Increase Revenue Opportunities and Improve Cost Avoidance
By Bob Anderson, RLA Bronze Member
Establishing good relationships with customers depends on quality interactions, involving unique and easy-to-use systems and processes. The reverse logistics cycle is a key touchpoint for customers—a foundational process that provides opportunities to influence and improve customer loyalty. Providing a winning customer experience is more challenging when the customer cannot return the product and get a refund quickly. When a return material authorization (RMA) needs to be created and approved, it can delay the customer’s refund payment, causing dissatisfaction.
Done right, the reverse logistics process increases asset utilization, creates a more positive customer experience, and improves environmental sustainability. A sound reverse logistics process should:
- Provide end-to-end data integration and visibility
- Improve the recovery rate of material after RMA booking
- Create a global footprint for reverse supply chain
- Provide better operational ownership and accountability
- Consolidate vendors to provide cost-effective recycling
- Reduce brand protection and gray market risks
- Maximize reuse opportunities, both internal and external
- Optimize asset recovery and reduce potential leakage
- Improve process efficiency and problem resolution
- Support a sustainable and circular process
The PRIDE Industries Approach
In implementing our reverse logistics transformation charter, we took a long-term, multiphase approach. The initial phase laid the foundation for an end-to-end vision and delivered a globally consistent, scalable, and reliable process with connected system(s) for inbound logistics, receiving/disposition, inventory management, and value recovery of returned products. The benefits of the initial phase included enhanced customer experience with real-time supplier integration, streamlined end-to-end processes for increased efficiency, and the ability to support aggressive time-to-market strategies by leveraging existing business-to-business (B2B) interfaces, resulting in a reduced total cost of ownership.
Our transformation charter focuses on the following issues:
- Sustainability: engaging, supporting, and promoting the circular economy;
- Cost: providing an effective solution, regardless of volume;
- System integration capability/flexibility: integrating multiple technologies through flexible architectures; and
- Process capability: scaling to changing business needs and maintaining high levels of process efficiency.
Reverse Logistics Components
In our experience, these are the areas to take into consideration when developing a reverse supply chain.
INBOUND LOGISTICS, SCREENING, AND TESTING
Managing product returns in transit to receiving locations is critical, which is why we paid particular attention to the material recovery rate when we were revamping our reverse logistics processes. At the time, the recovery rate was much lower after RMA booking. After conducting an analysis, we discovered that customers sometimes needed material return prompts, and that some customers required more assistance during the return process—identifying the return location, and printing the label, for example.
To solve this problem, we decided to create proactive asset recovery capabilities to help with customer returns. The goal was better customer connection. better records maintenance, and better tracking of each touchpoint with the customer. We needed a tool that would assign open RMAs to agents, build contact lists, keep track of customer touchpoints, and facilitate conversations with customers, thus improving visibility to all. We evaluated multiple vendors’ tools, but few addressed the requirements, and none did so completely. For this reason, we decided to create the tool ourselves.
Though this required additional effort on our part, ultimately this decision paid off. By developing a tool tailored to our needs, product return rates rose dramatically, and we recovered more products. And by making returns easier, we increased customer satisfaction and reduced gray market risks, thus enhancing our brand protection.
RECEIVING AND DISPOSITION
The primary objective of our new process is to preserve as much of a product’s functional value as possible, instead of driving the product to its lowest use—scrap. Process analysis steps include identifying the best scenarios for extending product life and then implementing the systems that will enable the collection, sorting, and channeling of products for best and highest use. There are numerous combinations of these properties taken into consideration before the final disposition sub-inventory is decided.
ORDER INVENTORY AND MANAGEMENT
The next component is the management of inventory of damaged goods (DGI)/ finished goods (FGI) and the purge/scrap process. At PRIDE Industries, partner interactions are built on industry standard B2B messaging to facilitate receiving, disposition, inventory, and order management. By improving our designs and processes, we were able to minimize messaging issues, so that the PRIDE Industries Enterprise Resource Planning (ERP) system and our partners’ warehouse management systems (WMS) are now in sync at all times. To ensure further process integrity, offline interfaces are designed to compare and sync inventory in both systems, thus minimizing issues in the follow-on processes.
