important & irritant of reversing logistics

1. REVERSE LOGISTICS: IMPORTANT
OR IRRITANT?
Estimated $100 billion industry in 2006

2. “In an ideal world,
reverse logistics would not exist.”
Jim Whalen, “In Through the Out Door,”
Warehousing Management, March 2001

3. Reverse Logistics - What is it?
The Army’s Definition
The return of serviceable supplies that are
surplus to the needs of the unit or are
unserviceable and in need of rebuild or
remanufacturing to return the item to a
serviceable status

4. Reverse Logistics - What is it?
The Commercial Perspective

Reverse Logistics is the process of moving
products from their typical final destination to
another point, for the purpose of capturing value
otherwise unavailable, or for the proper disposal
of the products.

5. Typical Reverse Logistics Activities





Processing returned merchandise - damaged,
seasonal, restock, salvage, recall, or excess
inventory
Recycling packaging materials/containers
Reconditioning, refurbishing, remanufacturing
Disposition of obsolete stuff
Hazmat recovery

6. Why Reverse Logistics?



Competitive advantage
Customer service
- Very Important: 57%
- Important: 18%
- Somewhat/unimportant:23%
Bottom line profits

7. Reverse Logistics - New Problem?





Sherman
Montgomery Ward’s - 1894
Recycling/remanufacturing in 1940s
World War II - 77,000,000 square feet of storage
across Europe with over $6.3 billion in excess
stuff
Salvage and reuse of clothing and shoes in the
Pacific Theater World War II

8. Key Dates in Reverse Logistics






World War II – the advent of refurbished
automobile parts due to shortages
1984 - Tylenol Scare - Johnson and Johnson
1991 - German ordinance that put teeth in
environmental reverse pipeline
Summer 1996 – UK Packaging and Packaging
Waste Legislation
1998 - first real study of reverse logistics in the
US - University of Nevada, Reno
2001 – EU goal of 50-65% recovering or
recycling of packaging waste

9. REVERSE LOGISTICS
A US Army Perspective

10. Operation Iraqi Freedom
The US Army moved the equivalent of 150 WalMart Supercenters to Kuwait in a matter of a few
months

11. Military Operations and Excess
“In battle, troops get temperamental and ask
for things which they really do not need.
However, where humanly possible, their
requests, no matter how unreasonable, should
be answered.” George S. Patton, Jr.

12. Jane’s Defence Weekly
“Recent report (Aug 2003):
There is a 40 hectare (~100 acres)
area in Kuwait with items waiting
to be retrograded back to the US.”

13. Does this create a problem?
From GAO Audit Report

14. From GAO Audit Report

15. REVERSE LOGISTICS
The Commercial Perspective

16. Reverse Logistics



Rate of returns?
Cost to process a return?
Time to get the item back on the shelf if
resaleable?

17. Costs - above the cost of the item

Merchandise credits to the customers.

The transportation costs of moving the items from the
retail stores to the central returns distribution center.

The repackaging of the serviceable items for resale.

The cost of warehousing the items awaiting
disposition.

The cost of disposing of items that are unserviceable,
damaged, or obsolete.

18. Costs





Process inbound shipment at a major
distribution center = 1.1 days
Process inbound return shipment = 8.5
days
Cost of lost sales
Wal-Mart: Christmas 2003 - returns = 4
Days of Supply for all of Wal-Mart =
2000 Containers
PalmOne - 25% return rate on PDAs

19. More Costs




Hoover - $40 Million per year
Cost of processing $85 per item
Unnamed Distribution Company - $700K items on
reverse auction
2001 - over $60 billion in returns; $52 billion
excess to systems; $40 billion to process

20. Is it a problem?








Estimate of 2004 holiday returns: $13.2 billion
% of estimated 2004/2005 holiday returns: 25%
Wal-Mart: $6 Billion in annual returns = 17,000 truck
loads (>46 trucks a day)
Electronics: $10 Billion annually in returns
Personal Computers: $1.5 Billion annually =
approximately $95 per PC sold
79% of returned PCs have no defects
Home Depot ~ $10 million in returns in the stores alone
Local Wal-Mart ~ $1 million a month in returns

21. Is it a Problem?






European influence – spread to US - Green Laws
Estee Lauder - $60 million a year into land fills
FORTUNE 500 Company - $200 million over their $300
million budget for returns
Same Provider - 40,000 products returned per month;
55% no faults noted
K-Mart - $980 million in returns 1999
Warranty vice paid repairs

22. More consequences






Increased Customer Wait Times
Loss of Confidence in the Supply System
Multiple orders for the same items
Excess supplies in the forward pipeline
Increase in “stuff” in the reverse pipeline
Constipated supply chain

23. Impact?


Every re-saleable item that is in the reverse
supply chain results in a potential stock out or
“zero balance” at the next level of supply.
Creates a “stockout” do-loop

24. Results?


This potential for a stock out results in additional
parts on the shelves at each location to prevent a
stock out from occurring.
More stocks = “larger logistics footprint” = the
need for larger distribution centers and returns
centers.

