech equipment you can count on loosing 10% in value about every 30 days.  What this means is that you must have a strategy to turn your inventory in less than 30 days in order to maximize the value of the goods in your reverse pipeline.

Strategy?  Many executive responsible for returns processing never think “strategy”.  They just kind of know what is going to happen and they hope they survive.  As the old wise man said “Hope is not a strategy.” Without a well thought out plan, that is flexible, the chances of maximizing the value of the inventory flowing through your reverse pipeline is slim.  What is the “Value of Inventory” in a reverse logistics pipeline?  Here is a simple formula that captures the idea:

Returned Asset Net Value = (Original Value X Recovery %) – Total Cost to Process

So why does the value drop on returned items so quickly?  First, goods flowing through the reverse pipeline are handled an additional 8 to 10 times which adds a lot of wear and tear on the items.  Second, returned goods generally aren’t packaged and transported with the same high quality outer packaging, pallets, and protection like similar new goods.  These goods are often shipped without packaging at all and are not stacked on neat pallets, with standard Ti-Hi arrangements that help secure the freight during transportation.  As a result, this stuff get beat up.  Many manufacturers will tell you that a lot of their returns are fine when they enter the reverse logistics pipeline in the back of their customer’s store, but by the time they receive and finally process the goods, it is barely recognizable in some cases.

Another factor is obsolescence caused by technology improvement and age.  For example, a few years ago one of my facilities was receiving Apple iPods.  We were processing these iPods and selling them on the secondary market for about 50% of original value.  Right in the middle of the returns season, Apple introduced a new iPod that was much improved over the previous model we were handling.  Overnight, the value on the secondary market dropped from 50% to 30 % of original value.  The asset recovery buyers knew that in 60 days their current market that justified paying 50% on original retail would drop dramatically as demand for the newer model grew.

It is for these reasons that when it comes to reverse logistics timing is everything.  However, in order to get the most out of returned assets, a strategic plan of action must be developed that addresses the following key variables:

• Volume - Peak returns volumes can be between 30% to 150% higher than an average month and can include additional recalled items, return to stock goods and other asset profiles not normally processed.  Estimated volume, type of returns, profile of the assets and disposition are critical pieces of information to know in order to properly plan.
• Space – temporary space will be needed to handle higher inbound volumes at the start of the season and then used for holding outbound surges as the volumes are processed.
• Labor – additional shifts will be needed which will require hourly labor and additional management. Many often forget they will need more trained supervisors, who will require more time to get up to speed.
• Disposition Partners – Communicate expectations to liquidators, recyclers, and others you ship to so they understand your plans and the volumes they will need to be ready to receive.  A word of caution on dealing with liquidators: don’t expect a liquidator who barely pays for product in normal times to be able to pay three or four times as much during the first quarter when their sales are down.  You will need to qualify, inspect, and select other buyers to keep your asset recovery product flowing.
• Red Flags – Develop metrics to be used to monitor inbound, processing, and outbound activities.  Have a plan of action if the key metrics get out of tolerance.  For example, you might track inbound trailers in your facility and set a metric of 12.  If you see there are more than 12 trailers coming in, the action will be to rent one storage trailer from company X for every trailer over 12.

Remember, the biggest difference between a normal distribution center and a reverse logistics operations is that in the latter, you don’t know what you are going to get until you open the door.  In a warehouse, you have somebody placing orders and you know how much you are going to receive and when it is going to get there.  Not so in a return center.  The key to building a good plan to deal with returns is to build in flexibility.  You have to be able to increase or decrease each component based on what is going to come in the door and you won’t know that until it gets there.  Simply hoping the flow is smooth and things work out is asking for trouble and will cost money.

Reverse logistics is like other functions in a supply chain.  In order to optomize performance you must have a goal but like the old saying goes “A goal without a plan is just a wish.”  For the average company, returns are over 8% of assets and the average company spends between 9% & 14% of revenue on these returned assets.  That is a lot of money to leave to chance.  Developing a strategic plan of action focused on maximizing the value of all assets flowing through the reverse pipeline is crucial to your companies success.

