Table of Contents
Table of Contents
Executive Summary
1.0 Introduction
2.0 Reverse Logistics – Return Management
2.1 Fundamentals of Reverse Logistics
2.2 Returns Management – Freight Issues
2.3 Returns Management – Control Issues
2.4 Returns Management – Customer Service Issues
3.0 Action Plan for the Logistics Provider
3.1 Product Recovery Stage
3.2 Inventory of Returned Goods
3.3 Financial Asset Recovery
3.3.1 Remanufacturing/Repackaging
3.3.2 Market Reintegration
3.3.4 Recycling and Disposal
3.4 Shipping/Delivery of Right Size Items
4.0 Recommendations
5.0 Conclusions
6.0 Appendix Items
Figure 1. Comparison of Forward and Reverse Logistics
Figure 2. Action Plan for Sportiva and the Logistics Company
7.0 Reference List
Executive Summary
Logistics, as a strategy, is a processual endeavor whereby organisations are trying to respond to the growing demands of international market towards achieving the competitive advantage. As opposed to forward logistics which is a core competency, reverse logistics is tended to be very reactive. Moving from the point of consumption to the point of origin, reverse logistics is always regarded as an asset recovery strategy. Returns management is among the most common aspect of reverse strategies, and with freight that purports on narrowing the gap between the point of distribution and the point of origin, control which deals with effective handling of returned goods and transforming costs into value and customer services capabilities that focuses on retaining customer loyalty. Realising this, there are four broad steps that the logistics company and Sportiva should converged into: product recovery, inventory of returned goods, financial asset recovery and shipping/delivery of right size items.
Reverse Logistics: Returns Management in Sportiva
1.0 Introduction
For the companies, it would be strategic if efficient logistics capabilities could be realised. Logistics, though it is very processual, provides companies with profound opportunities that could enhance or deliver the competitive advantage. Compared to forward logistics, reverse logistics is not regarded as a core competency. This report outlines the basics of reverse logistics and its comparison to forward logistics. The principles and theories of reverse logistics are applied to the case of Sportiva.
2.0 Reverse Logistics – Return Management
2.1 Fundamentals of Reverse Logistics
Opposing the traditional flow of logistics, reverse logistics refers to a supply chain that moves from the point of consumption to the point of origin that purports on asset recovery strategies which comprised of customer requirements conformance and products upgrades and purging availabilities. Several activities fall under the umbrella of reverse logistics: remanufacturing, refurbishing, repackaging, recycling, salvage and, lastly, returns processing goods which is the most prominent feature of reverse logistics. Depending on the nature, size, scope and impact of reverse logistics, reverse logistics vary across industries and sectors. One thing common, however, is that reverse logistics incurs significant cost on the part of the company (Rogers and Tibben-Lembke 2001).
A general thought is that reverse logistics is just a ‘backward’ process of forward logistics; but, it is not. Reverse logistics is far more complex, riskiery and problematic than the latter. Since there are more than one distribution point and that destination and/or routing is imprecise, forecasting is more difficult for reverse logistics unlike forward where forecasting is straightforward. Tracing back the marketing pipeline, reverse logistics will involve channel position and various types of distribution channels thereby affecting the quality and packaging of the products. Compared to forward logistics where product life cycle is manageable, in reverse logistics, this is more complex, making product disposition indistinguishable. As exception driven as it may seem, reverse logistics as a less visible process could lead to inconsistencies in inventory management and complicated negotiations between the company and the consumers (Diener 2004, p. 13; Tibben-Lembke and Rogers 2002).
2.2 Returns Management – Freight Issues
As already noted, product returns is the most common aspect of reverse logistics and, however, is also the most ‘unstrategic’ element of the supply chain; without realising that a sound returns management program would be an effective source of revenue while also differentiating market position and support product demand (Moore 2006). Returns strategies, mostly, are intended for recapturing and optimizing the value of unused or end of life products to acquire the greatest possible return from them. Narrowing the gap between the point of origin and point of consumption and vice versa and meeting in the middle is the role of logistics service providers, from non-conformance to conformance. Freight issues in this process embrace recovery and inventory of the products while also documenting the entire process including returns processing costs (Rogers et al 2002).
