Posts Tagged ‘walmart’

When asked about their reverse logistics programs, many manufacturers reply that they don’t have enough customer returns to justify spending any time on the subject. They look at the amount of actual defective customer returns and conclude that the impact of reverse logistics is simply immaterial to their business. It isn’t worth talking about.

What they often do not understand is that defective customer returns on average accounts for less than 25% of assets that flow through the reverse pipeline. The big mistake that many executives make is that they confuse their customer return rate with the total volume of goods returned.  Customer returns is only a piece of the pie.

Another fact that is often overlooked is that for companies that send parts to the field for repair, on average get one out of six parts returned. Parts are returned because they weren’t needed, they ordered the wrong part, or they ordered more than they needed. Components and replacement parts are a big part of many manufacturer’s returns. Processing returned parts is a key component to an economically efficient parts management program.

Product recalls are another major volume contributor to the reverse pipeline. Last year the US Government ordered over 1,000 products recalled off the market. Empirical evidence shows that for every government mandated recall there is at least one non-mandatory recall made by either the manufacturer or their customers. For every manufacturer, the question is not if you will have a product recalled off the market. The question is when will you have a product recalled off the market.

Another aspect of reverse logistics that is often overlooked by many manufacturers is end-of-life strategies and seasonal recalls.  These are recalls that are generated when new models are sold or there is a change in season.  The product in the field or on the shelf is in great condition, it just didn’t sell and it needs to come out of the market in order to avoid conflicts with new product sales. Many companies such as Walmart require manufacturers to have end-of-life strategies and plans in place to process recalls before they will agree to purchase from them.

To recap, here are four reasons why every manufacturer should focus their resources and efforts on improving their returns processes:

• Defective returns, while only 3% – 6% of sales, are only 25% of the assets that get returned.
• One out of every six parts shipped to a customer or repair technician is returned
• The Government ordered over 1,000 different products recalled off the market in 2010
• Many manufacturing customers require end-of-life and recall processes to be in place before they will buy

Studies have found that ON AVERAGE manufacturers spend between 8% to 15% of sales on returns. When manufacturing executives understand that these returns include much more than simple customer defective returns they suddenly find the time and resources to focus on improving their reverse logistics processes. These efforts often result in increasing profits by as much as 3% to 5% of sales!

Now that is worth talking about.

Being a Walmart supplier can be tough. The stories of manufacturers who made bad deals with Walmart that resulted in disaster are legend. Walmart buyers are tough, they know their numbers, and they are skilled negotiators. However, Walmart buyers do not force manufacturers to make bad deals. The only person in those small rooms in Walmart’s Home Office than can make a deal that will result in financial trauma for the manufacturer is the manufacturer’s sales person.

A common mistake that many manufacturers make when preparing to sell Walmart is to only prepare to discuss their product and their price. Many don’t even consider the last two pages of the supplier’s agreement before they meet with a buyer. These last two pages can have a significant impact on their overall profit margin without them even realizing it. The last two pages of a Walmart Supplier Agreement covers the terms and conditions for returned product.

There are ten questions about returns that suppliers should be ready to discuss and negotiate with the buyer when closing the deal at Walmart.  For those who may be thinking “Returns? What is the big deal?” we would point out that a study conducted by the Aberdeen Group  in 2007 found that on average manufacturers spend 9% to 14% of sales on returns. Another interesting finding from the same study found that 30% of the companies surveyed had no idea how much returns cost them. They were literally blind to cost of returns. The point is that proper preparation, knowing Walmart’s expectations and what the benchmark for returns processes are for your products will have a significant impact on the bottom line. In fact it could be worth as much as 5% of sales!

If a you have answers to the following ten questions you will have everything you need to negotiate a win/win deal with Walmart and maximize the your profits.

1. Will you credit Walmart for returns based on actual items returned or provide a standard off invoice allowance?
2. Do you want Walmart to dispose of the returns or send them back to you?
3. Are you going to receive returns directly from each store or through the return center?
4. What should your company’s consolidation fee be for items returned through Walmart’s return center?
5. What is your end of life strategy for your product?
6. How are you going to handle recalled product?
7. What are your return authorization requirements?
8. What is your plan for seasonal overstocks?
9. Are you going to have “return caps” or other limits to the value of returns that you will credit in a given period?
10. If you are going to use an off invoice allowance, what is the standard for your product and how will it be adjusted?

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.

The most important question that an executive in charge of reverse logistics can ask about a new item is “What is the merchandise exit strategy?”  It is easy for a company to get excited about a seasonal item or the newest widget in their product line, but it is important for them to think about the exit strategy.  Just like an investor who is going to acquirer a company, manufacturers and retailers need to have a clear exit strategy for their goods.

In today’s podcast, Curtis Greve talks about how to develop an exit strategy for products and critical factors to consider when working within an organization to develop merchandise exit strategies.  Whether it is a seasonal item that is part of a guaranteed sales agreement, an item with a limited life span like a computer or fashion item, or if it is an item that is coming to the end of it’s life and is going to become obsolete, having a well thought out exit strategy could significantly improve that item’s contribution to the bottom line.