Bill Fields, the former head of Wal-Mart Stores Merchandising Divisions, use to say “Execute or be executed.”  He always said this with a smile but we all knew he meant it.  Execution is the key to having a great strategic plan. However, execution is where the wheels fall off most strategic plans.

If you ask most business leaders to describe the outcome of their strategic planning process they will talk about the development of a big binder that sits on a shelf until the next year, when they do it all over again.  To make matters worse, most companies pay a strategic planning consultant a lot of money to have them develop the big binder.

The big binder has no value if it isn’t the basis for action.  In the same way, a strategic plan is worthless unless it is the basis for the leadership of a company to actually do something different than what they would have done as a part of their normal work activities.

To have an effective strategic plan and supporting process, you must spend as much time talking about how the organization is going to execute the plan, as you do developing the plan.  You will also need to spend twice as much time following up on the execution as you did talking about the plan.  Businesses need to have a well developed method to track and follow up on the execution of the strategic plan or they will end up wasting time and money on strategic planning.

It’s all about execution.  Bill Fields was right “Execute or be executed!”

As a consultant that specializes in strategic planning and supply chain management, I’m often surprised at how little strategic planning focuses on the supply chain.  Like Napoleon said, “An army travels on it’s stomach.”  He was not talking about food as much as he was talking about the importance of the supply chain that delivered the food.  Today, a company’s survival depends on their supply chain.  However, there is little planning that focuses on significant changes that impact that vital part of the business.  In fact, for the last few years there has been one obvious glaring omission in just about every strategic plan that I’ve read.

The glaring omission is the lack of any planning around the impact doubling fuel prices will have on the supply chain.  Nobody will argue that fuel prices are going to double over the next five years but there is hardly a company that has taken any steps or developed any plans that address this impending change. We aren’t talking about just the impact on transportation but on the size and shape of the entire supply chain and supporting networks.

Today, for example, many supply chain networks are based on a network of major facilities in three or four locations in the US.  Typically they import goods through the Port of LA and ship containers to DC’s on the West Coast, Midwest, Southeast, and Northeast.  Ever so often you’ll see a facility in Dallas Metro area and maybe in the Northwest.  This network was designed based on a number of factors that have not been altered in the last twenty years.  These factors include dated demographic information, along with “traditional” facility fixed costs and typically, today’s transportation costs, using today’s fuel prices.

Few company look at what happens to this network model when they account for population shifts, reduced real estate prices and building costs, and doubling of fuel costs.  That’s the strategic analysis that every supply chain should conduct.  The company that completes this analysis and leverages the results in the market will have a significant competitive advantage.  The survival of some companies will depend on resulting supply chain network realignment.

According to a study conducted at the University of Nevada, Reno by Dr. Dale Rogers, the impact on a supply chain will be significant.  Dr. Rogers study showed that a three or four DC network will probably be  replaced by a network of 15+  smaller DC’s located in markets not normally considered supply chain hubs.

The implications of this shift include fewer build to suit million square foot facilities, facilities with significantly less material handling equipment,  and smaller, leased facilities with more generic systems .  Flexibility will be key to the future supply chains.  The higher total facility fixed costs resulting from more square footage under roof, will be more than off set by the total reduction in transportation, powered by $5 per gallon fuel.

Strategically, every company with a supply chain and certainly every supply chain solutions provider  should seriously consider the impact that the oncoming increase in fuel prices will have on their business.  It is coming, be ready.  To paraphrase President Eisenhower, it isn’t the plan that is important, it’s the thought process that goes into it that makes the difference.  Think about the impact of rising fuel prices on your supply chain network.

The Sustainable Supply Chain Management Podcast is hosted by Dr. Dale Rogers and Curtis Greve. This podcast is focused on sustainable supply chain management issues and best practices.