A decision-making processes happens in returns processing from retrieval of the products to disposal. Product disposition is a critical issue in this aspect. Such process starts with customer interaction wherein further requirements and demands and feedbacks will be acquired. Herein, the delivery service requirements of the customers are updated, depending on warranties as time-sensitive decisions and on their geographic location. If there are available distribution centers (DC), central returns center (CRC) or simply logistics branches that could otherwise consolidate processes that include door-to-door pick-up and delivery, the undertaking would be simple. However, if these are unavailable the redistribution of products would usually take longer. This is also, nonetheless, a great opportunity to settle conflicts through letters of apologies.
The recovered items will be transported to processing centers for inspection and quality control department either of the manufacturer or the logistics provider, depending on the extent of participation of the participation of the logistics firm. Hertz and Alfredson (2003), describe four categories of third-party logistics (3PL) provider: standard, service developer, customer adapter and customer developer. In this aspect, the documentation of the communication processes between processing centers, supply centers and customer locations will be highly prioritized. Sorting of the reclaimed products happens at this stage as refurbishment, reconditioning, salvage, repairing, selling to the third party or recycling. In the case that the products are unavailable or out of stock already, a written communication should be pursued. Followed by, repackaging and reclassification before it will be redistributed either individually through courier or through pick-up at the supply centers.
2.3 Returns Management – Control Issues
In making returns management to work to the company’s advantage, effective handling of returned goods and turning costs into value are critical. Control must be palpable in the in-flow and outflow of returned goods, in inventory, in refurbished or even in recycled merchandises and related information from multiple distribution points to the point of origin. The efficient flow of returns takes into consideration certain control issues from the point of distribution to distribution centers to the warehouse, with most emphasis given to the last portion since the first two could be consolidated. Points of control within the process of return management are unidentified by Walsh (2006) as the consumer at the point of sale and the retailer through return authorization. As such, the process of how goods are returned and how it could result in greater productivity, freight, cost reduction, reduction of paperwork, better inventory and accurate records are critical control issues. Given this, in the entire process, costs must be of particular control. Reverse logistics costs puts emphasis on retrieval and redelivery costs and recycling costs as a whole process (Goldsby and Closs 2000).
In the phase where interaction with the customer is apparent, specific documentations for the purpose of renewing the customer specifications must be evident; that is, document control. Inventory control is a necessity when dealing with returns processes. Within the warehouse, there must be a special sorting area where returns could be handled with the aid of tables, conveyors and computers or bar code scanners. Since the returned items are received in distribution centers, there is the possibility that the products could be further damaged or broken and be mixed with products that come in various sizes and shapes, exacerbating the assortment process that prolongs and jeopardises time efficiency. Matching of stocks with orders is carried out through appropriate stock keeping unit (SKU) informations assigned to the products. Remanufacturing or in the case that returned products must no longer exists to be utilisable involves legal compliances of properly disposing and therefore the requirement for excessive control. Risks involves in the processes mentioned must be also controlled so that barriers to speedier redelivery of reclaimed merchandises, accurate billing of lading, routing to proper destinations reducing costs of transportation could be achieved. If operating on larger scales, cross-border risks of taxes, tariffs and country-specific regulations must be also controlled.
2.4 Returns Management – Customer Service Issues
In leveraging reverse logistics capabilities, it would be necessary to tap the customer service capabilities, even in light of voluminous returns, to provide them exactly with what they want and expect while also leveraging the competitive advantage in the process. Basically, the fulfillment of customer requirements is critical in this stage wherein corrective actions must move in accordance with specification and conformance. The identified problem must be given solution into so that it could be eliminated if not totally abolished. Such process must be supported by documents stating the requirements to which the returned goods must conform. Towards the latter part of the process, customers must be ensured of improved delivery reliability including the product performance at intended functions under stated conditions minus the failure for a give period of time and efficiencies of shipping/receiving operations (Pollock 2007).
Impacting the customer loyalty, there is the necessity to recapture value through improving customer responsiveness, for instance via guaranteeing that replacement products are available. Customers expect that processes are expedite; real-time visibility and exception handling would be one of the sought-after services when returns happened. As well, customers require that the interface between the company and them even with logistics providers at the middle must be kept constant apart from demanding to obtain informations faster. Customers too are keen on wanting to know that a credit or replacement is on the way as well as meaning to know if products are already returned. How the crisis is being managed (Brewer 2007). As such, the quality of customer service must be a commitment for the organisations.