The Reverse Logistics Podcast

Your host is Curtis Greve.

Last week at the Reverse Logistics Association conference in Bentonville Arkansas, there was much discussion about the future of vendor return agreements.  These are agreements between retailers and manufacturers that will govern returns privileges and related fees.   So what can manufacturers expect in the future.  In a word: “Simplicity”.  Retailers are dealing with more and more vendors with more complex returns requests.  With the push toward sustainability, more regulations coming, and the continued growth in off shore manufacturing with no domestic facilities, the need for simplicity is understandable.

So what will the future options be?  Manufacturers will be given two choices:

1. The retailer will ship returns to them.
2. Retailers will dispose of returns as they wish and pass on any additional costs that are incurred.

Fees for these two options will vary depending on the choices made and the retailers will expect the same amount of credit for the goods themselves from the vendor regardless of the choice made.  Manufacturers should consider the variables and options involved carefully.

If a manufacturer goes with the second option and retailers will  dispose of the goods as they wish, which gives the retailer the option to liquidate the product, keeping all the proceeds; or dispose of the product and charge additional disposal fees if incurred.  Like many things, the devil is in the details and both retailers and manufacturers should carefully variables and associated charges.  If both retailers and manufacturers work together, they both could find opportunities to reduce handling, transportation and disposal costs.   For example,  if a manufacturer is going to dispose of the returned goods when they receive them, they might want to work with the retailer to dispose of the goods at their returns facilities and save the extra leg of transportation and handling.

If accountability is a concern, manufacturers should work with their retail partner to negotiate a damage or swell allowance.  How these allowances will be set and confirmed should be clarified and agreed to but again, additional transportation and handling can be avoided.

When negotiating return agreements with retailers, the manufacturers should keep the following points in mind:

If you want to have the product sent back, leverage a return authorizations and condition requirements in order to get a lower consolidation fee.

If returned goods are liquidated by the manufacturer, work with your liquidation partners to coordinate shipping returned goods directly from the retailer to the liquidator, saving two legs of transportation and additional handling.

If you are going to allow retailer to do what they want it the product, ensure agreement is made on fees and related liability.

If you are going to negotiate a swell allowance or a similar off invoice credit, get agreement on how the allowance is going to be calculated, how it will be verified, and how often it will be adjusted.

One thing that will not change is the need for manufacturers to have an exit strategy for their goods.  Thinking through an “exit strategy” for merchandise is an important concept for every manufacturer, regardless of what they sell or to whom they sell it.  Developing a well thought out exit strategy for returned goods will significantly impact  retail customer satisfaction.  Developing an exit strategy for both customer returns and recalled goods will make a manufacturer easier to do business with, help avoid additional liabilities, and will ensure they maximize the value of goods in their reverse logistics pipeline.

Reverse logistics was born from the desire to improve customer satisfaction. As competition increased and the living standard improved after World War II, customers demanded better quality and service.  As a result, people started to return items at a greater rate.  Retailers and manufacturers, seeing an opportunity to gain or keep market share eased their return policies.  For many companies, such as Wal-Mart, this was way to differentiate themselves to the customer.

In the mid 1980′s, when I was responsible for Walmart’s reverse logistics operations, I received a call from Sam Walton’s office.  Mr. Sam wanted a returned item that was an outrageous example of an item that had been returned and money refunded to a customer.  He was going to use it at an upcoming store manager’s meeting.   I went out on the floor and found a Stanley Thermos that we had recently processed from a store. On the bottom of the thermos there was a date stamped showing the date of manufacture – 1954. The first Walmart store didn’t open until 1962.  I grabbed the thermos and the store return tag and sent it over to Mr. Sam’s office.

A few weeks later, at the Wal-Mart Store Manager’s meeting, Mr. Sam held the thermos up and asked the store manager that had given the refund to come up on stage. The nervous manager walked up on stage and stood beside  Mr. Sam.  Mr. Sam shook his hand, thanked him for doing a great job and then praised him for providing such great customer service.  This guy understood that taking back a return wasn’t about a $20 thermos, that had clearly not been bought at Walmart.  It was about customer satisfaction.

All the managers in the attendance got the message.  Over the next few months, the volume of Wal-Mart’s returns increased significantly, as did sales, earnings, and market share, all which were the result of keeping customers happy, one return at a time.  By the way, that same Stanley Thermos is now on display in the Walmart’s Visitors’ Center in Bentonville Arkansas.  The message lives on.

Reverse logistics is all about customer satisfaction.  In a study published by the Aberdeen Group in February 2010, out of the 160 enterprises examined, those companies rated in the top 20% in terms of quality of reverse logistics program had an average customer satisfaction rating of 93% compared to the other firms ranked in the lower 80%, whose average customer satisfaction rating was 81%.

In other words, companies that had well developed reverse logistics programs were ranked significantly  higher in customer satisfaction.  Interestingly, the same study found that for both, the top 20% and the lower 80%, the cost of reverse logistics, as a percent of total service operations costs, were within 1%.  The point being, it isn’t about spending more money to process returns.  The difference is in how and where you spend the money you invest in your reverse logistics program.