25. Reverse Logistics



According to the Reverse Logistics Executive Council, the
percent increase in costs for processing a return, as
compared to a forward sale, is an astounding 200-300%.
“In the U.S. alone, the cost is an annual $100 billion.”
Forbes, March 2005
Typically, as many as 8-12 more steps per item in the
reverse pipeline than items in the forward pipeline

26. “The truth is, for one reason or another,
materials do come back and it is up to
those involved in the warehouse to
effectively recover as much of the cost for
these items as possible.”
- Whalen, “In Through the Out Door”

27. RFID and Returns





Visibility Tracking
Component tracking
Data Warehouse on what, why, when
Altered products
Not for every product

28. Impacts of Reverse Logistics








Forecasting
Carrying costs
Processing costs
Warehousing
Distribution
Transportation
Personnel
Marketing

29. CHAPTER 4
Quality
Management
Quality is a measure of goodness that is
inherent to a product or service.
Bottom line: perspective has to be from the
Customer – fitness for use

30. Out of the Crisis

“Failure of management to plan for the future
and to foresee problems has brought about
waste of manpower, of materials, and of
machine-time, all of which raise the
manufacturer’s cost and price that the
purchaser must pay.

31. More Deming

The consumer is not always willing to subsidize
this waste. The inevitable result is loss of market.
Loss of market begets unemployment.
Performance of management should be
measured by potential to stay in business, to
protect investment, to ensure future dividends
and jobs through improvement of product and
service for the future, not by the quarterly
dividend….

32. Deming’s solution


The basic cause of sickness in American industry
and resulting unemployment is failure to top
management to manage. He that sells not can
buy not.”
The job of management is inseparable from the
welfare of the company.

33. What Is Quality?
 “The degree of excellence of a thing”
(Webster’s Dictionary)
 “The totality of features and characteristics
that satisfy needs” (ASQ)
 Fitness for use
 Quality of design

34. Quality


Quality Management – not owned by any
functional area – cross functional
Measure of goodness that is inherent to a product
or service

35. FedEx and Quality


Digitally Assisted Dispatch System –
communicate with 30K couriers
1-10-100 rule
 1 – if caught and fixed as soon as it
occurs, it costs a certain amount of time and
money to fix
 10 – if caught later in different department
or location = as much as 10X cost
 100 – if
mistake is caught by the customer = as much as
100X to fix

36. Product Quality Dimensions




Product Based – found in the product attributes
User Based – if customer satisfied
Manufacturing Based – conform to specs
Value Based – perceived as providing good value
for the price

37. Dimensions of Quality (Garvin)
1. Performance

Basic operating characteristics
2. Features

“Extra” items added to basic features
3. Reliability

Probability product will operate over time

38. Dimensions of Quality (Garvin)
4. Conformance

Meeting pre-established standards
5. Durability

Life span before replacement
6. Serviceability

Ease of getting repairs, speed & competence of repairs

39. Dimensions of Quality (Garvin)
7. Aesthetics

Look, feel, sound, smell or taste
8. Safety

Freedom from injury or harm
9. Other perceptions

Subjective perceptions based on brand name, advertising, etc

40. Service Quality
1. Time & Timeliness

Customer waiting time, completed on time
2. Completeness

Customer gets all they asked for
3. Courtesy

Treatment by employees

41. Service Quality
4. Consistency

Same level of service for all customers
5. Accessibility & Convenience

Ease of obtaining service
6. Accuracy

Performed right every time
7. Responsiveness

Reactions to unusual situations

42. Quality of Conformance
 Ensuring product or service
produced according to design
 Depends on




Design of production process
Performance of machinery
Materials
Training

43. Deming’s 14 Points
1.
2.
3.
4.
Create constancy of purpose
Adopt philosophy of prevention
Cease mass inspection
Select a few suppliers based on
quality
5. Constantly improve system and
workers
6. Institute worker training

