Supply Chain Management, Reverse Logistics Evolution, Supply Chain Logistics

The evolution of reverselogistics for manufactured products is developing in direct proportion to therapid advancements in technology and the subsequent price erosion of productsas new and improved products enter the supply chain at a faster pace. With suchthin margins and so much competition, mismanagement of the supply chain can bedevastating. Those organizations with the infrastructure to capture and comparethe composite value of components with real time intelligent analysis anddisposition based on changes in refurbishment cost, resale value, spare parts,repair and overall demand will not only become more profitable, but suchflexibility and scalability will allow them to outmaneuver and eliminate thecompetition.

This is a case of modern Darwinism.It is survival of the fittest. It requires collaboration integration withinSupply Chain Logistics, or appears on the endangered species list. Even themighty predator, the Tyrannosaurus Rex, was doomed to extinction by theconstant progress of evolution. Today, technology drives evolution at anastounding pace. The ability to capture, migrate, integrate and facilitate theintelligent analysis of data is akin to the invention of fire. This is whatwill separate the companies who can walk upright from the ones that will bestuck in the tar pits of slow response.

The early days of ReverseLogistics were measured by convenience and customer accommodations. The focuswas on the front end of the return process, the ability for consumers to beable to return unwanted or defective merchandise. The ability to facilitate aconsumer return was a courtesy that turned into a compelling competitivedifferentiator in retail. The companies that did not support consumer returnsfound themselves at a strategic disadvantage to those that did, and wereeventually forced to adopt the same consumer conveniences or lose thosecustomers to the competition.

It did not take long for retailmerchants to seek the same concessions from manufacturers and distributionchannels. Stock rotation became a normal condition of business, and processesfor returning defective merchandise became standard practice. Although this isaccepted as commonplace today, it has not always been this way. Even todaythere are cultural differences with regards to consumer returns, especially forproduct that is not defective and returned because of 'customer remorse'.

As the cost of Reverse Logisticscontinued to increase, and as the methods of transportation became moresophisticated, manufacturers and distributors began to look for alternatives intransportation for savings. Planning and consolidating freight for returnproducts was identified as a way to reduce expenses related to fuel and labor.This also led to detailed analysis of transportation options, like truck, airand railway. In Supply Chain Logistics business you are either the one drivingthe truck, the one pumping the gas, or the one paying the other two.

The next step in the evolution ofReverse Logistics was the experimentation and cost comparison between multiplelocal hubs and single consolidated returns centers. The simple analysis forsavings contrasted the costs of warehouse space and manpower to the amount offreight and transportation fees for handling the back end of the Supply Chain.Other factors also played a significant role in the financial analysis,including volume, material costs and inventory controls.

As the costs of Reverse Logistics continued to rise, the importance ofreturning refurbished merchandise to market also became more significant.Organizations began to place financial significance on the devaluation ofproduct for every day lost in transportation, handling, processing orwarehousing. As technology and features improved, price and demand for agingproduct diminished, as did the ability to recoup costs from returns. Speed toreturn to market could be measured in resale value.

In the next step of Reverse Logistics evolution, there was an awakening andrealization that reverse logistics is only a portion of the entire back-endservices solution. Consolidation meant more than merely consolidating returns,it meant consolidation of activities related to back-end support operations.Manufacturers began to consolidate spare parts and materials in the samewarehouse as the returned merchandise, discovering that it is less expensive tomove parts and packing materials across an aisle than across state lines. Spareparts used to refurbish returns were placed in the same building. Taking thisconcept one step further, manufacturers began to consolidate depot warrantyrepair operations inside the same facility to maximize the utilization ofparts, labor, warehouse and materials. This activity often requiredcollaboration between previously diverse management and operational groupswithin large organizations. The collaborative effort reduced expenses for allparticipating departments and groups within the organizations.

The next major step in the evolution of Reverse Logistics is collaboration with partners and external resources. It is a greater awakening and realization of integration with the entire Supply Chain by leveraging data exchange. It begins with an understanding of the value of the components that comprise a completed manufactured product, the Bill of Materials (BOM). The Bill of Materials is also used by manufacturers to forecast, procure and manage an inventory of spare parts that are used for repair. Frequently, the combined cost of the individual components exceeds the cost of the original retail product. Furthermore, due to price erosion, the cost to repair some products exceeds the cost of replacing the entire unit. Manufacturers must make quick financial decisions regarding the return on investment to refurbish returned products, repair or replace defective warranty products, and the potential resale value for refurbished products returned to market. Manufacturers must also weigh the potential cost if inventory for procuring spare parts to support warranty, extended warranty and out of warranty regulations. To be truly effective, manufacturers must make these decisions before the returned product enters the reverse logistics supply chain, not after it is in it.