Every executive understands the positive impact of improving customer satisfaction.  Sales grow, customer turnover decreases, over all moral improves and earning go up.   This study proves that there is a direct relationship between customer satisfaction and reverse logistics.  Reverse logistics can help both top line and bottom line results through processes  that improve customer satisfaction.

Over the course of the next eight weeks, most consumer goods manufacturers will receive and process between 30% and 50% of this years total returns volume. How they deal with this tidal wave of volume and the reconciliation of credits with their retail customers will have a profound impact on their future relationships.

As the former head of Walmart’s reverse logistics division, I use to be amazed at how many manufacturers set themselves up for a fall. Many seemed to go out of their way to earn a poor reputation that would carry over to the spring when the buyers place their orders. Before I go on, I realize that Walmart was tough to deal with and overly demanding in many cases. However, as the head of all reverse logistics for Genco, the largest third processor of returns in the world, I saw the same behavior even for smaller, seemingly nicer retailers.

There are number of things a manufacturer can do to avoid taking a customer service hit resulting from how they deal with returns. Regardless of the retailer, manufacturers can set themselves up to actually improve their standing in the eyes of their retail customer, as opposed to becoming the target for ridicule and revenge come deal making time in the spring.

The biggest mistake that many manufacturers make is to shut down their factories and returns operations in January or February for maintenance and retooling. The impact of this on the retailer is huge. The reverse logistics pipeline gets backed up and that usually means damage rates go up, accuracy goes down, and tempers start to rise. If you must shut the factory down, fine, just don’t shut off the flow of returns during the most important time of the year.

Another area of consternation is around what “cost” to use when processing returns. This is perhaps the biggest area of debate between the retailers and manufacturers. To exacerbate the situation, arguments over cost usually land on the buyers desk, in spring, just when he is getting ready to negotiate the next year’s deals. Great timing.

To avoid this, the manufacturer should proactively address what cost basis will be used for returns, when they negotiate the terms of sales in the first place. Along with the cost basis for returns, manufacturers should ensure that the following impact items are clearly defined and agreed to:

• Consolidation fees if the retailer uses a return center
• Freight charges from movement of returns
• Product condition and packaging requirements
• Model or serial number ranges that are acceptable, if appropriate
• Restrictions on throwing the product away or selling it on the secondary market

Keep in mind that the above points of clarification and resulting financial terms will vary depending on if the item returned has been sold to a customer and returned or it is a guaranteed sale item.

Manufacturers should view returns as an opportunity to differentiate themselves to their customers.  “Easy to do business with”, does not mean “make bad business decisions”, or “negotiate a bad deal.”  If your sales person can engage the buyer upfront with a proactive approach to deal with the realities of selling products and dealing with returns, the overall relations benefits.

If you need to improve moral in your warehouse and wish your supervisors were better trained and prepared, set up a “Work Day” program.

“Work Days” are days when a supervisor shows up dressed like regular employees and they actually do the work, just like a normal employee. No meetings, no extra breaks, they just do the work. Supervisors and managers cover for each other so the manager or supervisor on a “Work Day” has their supervisory responsibilities taken care of.

Often, supply chain managers and supervisors never actually do the work that they are charged with overseeing. Requiring them to do the work will teach them more about their job than any class on leadership ever will. The employees love it also.

Supervisors will dread it and you will have to force them to do it, but soon they will see that they are more effective and their team is more cooperative than before. Don’t stop with the supervisors in an area. Require every manager to spend one day a month working in one area that they oversee.

This was a common practice at Walmart and it worked like a charm. Soon the supervisors were adding value by coming up with ideas for improvement, eliminated redundancies, and labor relations improved dramatically.

Setting up a program for management to rotate every month to complete Work Days is a best practice that shows immediate payoff.

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 #2 focuses on the impact of revitalized unions on America’s troubled business community.  Did the UAW cause GM to go bankrupt?  Was Chrysler’s management team at fault for their down fall?  What has more impact on a company, management or unions?

Podcast #2 – Unions vs. Management

Show Notes

Dr. Rogers and Curtis Greve debate and discuss:

1. The role of unions in the downfall of General Motors.
2. Why doesn’t Walmart have unions?
3. Is there a legitimate role for unions in business?
4. What do employee really want?
5. Everyone wants to be part of a tribe, that tribe could be a company or a union.
6. Can poor management alone drive companies out of business?
7. Can unions determine if a company stays in business or not?
8. Unions are a for profit business that makes money by collecting dues from members but do they provide any security?

The opinions of the hosts are based on their personal experience in the business community as executives, advisors, and as  hourly union members.  Comments and questions are welcome.

Want a free and easy way to dramatically improve the relationship between your management team and your employees?

Have your team at the door when your employees go home. As they leave the building each supervisor thanks them for doing a good job, says good night, smiles, and just chit chats with them.

This is a great time for your people to quickly speak with you and your supervisors one on one. You will hear about their families, big events in their lives, and issues in the operations that you may not of heard about otherwise.

It is free, it is easy and it is common best practice at Walmart facilities and other leading companies. I’ve done it for years and can tell you that it is a great practices that pays great dividends.