Podcast #4 – Asset Recovery

Join Curtis Greve and Dr. Dale Rogers as they discuss basics of Asset Recovery in their fourth podcast. Whether you call it Asset Recovery, Liquidation, or Salvage Sales, it is an opportunity to increased profits for manufacturer and retailers alike.

Successful manufacturers such as Nike, Dell, HP, Adidas, Foxconn, and leading retailers such as Walmart, Kohl’s, Canadian Tire and Target successfully integrated a Strategic Asset Recovery Strategy into their Sustainable Supply Chain Management Strategy. This approach enables these companies to maximize the value of obsolete inventory while removing slow moving or dead inventory from the primary stream of commerce.  A Strategic Asset Recovery Strategy will increase customer satisfaction and increase profits.

A company’s supply chain can either be one of it’s greatest competitive advantages or a huge disadvantage it struggles to overcome. Market leaders typically enjoy significant advantages over their competition because of their supply chain. Another characteristic that market leaders share is that the vast majority outsource some or all of their supply chain. Coincidence? Hardly.

Why do leading businesses outsource? The reasons are as varied as the companies themselves. However, it usually boils down to three primary reasons: Need for flexibility, the need for speed, or improving profits.

Walmart has one of the best supply chain networks in the world. However, due to the volatile nature of imports, the cost of real estate around major ports, and the expertise needed to meet customs requirements, they outsource most of their import warehousing.

Some of the leading manufacturers also outsource pieces of the distribution networks. Today Atlanta is one of the biggest supply chain hubs in the world. That wasn’t the case 25 years ago. Milwaukee use to be the center of all things beer related, including supply chain. That isn’t the case today.

The point is that companies realize that great supply chain solutions for today may be a major problem years from now if they are stuck with a building in the wrong location. This could result in a major competitive disadvantage to competitors who built flexibility into their networks.

Often, companies will outsource to 3PL’s to minimize the risk of these major demographic changes. Outsourcing has other advantages also.

Outsourcing requires less up front capital costs and agreements can be structured to avoid impacting bank covenants.

Outsourcing a new operation is usually much faster than building facilities. Companies leverage 3PL’s infrastructure to provide geographic coverage much quicker than they would be able to if they had to go through the building and development process.

Companies often outsource to limit certain liabilities. For example if a company with a non-union workforce needs operations in a highly unionized area, they will outsource to provide protection from their other operations. In addition, issues with health insurance, worker’s compensation, and shrinkage can be limited by outsourcing.

In the right situation, outsourcing can provide a cost effective solution, fast. The result will be a more flexible, more secure, more profitable supply chain.

According to the recent McKensey Quarterly, India leads the world in providing offshore services in business and technology, with revenues of $58 billion in 2008, out of a global total of $80 billion. McKinsey estimates this is just the beginning: the global market for offshore business and technology services could grow to about $500 billion by 2020. Yet even with this growth, the industry will still serve less than 1/3 of the potential market for these services, which McKinsey estimates at $1.65 trillion to $1.80 trillion in 2020.

Source: Strengthening India’s Offshore Industry

Growth of domestic outsourcing continues to outpace GDP growth also. Why?

The answer is simple. Outsourcing non-core competencies cost less than developing and/or supporting inefficient, poorly run in-house functions.

The perception of many is that outsourcing costs more but that is usually because they don’t count all the internal costs of sub-par production, and often over look costs of supporting a poor in-house model.

If you do not have thought leading executives with core competencies in support functions such as systems, supply chain management, or call center operations. You should seriously look at outsourcing.

If you don’t have the critical mass for these functions, outsourcing could leverage an expert provider’s base, resulting in significant cost reduction.

If flexibility, dynamic growth, or restricted capital are realities you face, often times, outsourcing is a great strategy that will result in dramatic bottom line improvement.

Because of these and many other reasons, most of the Fortune 1,000 companies outsource / off shore significant pieces of their core functions.

