Posts Tagged ‘WMS’

The system used to process returns is the critical component of a reverse logistics process.  The returns system will determine if a company is going to maximize the value of returned assets or if they will needlessly throw money in the trash, literally.

For many companies, if you had to draw a picture of a car that would represent their reverse logistics process, it would look like Fred Flintstone’s car.  For other best-in-class organizations, the car would look like a Ferrari. The question is “what differentiates a Flintstone from a Ferrari?”  The answer is the returns management system (RMS).  There are not many supply chain executives who have any experience with returns and even fewer IT executives. It is this lack of experience and knowledge about reverse logistics that leads to poor decisions when it comes to building or buying a reverse logistics system.

In this four part series, we will help the uninitiated understand what to look for in a quality returns system.  We will describe critical capabilities needed in a state of the art RMS. We will explore what differentiates a state of the art reverse logistics systems from lesser “returns processing systems”.  In this first part of our series, we will talk about the receiving process.  In the second part of the series we will discuss processing requirements to disposition assets, drive repair practices, as well as direct and monitor physical processing.  In part three we will cover the processes that drive shipping, financial transactions, and quality assurance.  The last of our four part series will discuss visibility requirements and key reporting capabilities that will be needed.

The Receiving Process

The receiving process of an RMS should accomplish two primary functions.  First, the receiving process should identify and credit the “sender” of the assets for what they shipped to the processing facility.  Second, the receiving process adds the value of the returned asset into the “inventory” of the returns processing facility.  Before an item can be refurbished, repaired, repackaged, recycled, or sold, it has to be properly identified and recorded in the processing facility’s inventory.  In the world of returns it isn’t “garbage in, garbage out” that you worry about.  You worry about good inventory in and garbage out.  That costs money.

To ensure this doesn’t happen, you must have a quality receiving process at the front end of your RMS.  The RMS should drive a process that answers the following questions as goods are received:

When did the item arrive at the facility?

Where did the item come from?

Who was the shipper?

Is there any damage and should a freight claim be filed?

What is the SKU / Model number / Serial number or other identifying number for item identification?

Is the asset “hazardous” or some other regulated classification?

What is the condition of the item? (New, defective, damaged, damaged beyond repair, in original packaging, etc.)

What quantity is received?

What is the value of each item received?

What is the total “inventory” of the shipment that has been received?

Once this information is collected for each shipment, the process of crediting the sending customer/store/plant can take place.  One of the critical differences between an Returns Management System and a Warehouse Management System (WMS) is that most WMS’s rely on processing receiving against a PO.  In the returns world, there usually isn’t a PO or similar document and the condition of what is received can vary greatly.  The condition of the individual item determines how the asset is valued and how the item flows through the process.

An important back office function relies on the RMS receiving process.  That is the reconciliation of what the sender says they shipped versus what was received.  One of the challenges that exists in the world of returns is that most of the customers, stores, plants, or consumers are not properly equipped to determine the condition of the item they are returning.  They have no way to determine the condition and the value of the returned asset based on the condition. The accuracy of goods shipped is not reliable and the preparation and packaging of the item is not sufficient to prevent significant damage during shipment.  These issues cause differences in valuation and drive the need for a back office reconciliation process.

Identifying the item, determining the condition and valuing the item is the critical capability of the RMS receiving process.  Once this information is gathered, the process of inspecting, refurbishing, repairing and dispositioning the assets can take place.  It is at this point in the process that the value of the asset is determined.  Without a well thought out receiving process, the value of the returned assets could be lost when the item is received in the returns facility, before the process really gets started.

A few years ago, in an effort expand product lines and meet customer needs, the warehouse management systems (WMS)providers developed productivity tracking and reporting programs, dubbed Labor Management Systems (LMS).  As you would imagine, this soon came in two flavors.  One flavor was as a bolt on to your existing WMS.  The other version was a “stand-alone” LMS.