Manufacturers have the ability to gather data on activities that drive demand. Contributors to demand planning include failure rate or rate of repairs that require spare parts. At the very front end, potential return trends and potential repair trends can be identified by customer technical support or customer care phone calls. Quality analysis of returns and defective products can also be used to identify demands for spare parts planning. Resale value trends for refurbished products and seasonal sales cycles can be used to predict demand and resale value for refurbished products, and if the product is cost effective to refurbish or repair. In some cases the parts can actually be sold for more greater margin than the whole product. At the very least, parts can be harvested from return products to mix and match repair of other defective return products, avoiding expensive spare parts procurement when applicable. All of these factors contribute to planning the demand for a refurbished product or the component parts.

Once you know the demand and resale value for component parts and whole units, then it is only a matter of maintaining an intelligent planning engine that uses the input to analyze the Bill of Materials for returned products. Before the merchandise enters the Reverse Logistics Supply Chain, make an immediate and intelligent decision regarding the value and intended disposition of the whole unit or the component parts. In some cases the product will be scheduled for de-configuration to feed refurbishing activities or develop a spare parts inventory for warranty repairs. In other cases, the units may be expedited for refurbishing and resale. Some products may be scheduled to be environmentally scrapped for materials. Product may even be de-configured at the retail location to support local customer demands and thereby avoid freight entirely. Whatever the final result may be, the decision can be made before the product enters the Reverse Logistics Supply Chain cycle, as long as the intelligent engine is provided with continuously updated and accurate information. The new problem and the new solution is knowing what you sold, who wants to return it and what it is really worth, before you own it again.

It's hard to believe that there are still companies that invest millions of dollars each year in tools to forecast procurement and inventory management of spare parts, without accurately forecasting and managing the largest single source of surplus components that results from return merchandise. There are still organizations that struggle to achieve freight savings purely by negotiation or consolidation, without a achieving a balanced approach to freight avoidance, localization and intelligent de-configuration disposition. In the competitive landscape of rapidly evolving technology, mass production and eroding profit margins, managing the total cost of the supply chain and the composite value of the components is essential to cost reduction and financial survival. To ignore this aspect of reverse logistics can not only be costly, it can be fatal for an organization.

For Consumer Electronics and Computer products, the Reverse Logistics handling requirements are further complicated by compliance and regulations like RoHS, WEEE, controls on Lead based and Mercury materials, just to name a few. Recognizing these component parts is absolutely essential to the proper management of the intelligent engine that directs the disposition of returns immediately upon notification that merchandise may enter the returns cycle. Proper management is not only financially rewarding, but in the case of hazardous materials, it is the law.

In service, to be competitive is to be the first to provide the services that would otherwise put you out of business. If you can do this, you will place your competitors out of business, or at least have them working for you. Gathering the data that pertains to customer call centers, extended warranty services, spare parts, resale value, parts procurement costs and impending returns often requires extensive collaboration, integration and data exchange. To be successful, it is often necessary to partner with multiple organizations and experts to leverage best practices in a collaborative environment. The companies that collaborate, integrate and optimize date exchange will enjoy the competitive advantages of improved profit margins and precision management. The organizations that do not participate will be remembered as fabulous fossils.

Words of Wisdom:

"In Supply Chain Logistics business you are either the one driving the truck, the one pumping the gas, or the one paying the other two."

"In service, to be competitive is to be the first to provide the services that would otherwise put you out of business. If you can do this, you will place your competitors out of business, or at least have them working for you." - John Mehrmann.

"The old ways are dead. And you need people around you who concur.That means hanging out more with the creative people, the freaks, the real visionaries, than you're already doing. Thinking more about what their needs are, and responding accordingly. Avoid the dullards; avoid the folk who play it safe. They can't help you any more. Their stability model no longer offers that much stability. They are extinct, they are extinction." - Hugh Macleod.

About the Author:

John Mehrmann is a freelance author, industry expert and President of Executive Blueprints Inc, an organization dedicated to developing human capital and personal growth.

Article Source: http://www.Free-Articles-Zone.com