A big challenge for recovering value through reverse supply chain channels is product mix. Both the traditional difficulty in forecasting customer demand, and the complexity of extreme supply chain volatility, are amplified in a high product-configurability environment. This makes larger inventory holds necessary. To address this challenge, we created a maximum inventory product mix management solution, with the goal of maximizing the number of customers that can be satisfied while minimizing the inventory we hold. Our management tool does this by setting a maximum inventory holding level for each product, calculated by taking the difference between forecasted supply and demand based on historical data, and adding a safety stock level over a given planning cycle. Anything in excess of the maximum level is recycled rather than received into inventory, allowing the supply chain to operate as close to run rate as possible. By implementing such a solution in the reverse supply chain, we achieve maximum value while controlling overall operating costs.
By making changes in this process family, we increased end-to-end data visibility and product reuse opportunities, while carrying only the required level of inventory in the warehouse.
ORDER FULFILLMENT AND ORDER MANAGEMENT
- This process is for internal order fulfillment from the returned product inventory. Stock rotation is one of the reasons for product returns in this process family, and the most significant by volume. In this return scenario, the product returned is brand new, sealed, and can be deployed or reused without going through any pre-packing testing. To capitalize on this, we built a software tool that allows users to request inventory from returned materials. Internal customers place their request through the online form, and a complex set of rules allocates inventory to match demand. Improving the recovery rate significantly, which in turn reduces gray market and brand protection risks.
- Providing customer savings by redeploying products after return, thus turning a cost center into a revenue generator.
- Boosting process efficiency and reducing transaction costs.
- Enhancing the process for product reuse, which in turn provides consistent cost-avoidance opportunities, whether selling on the secondary market or re-using internally.
- Dramatically improving customer satisfaction ratings.
Reverse Logistics That Enhance the Customer Experience
Using the traditional forward channel to drive and control the returns stream is no longer a sound approach. To lower costs, returns should be prioritized in the existing value stream. As more companies strive for a holistic shopping experience, enterprises should focus on supplying the critical data that returns provide. This information can improve the manufacturing, sales, and distribution processes that are so critical to a company’s overall success.
The more technical the product, the more critical the information provided—and in some cases the more challenging. The use of IT and the solutions that it offers are essential in supporting the reverse supply chain.
Reverse logistics provides an incredible opportunity to improve your relationship with your customers by developing brand loyalty. Even though the customer has very little to do with operational activities like receiving, repair, screening, inventory management, and fulfillment, how you handle the RL process will affect how the customer views your service and directly impact your bottom line.
PRIDE Industries is the nation’s leading employer of people with disabilities. When the organization started in 1966, its employees focused on making crafts for sale. Today, PRIDE Industries is a social enterprise with multiple lines of business, including manufacturing (medical, electronics, and consumer goods), packaging and shipping services, and global distribution operations. As part of a company-wide effort to improve sustainability, its manufacturing team recently set a goal of increasing material reuse and recycling.
This article appeared in Reverse Logistics magazine’s September 2021 issue.
About Bob Anderson
PRIDE Industries, Business Development Executive
Bob has more than 20 years of high-tech industry experience in reverse logistics, manufacturing planning, and supply chain management. Over the last 15 years, he has led the transformation of reverse supply chains at Cisco, Barnes & Noble, and Teleplan International. Bob is an expert in the development and execution of efficiency programs, especially in the management of supply chains. He has deep experience in supplier and inventory management, purchasing, logistics, quality assurance, product management, and training. A strong believer in the power of teamwork, Bob has used the leadership skills he honed on the basketball court to successfully build and lead transformation teams in several companies.