LMS is simply a productivity planning and tracking program for warehouse operations.  They come with an unbelievably large number of reports that have base line goals for management to use to measure individual performance of each employee. 

LMS providers often boast of 15% to 30% gains in productivity during the first year of implementation.  My experience proves that out but for reasons that may surprise you.  There are two major components that will deliver big wins for many operations.

First, LMS forces the warehouse management team to think through every process and determine a productivity goal based on an engineered standard or based on some other less scientific measure, like the supervisor of the area does the job for an hour etc.  The blinding flash of the obvious is that there are many functions within an operation that have never been measured nor have they had any type of productivity goal set for that specific function. Installing an LMS does both and like the old saying goes, “You can’t manage it if you don’t measure it.”

The second big win usually comes in the form of tracking what we called “free time”.  Free time was the amount of time it took an employee to walk from the time clock to their work area, or the actual time taken when an employee goes on break.  Break may only be “15 minutes”, but some employees may take five minutes to walk back to the break area, stop along the way to chat or go to the bathroom, or other “abuses” that LMS identifies for you.  Experience shows that tracking “free time” and working with your team to eliminate as much as possible will improve productivity by 10% or more.

There are clear wins to be had with an LMS but there are two keys to realizing the payoff.  First, you have to have one member of management solely dedicated to monitoring and managing the LMS itself.  This person teaches other members of management how to use the system, runs and distributes reports, adjusts standards & measurements, adds or deletes jobs, and runs comparison analysis for the leadership team.

More important, however, is that the entire facility management team, starting with the General Manager must learn, embrace, support, and use the LMS to manage the facility.   If the management team works around the LMS and not with it, you are wasting your investment in the system.

If the LMS is adopted as a critical tool that must be used, the facility will be able to dramatically improve productivity and reduce the cost of operations.

If you ever go to CSCMP or any other Supply Chain Management conference, you will see some people walking around with a glazed look in their eye. They look like they’ve been through a battle and ofter have scars to show for it. These executives suffer from PTIS or Post Traumatic Installation Syndrome. PTIS is what happens to supply chain executives after they have installed a new WMS.

The VP of Supply Chain and everyone reporting to them are often traumatized by the ordeal of designing, installing, and trouble shooting their new WMS. Throughout the installation, they are constantly reminded of the promised savings they have to deliver, many times realizing the ROI is “a bridge too far.”

How can this happen, with all the planning, the promises from the WMS provider and the focus of an entire team of trusted leaders? It is like a bad commercial.

“WMS Software $250,000.”

“Installation of WMS Software $1 million.”

“On-going customization to get the software to work…. Priceless.”

There are a few guidelines that can help you avoid a WMS disaster.

First, spend time, effort, and resources on defining your processes and process improvement before you talk technology. Many times, companies don’t define their processes until they are talking to the WMS provider during the design meeting, or as they are installing the system. Upon going live, somebody screams because something goes a rye and all hell breaks loose. Define your process and ensure every type of order, processing exception, reporting requirement, etc. is mapped out, in detail.

Remember, applying new technology to a bad process just enables you to make more mistakes faster.

Second, review your process, in detail, with everyone involved with the WMS sale, PRIOR to signing a contract or negotiating the final software agreement and price. “Everyone” includes your entire team, the WMS Sales person, the WMS project manager, programmers, DBA’s, and all the executives from the WMS company you can get in the room. Don’t let your company fall into the trap of having a sales person write all the checks that the WMS project team will have to cash. If things break down later, the sales guy is the first to be thrown under the bus.

Finally, have every single deliverable with time tables, milestones, and penalty clauses documented in a project schedule and included in the software agreement. Many Fortune 500 companies have bought software that cost twice the original price and took twice as long as promised because they did not have the details spelled out in the contract.

A new Warehouse Management System can dramatically improve inventory position, customer service, and supply chain productivity. However, you have to do it right or it will cost twice as much, loose valuable market share, and cost a lot of good people their jobs.