44. Deming’s 14 Points
7. Instill leadership among supervisors
8. Eliminate fear among employees
9. Eliminate barriers between
departments
10. Eliminate slogans
11. Remove numerical quotas

45. Deming’s 14 Points
12. Enhance worker pride
13. Institute vigorous training and
education programs
14. Develop a commitment from top
management to implement these 13
points

46. The Deming Wheel
(or PDCA Cycle)
4. Act
Institutionalize
improvement;
continue the cycle.
1. Plan
Identify the
problem and
develop the plan
for improvement.
3. Study/Check
2. Do
Assess the plan; is it
working?
Implement the
plan on a test basis.
Also known as the Shewart Cycle

47. Six Sigma

Quality management program that measures and
improves the operational performance of a
company by identifying and correcting defects in
the company’s processes and products

48. Six Sigma
Started By Motorola





Define
Measure
Analyze
Improve
Control
Made Famous by
General Electric
40% of GE executives’
bonuses tied to 6 sigma
implementation

49. Malcolm Baldrige National Quality
Award


Category 3 – determine requirements,
expectations, preferences of customers and
markets
Category 4 – what is important to the customer
and the company; how does company improve

50. Cost of Quality
Cost of achieving good quality
Prevention
 Planning, Product design, Process, Training, Information
Appraisal
 Inspection and testing,
Test equipment,
Operator

51. Cost of Quality
Cost of poor quality
Internal failure costs
 Scrap, Rework, Process failure, Process downtime, Pricedowngrading
External failure costs
 Customer complaints,
Product return,
Warranty, Product
liability, Lost sales

52. Employees and Quality
Improvement
 Employee involvement
 Quality circles
 Process improvement teams
 Employee suggestions

53. Cause-and-Effect Diagram
Measurement
Faulty
testing equipment
Environment
Old / worn
Inadequate training
Quality
Problem
Defective from vendor
Not to specifications
Dust and Dirt
Tooling problems
Lack of concentration
Improper methods
Machines
Out of adjustment
Poor supervision
Incorrect specifications
Inaccurate
temperature
control
Human
Materialhandling problems
Materials
Also known as Ishikawa Diagram or Fish Bone
Poor process design
Ineffective quality
management
Deficiencies
in product design
Process

54. Hot House Quality
Lots of Hoopla and no follow
through

55. ISO 9000:2000








Customer focus
Leadership
Involvement of the people
Process approach
Systems approach to management
Continual process improvement – GAO
Factual approach to decision making
Mutually beneficial supplier relationships

56. Implications Of ISO 9000
 Truly international in scope
 Certification required by many foreign firms
 U.S. firms export more than
$150 billion annually to Europe
 Adopted by U.S. Navy,
DuPont, 3M, AT&T, and others

57. ISO Accreditation
 European registration
 3rd party registrar assesses quality program
 European Conformity (CE) mark authorized
 United States 3rd party registrars
 American National Standards Institute (ANSI)
 American Society for Quality (ASQ)
 Registrar Accreditation Board (RAB)

58. Wabona Logistics
Contact Details
Wabona Offices
Head Office
Durban Office:
Chris Magagula - Group Chairman
Suite 811 Salmon Grove Chambers
407 Anton Lembede Street Durban 4001 South Africa
P.O. Box 1901 Durban, 4000 South Africa
Operations
Johannesburg Branch:
44-48 Fountain Road2nd Floor Adoni's Centre,
Fordsburg, Johannesburg, 2092,
South Africa
Email: jhb@wabonagroup.com
Chris (Group Chairman)
chris@wabonalogistics.co.za
chris@wabonagroup.com
ops@wabonalogistics.co.za
Tel: +27(31) 301 9489
Fax : +27(86)512 8520
Cell: +27(72) 578 7638
Cape Town Branch:
Port Elizabeth Branch:
Benoni Branch:
27 Goedehoop Street
Windsor Port Elizabeth, 6200,
South Africa
Email: pe@wabonagroup.com
Suite 21c, 2nd Floor
71 Woburn Avenue,
Benoni, 1500,
South Africa
Email: jhb@wabonagroup.com
Business Unit 28B
Foreshore, Lowershore,
Cape Town, 8001,
South Africa
Email: cape@wabonagroup.com
Business Development Executives
Carl Lupke
Tel/Fax: +27(31) 301 9489
Cell : +27(82) 464 8139
Email: carl@wabonagroup.com
Dashen
Tel: +27(31) 301 9489
Cell No: +27(71) 873 3878
Email: dashen@wabonagroup.com