Posted By Blumberg Advisory Group on 01/21/2017 Warehousing Logistics

Profiting from Reverse Logistics Automation

By: Michael R. Blumberg, CMC

Profiting from Reverse Logistics Automation

Case Study 

Reverse logistics automation cloud-based software applications are becoming universal as the systemic solution of choice. This case study details why.

Management Summary 

The economy is impacting reverse logistics organizations as we are seeing more companies look to their service organizations for additional revenues. The top challenges among respondents were:

1.  capitalizing on income generating opportunities (60%)

2.  lack of visibility throughout the entire reverse logistics supply
     chain (55%)

3.  maximizing asset utilization and recovery (47%)

4.  tie for fourth place was a lack of cross-functional processes and teams to ensure joint efforts
     and integration and loss of customer focus in the reverse logistics chain to ensure the
     customer is engaged and informed (42%).

It is no wonder that there is a concern about the lack of visibility when only half of the respondents find their Reverse Logistics Management Solution (RLMS) effectively manage the visibility into interim reverse logistics processes and functions. Clearly, there is a lot of room for improvement when it comes to connecting systems and processes to provide the holistic view of goods in motion throughout the reverse logistics supply chain.  Access to all critical data regardless of where it resides in the Reverse Logistics supply chain helps drive down costs and maximize revenue generating efforts. The requirement for greater visibility is not only limited to internal (i.e., company operated) systems but visibility into external systems and processes to facilitate improved collaboration between supply chain partners. In fact, visibility was the least effective feature of RLMS systems:

  • Ability to prevent fraudulent returns 65.2% 
  • Ability to effectively add new supply chain partners 58.8% 
  • Collaboration between supply chain partners 57.4% 
  • Transaction based costing capabilities 53.1% 
  • Visibility into interim reverse logistics processes and functions 51%

Objectives

Reverse logistics supply chains possess some unique characteristics, which underscore the need for sophisticated, end-to-end reverse logistics management solutions (RLMS). These characteristics include:

  • Uncertainty of supply; usually people do not know when an item will be coming back, nor do they know its condition

  • Customer specific; the return flow is quite diverse and depends on the end-user or customer, requiring companies to have to know their customers

  • Timing; the need to process assets as quickly as possible to make them available for reuse

  • Value improving; the need to maximize value (scrap, resale, etc.) of unacceptable assets being returned

  • Flexibility; the need to maintain flexible capacity (i.e., facility, processing and transportation) to achieve goals for returned materials

  • Multi-party coordination; in any aspect of reverse logistics-- whether it be source reduction, recycling, substitution, or disposal-- several parties are typically involved

To better understand how RLMS helps automate and enhance reverse logistics processes, CSDP Corporation commissioned Blumberg Advisory Group to conduct a survey on automation within the reverse logistics marketplace. In the following pages, we discuss issues that affect many enterprises engaged in reverse logistics and the impact reverse logistics management systems have on the organization.

Methodology

This survey was conducted in early 2013 and included independent service organizations, manufacturers, third party repair firms, electronic manufacturing service providers, retailers, and distributors.

Key Results

The results indicate that companies are viewing reverse logistics more strategically than ever before. Based on the 2013 benchmark survey results, 42% of respondents view their reverse logistics function as a strategic line of business versus 27% who view it as a cost center, 22% as a profit center, and 11% as revenue or contribution center (Figure 1).

More returns are done by individual unit (76%) or cases/pallets (56%) than the truckload (50%). This is probably because most returns are from the field (87%) or customer returns (68%) versus retail return (55%).

In addition to visibility, companies are looking for their Reverse Logistics Management Solution to provide inventory control, depot repair, parts management, warehouse management, EAI and EDI integration, asset recovery/spare parts reclamation, RMA issuance, disposition management, and a slew of other functions as shown in figure 3. This emphasizes the need for robust solutions that can handle a wide variety of reverse logistics processes.

Respondents are also expecting a wide variety of benefits from their RLMS including improved customer satisfaction (67%), improved cycle time (65%), improved operating efficiency (65%), improved the productivity of personnel (65%) and more benefits (Figure 4). While companies have noted maximizing asset utilization and recovery as a top challenge, only 48% feel their reverse logistics management system will help improve asset recovery rates.  

This could be partly to do with the lack of overall satisfaction with reverse logistics management solutions. Only 29% of respondents are extremely satisfied with their current reverse logistics information systems while 71% are merely complacent i.e. “somewhat,” not very or “not at all satisfied” or downright dissatisfied. This suggests much room for improvement in reverse logistics automation.  

 Cloud solutions are becoming more widely accepted. Of those with an opinion, the preference for cloud-based solutions outrank on-premise solutions almost 3 to 1 with only 15% preferring on-premise solutions, 30% preferring cloud-based solutions, and another 11% preferring transactional based cloud solution. Transaction based pricing, where you are charged based on the total number of transactions processed, is a relatively new phenomenon in software, but it is becoming increasingly desired. Based on our survey, 42% of respondents indicated that it is important that a software vendor offers transaction-based pricing with 24% stating it is extremely important.  

Summary Conclusions

The results of the survey indicate that companies are viewing reverse logistics more strategically than ever before.  This is due in part to the fact that the global economy is putting pressures on companies to find new sources of profitable revenue. The Reverse Logistics supply chain represents an area of untapped potential.

However, most organizations face obstacles to managing Reverse Logistics on a highly efficient and productive basis due to the lack of visibility into interim processes and functions. Organizations require greater visibility into process and transactions that occur not only between and within their facilities but also between their supply chain partners, suppliers, and customers. By gaining access to critical data, companies can make better decisions and drive down operating costs and maximize revenue generating efforts. More importantly, it can result in greater collaboration between partners.  

The solution to overcoming these challenges can be found through implementing more robust Reverse Logistics Management Systems (RLMS). Indeed, a large percentage of the market is not overwhelmingly satisfied with their current systems which suggest there is room for improvement.

The ideal or optimal system should cover a broad range of functionality, interface to corporate systems, and ensure greater collaboration between supply chain partners. Cloud-based software applications are becoming widely accepted as the systemic solution of choice.  These applications require less upfront investment than traditional on-premise based solutions which makes their purchase easier to rationalize.

Companies interested in Cloud solutions are advised to consider vendors who offer Transaction based pricing models, where you are charged based on the total number of transactions processed. This is a relatively new phenomenon in software, but it is becoming increasingly desired for their ability to provide granular and precise data around how much money is being spent on managing different types of transactions within the Reverse Logistics supply chain. We perceive this capability to be a game-changer because it provides Reverse Logistics organizations with greater flexibility in controlling costs and generating new sources of revenue.


About the Author

Michael R. Blumberg is a Certified Management Consultant (CMC) and President & CEO of Blumberg Advisory Group, Inc. His firm focuses on providing strategic and tactical assistance for improving the overall profitability and quality of aftermarket service operations. Mr. Blumberg has established himself as an expert and industry authority on Reverse Logistics and Closed Loop Supply Chain Management.

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