In addition, if a customer applies for a warranty it would be expected that the customer would want to get the credit especially if the policy says so. There must be a comprehensive policy that discusses product’s eligibility for return, timing of credits back to the customers and identifying what warranties apply and which services contracts apply. Though handling return related contacts is time consuming, customer inquiries are anticipated to be treated promptly and are being prioritize, making any possible contact that must be kept open. High response time and brand toxicity could frustrate customers and communicates lack of concern. Customers look ahead to the fact that companies to stand by their products during the entire lifecycle and demands that returns processes works in time most needed (Norman and Sumner 2006).
3.0 Action Plan for the Logistics Provider
3.1 Product Recovery Stage
Being a customer developer 3PL, prior to integrating with the volume of the customers who are otherwise were sent with wrong sizes of the merchandise purchased. Within the process, it would be important to create a customer database separately so that it would be easy for the logistics company to determine the locations and how the customers could be contacted. Next, would be to review the internal regulations and policies that apply on part of Sportiva which purports on protecting the interests of the customers and to determine what legal actions the customers could resort into and how Sportiva could counteract. Forecasting of the freight costs for retrieving products and actual recovery of wrong-sized products must follow. This stage will take about ten days and the persons with responsibilities are the document officers and top management of Sportiva and the logistics operators.
3.2 Inventory of Returned Goods
As well, it is expected that the logistics provider will endow Sportiva with a separate warehouse or an area within the warehouse where inventory could take place. At this point, the database could be updated and specification documents could be reviewed for the purpose of matching stocks with orders. Returned products must be inspected in order to determine which products could be put in the stocks again for reselling if the items are still intact and which must be subjected into improvement beyond original specs, returning products into original specs, separating components for reuse, preparing for a sale as a used product, selling to third-party retailers, recycling and disposing; that is, product categorization with emphasis on having distinct sorting area in the warehouse. So as not to create confusions, the coding system will be utilised. Based on the actual number of the reclaimed goods, inventory costs will be determined. A process that could last for three days depending on the actual number of returned goods, the logistics operators including sorters and warehouse officers will have the key responsibilities.
3.3 Financial Asset Recovery
3.3.1 Remanufacturing/Repackaging
The whole process of asset recovery could last about a week wherein majority of the responsibilities will be transferred on the remanufacturing or the repackaging agencies. When the products are assessed and the need for refurbishment is distinguished, the next process is to deliver the products to the manufacturers or to a refurbishing company in order for the product to regain the value and recuperate its salability in the market. In most cases that products’ packaging are the only thing damages, the packages are recovered by means of producing new packages which could be also performed by the manufacturers. Based on the number of returned products to be refurbished, remanufacturing and repackaging costs will be identified.
3.3.2 Market Reintegration
Apart from the activities which by themselves are financial asset recovery strategies, there are several ways that the costs could be recovered. One way is to hold an employee sale or a public sale for non-salable but still utilisable products. Most of the time customers would not pay full prices for these items and so the urgency to put it in sale. The clothes and footwear could be also sold in third party buyers or an online auction could be other ways to reincorporate the products into the market. For Sportiva, catalogues could be also updated, with emphasis given on limited stocks and discounted items. Product trade-ins are also a possibility.
3.3.4 Recycling and Disposal
Recycling will always be an excellent environmental option for manufacturers. Sportiva could donate the clothes and footwear to several charitable institutions, a purpose which could be also intended for corporate social responsibility, or perhaps to the employees as a token of appreciation for the year-long rendering of service. Cannibalization would be a choice if the products has already completely lost its economic value, and for the purpose of reusing raw materials. If after the process, there is an impossibility of recovering the raw materials, it could be sold into companies or scrap agencies or junk shops in order to incur the least possible cost from these. Disposal to landfills would be the very last choice.
3.4 Shipping/Delivery of Right Size Items
Redistribution of orders or the activity wherein the right size items will be sent to the customers, which could take another week after remanufacturing and repackaging, will be the final activity. Going back to the original updated customer database is need in this activity so that the right names and addresses could be determined as well as the delivery preferences of the customers. Some of the customers would prefer the door-to-door delivery while also others may find it convenient to pick their purchased merchandises on DC and CRCs and logistics company branches so as to further check if the items have right sizes.