SEIU sent out emails today urging all members to sign up for mobile alerts so the SEIU can immediately rally their members “When your Senator or Congressman needs to hear our voices on the health insurance reform, Employee Free Choice, or immigration debates.

When our members — your brothers and sisters — require support at the workplace, the state capitol, or in the streets.”

This is more evidence of big labor investing and building infrastructure to sway political opinions and organize non-union businesses. Like the old song says, “these times, they are a chang’n”. Is your business keeping up? Do you have a Strategic Labor Relations plan to deal with all the legal changes, threats, and union tactics? If not, you need to take action now. The times may be changing, but time stands still for no man.

Most executives that have had significant roles for more than a couple of years have probably suffered through “Strategic Planning Sessions” that resulted in a big bill, a big book, and a big waste of time. The biggest impact on the company was to take up a little more room on everyone’s bookshelf with a big binder that never gets used.

There are a few simple things that you can do to ensure you get the most out of your planning session.

First, have a good idea of what you really want to achieve by going through a strategic planning process, in the first place. If you don’t have an idea of the desired outcome, cancel the meeting and save the money.

Second, do you pre-work. Make sure you take the time and involve the right team members so you will have a basis to work with. If you are going to download to the team, save the time, record a podcast and send it out free to anyone who wants to suck up to you and listen to it. Getting unbiased, uninhibited feedback from the team is the critical element to drive your planning process.

Next, make sure you have the right people in the room. There are those who can contribute and those with nice titles that are oxygen thieves. Only invite those that can and will contribute in a positive, can do, manner.

Keep the egos at the door and wet blankets out of the room completely. One of the best rules I’ve heard in planning is that nobody in the room was allowed to say anything negative about an idea for 15 minutes after it was introduced. Change is hard and new is easy to kill. Dare to dream a little.

Lastly, drive your team to focus on three or four major goals that require teamwork, can be measured, and will take the company in the right direction. Don’t allow small things, or “go do’s” to clutter your plan. Assign them to somebody with a due date and be done with it.

The resulting strategic plan should be three or four major goals that are in alignment with the strength, address the company’s weaknesses, makes the most of the company’s opportunities, and addresses the company’s biggest threats. These plans then get assigned to individuals who have milestones and due dates to which they are held accountable.

Follow these guidelines and your planning process will delivers results, not pretty binders.

There are many issues with the economy today and there are a number of variables that must be factored into strategic supply chain planning. One subject that is often overlooked is factoring in the impact and opportunities of sustainable supply chain changes that we all know are going to happen.

The low gas prices of the last few months have lulled many into to falling back into old habits when planning and executing supply chain strategic plans. There is no doubt, however, that fuel prices will go back up. Populations will continue to shift from the old rust belt areas to the sunny coastal regions. The percentage of Americans over the age of 65 will dramatically increase over the next 5 years.

All of these factors and more will have a significant strategic impact on every company. Strategic planning teams don’t argue these facts, but they don’t incorporate any of factors into their strategic plans. Why don’t strategic planning team factor in these non-controlable factors into their planning? Some businesses don’t take strategic planning seriously. They plan for days and the result has no impact on their actions. Some planning exercises are simply an exercise in fulfilling what the dominate CEO says should be their strategic plan. Others are prisoners of poor strategic plans of the past.

How do you avoid these mistakes and ensure you factor in earth shaking factors into your planning? First, you need to have a good facilitator that will ensure the strategic planning team follows the rules and factors in sustainability factors. Second, write them down and post them as a constant reminder during the main planning meeting. The final tip is to avoid debating the actual impact. For example, you know fuel prices are going up. Don’t waste time arguing if the price of gas is going to go to $4 per gallon in six months or twelve months.

These sustainability factors can be both an opportunity and a threat. If factored into planning, you can position your company to ensure you take advantage of the opportunities and avoid the threats, distancing your company from the competition in the process.