4.0 Recommendations
Notably, the volume of the returned goods will affect the future performance and reputation of Sportiva. An integrated logistics program will be a necessity at this point wherein reverse logistics will be treated as a core competency (Autry et al 2001). Between Sportiva and the logistics provider, there must be a comprehensive communication and reporting system. The logistics companies are held accountable and must always mirror the retailer’s return policies and procedures before doing any actions and the logistics company should provide a detailed reporting for retailers. Efficient data storage and retrieval system must be in place so that records could be presented easily and be regarded as objective evidences of efficient management of reverse flow of product (Tibben-Lembke 2002).
After what had happened to Sportiva, with proper documentation in hand, the company must resort into benchmarking of practices so as not to repeat the same mistake. Benchmarking refers to a process mostly utilised in strategic management by which the organisations evaluate practices in comparison with the ‘best practice(s)’ unique to the industry or sector they belong whereas outsourcing is defined as the process of delegating one or more business processes to an external provider.
What makes benchmarking a plausible initiative for Sportiva is that it encompasses the process of continuous learning and the eventual management of change while for outsourcing for third party logistics is on improving quality, cost restructuring and capacity management (Burke and Cooper, 2006, p. 24). In addition, selecting third party logistics is an important endeavor since they play an important role on optimising the focus on end-of-life product roles and decision-critical points (Meade and Sarkis 2002).
4.05.0 Conclusions
Regarded as a competitive strategy, logistics has two broad categories: forward and reverse. Nonetheless, the former is considered as a core competency while the latter is not, but rather an asset recovery strategy since it is reactive in nature. Returns management, as the most common factor of reverse logistics, purports on narrowing the gap between the point of consumption and point of origin, converting costs into value and maintaining customer loyalty. Based on the case of Sportiva, reverse logistics is a processual element of the supply chain. This report traces how the process of products to be returned should travel from the point of consumption into the point of origin. The steps are identified as: product recovery, inventory of returned goods, financial asset recovery and shipping/delivery of right size items.
6.0 Appendix Items
Figure 1. Comparison of Forward and Reverse Logistics
(Adapted from Diener 2004)
Figure 2. Action Plan for Sportiva and the Logistics Company
5.07.0 Reference List
Autry, C W, Daugherty, P J and Richey, G R 2001, The challenge of reverse logistics in catalog retailing, International Journal of Physical Distribution and Logistics Management, vol. 31, no. 1, pp. 26-37.
Brewer, C 2007, ‘Product recalls: Now what?’, Reverse Logistics Magazine, May-June.
Burke, R J and Cooper, C L 2006, The Human Resources Revolution: Why Putting People First Matters, Elsevier.
Dieners, D 2004, Value Recovery from the Reverse Logistics Pipeline, Rand Corporation.
Goldsby, T J and Closs, D J 2000, Using activity-based costing to reengineer the reverse logistics channel, International Journal of Physical Distribution and Logistics Management, vol. 30, no. 6, pp. 500-514.
Hertz, S and Alfredson, M 2003, Strategic development of third-party logistics provider, Industrial Marketing Management, vol. 32, no. 2, pp. 139-149.
Meade, L and Sarkis, J 2002, A conceptual model for selecting and evaluating third-party reverse logistics provider, Supply Chain Management: An International Journal, vol. 7, no. 5, pp. 283-295.
Moore, R 2006, ‘Reverse Logistics: The Least Used Differentiator’, Reverse Logistics Magazine, Fall.
Norman, L and Sumner, W 2006, ‘The Six Hidden Cost of Reverse Logistics’, Reverse Logistics Magazine, Fall.
Pollock, W K 2007, ‘Using Reverse Logistics to Enhance Customer Service and Competitive Performance’, Reverse Logistics Magazine, November-December.
Rogers, D S and Tibben-Lembke, R 2001, An examination of reverse logistics process, Journal of Business Logistics, vol. 22, pp. 129-148.
Rogers, D S, Lambert, D M, Croxton, K L and Garcia-Gastugue, S J 2002, The Returns Management Process, The International Journal of Logistics Management, vol. 13, no. 2, pp. 1-18.
Tibben-Lembke, R and Rogers, D S 2002. Differences Between Forward and Reverse Logistics in a Retail Environment, Supply Chain Management, vol. 7, pp. 271-282.
Tibben-Lembke, R S 2002, Life after death: reverse logistics and the product life cycle, International Journal of Physical Distribution and Logistics Management, vol. 32, no. 3, pp. 223-244.
Walsh, J 2006, reverse Logistics and the Total Product Life Cycle, Journal of Trading Partner Practices.
Credit:ivythesis.typepad.com
0 comments:
Post a Comment