Natasha Horowitz is a consultant in the Global Commerce and Transport Practice at the economics research firm IHS Global Insight. Prior to her current position, she worked as an economic consultant and an economic analyst for the U.S. Department of Transportation's Volpe National Transportation Systems Center.
These days most logistics and supply chain professionals are familiar with the concept of reverse logistics—the process of removing unsold or damaged goods from store shelves or receiving them from customers and subsequently disposing of or repairing and reselling them. But familiarity does not necessarily equate to action. Although reverse logistics can be a significant source of costs—and therefore of potential savings—in many organizations, it still receives much less attention than it deserves.
Companies that overlook reverse logistics are missing an important opportunity. In 2005, Forbes magazine estimated the annual cost of returns in the United States alone to be around US $100 billion. Those costs undoubtedly have increased and will continue to grow as more commerce moves online.
Reverse logistics is a complicated process that requires the capture of numerous data such as the frequency, volumes, and types of returns. In order to properly understand and manage the process, each product should be traced from the point of return through final disposition. Warranties and service agreements must also be monitored, and credits must be applied where needed. The goal is always to minimize the number of returns as well as the cost of handling them—and do it without alienating customers. Here are a few thoughts on how to accomplish that goal.
Develop the right policies
The efficiency and cost of reverse logistics processes are greatly influenced by a company's returns policy. A stingy policy will keep costs low but may hurt customer relations, whereas an overly generous one, while attracting customers, will increase costs. Any policy should be benchmarked against industry standards. The usual standard in retail is a 30-day return, but policies are harder to benchmark for business-to-business companies and will require research.
Returned-product acquisition is fairly straightforward for retailers—the customer simply brings products back to the store. Sellers of larger items, such as furniture, often contract with their delivery providers for return services. Business-to-business companies must decide who is responsible for unsold products and compare the costs and benefits of picking up inventory themselves, having distributors pick it up and deliver it to the disposition site, or outsourcing the process to a third-party logistics company (3PL).
One economical strategy is to pick up unsold merchandise during the delivery of new inventory, creating backhauls for a private or outsourced fleet. Customers of Cummins Engine, for example, initiate returns electronically. Damaged engines are picked up for remanufacturing by a dedicated fleet operated by Ryder when making deliveries of new parts. Some companies have found that collaborating with customers to streamline the return process, including at times offering financial incentives to minimize returns, can greatly reduce the need for backhauls of unsold goods.
Whatever approach a company adopts, the key to successful product acquisition is full visibility from the moment the product is returned, so that responsibility and payment for the return can be clearly assigned. Monitoring returns can cut credit issuance by as much as 30 percent, adding directly to the bottom line.
Once returned items have been aggregated, they must be transported to a sorting facility. In this stage, consolidation and optimization of shipments can greatly reduce transportation and handling costs.
Policies regarding disposal will depend on the type of product involved. The trick is always to balance the costs of transportation, sorting, and disposal against any potential recoverable value. High-value items such as electronics and automotive parts may be inspected, remanufactured, and resold. Unsold consumer goods, by contrast, may be shifted to areas where sales are stronger. Items with a short shelflife, such as fashion apparel, are often sold to third parties that then resell them through discount outlets or to developing countries. Items that are not economical to refurbish in-house may sometimes be sold at auction. Should final disposal be necessary, one option is to find a recycler that is willing to pay to reuse any recoverable material.
A symptom of inefficiency
Smart companies and their suppliers recognize that returns are often a symptom of inefficiencies elsewhere in the supply chain. For example, a retailer may be ordering too much of a particular product, the product may not be arriving on time to meet peak demand, or the packaging may be insufficient to prevent damage, to name just a few of the possible causes of returns. To find out why products are being returned, appropriate data should be captured, analyzed, and shared with management throughout the organization. This information should also be fed back to the product design team, as understanding the reasons for returns and failures can lead to better product design—and, eventually, fewer costly returns.
The theoretical goal of reverse logistics is to have zero returns, eliminating the need for the process in the first place! By continuously working toward this goal, supply chain managers can uncover significant sources of cost savings, gain an edge in customer and supplier relations, and collect invaluable information for improving other areas of their business.
Supply Chain Xchange Executive Editor Susan Lacefield moderates a panel discussion with Supply Chain Xchange's Outstanding Women in Supply Chain Award Winners (from left to right) Annette Danek-Akey, Sherry Harriman, Leslie O'Regan, and Ammie McAsey.
Supply Chain Xchange recognized four women who have made significant contributions to the supply chain management profession today with its second annual Outstanding Women in Supply Chain Award. The award winners include Annette Danek-Akey, Chief Supply Chain Officer at Barnes & Noble; Sherry Harriman, Senior Vice President of Logistics and Supply Chain for Academy Sports + Outdoors; Leslie O’Regan, Director of Product Management for DC Systems & 3PLs at American Eagle Outfitters; and Ammie McAsey, Senior Vice President of Customer Distribution Experience for McKesson’s U.S. Pharmaceutical division.
Throughout their careers, these four supply chain executive have demonstrated strategic thinking, innovative problem solving, and effective leadership as well as a commitment to giving back to the profession.
The awards were presented at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tenn. In addition to the awards presentation, the leaders discussed their leadership philosophies and career path during a panel discussion at the EDGE conference.
The surge of “nearshoring” supply chains from China to Mexico offers obvious benefits in cost, geography, and shipping time, as long as U.S. companies are realistic about smoothing out the challenges of the burgeoning trend, according to a panel today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Those challenges span a list including: developing infrastructure, weak security, manual processes, and shifting regulations, speakers said in a session titled “Nearshoring: Transforming Surface Transportation in the U.S.”
For example, a recent Mexican government rail expansion added lines to tourist destinations in Cancun instead of freight capacity in the Southwest, said panelist Edward Habe, Vice President of Mexico Sales, for Averitt. Truckload cargo inspections may rely on a single person looking at paper filings on the border, instead of a 24/7 online system, said Bob McCloskey, Director for Logistics and Distribution at Clarios, LLC. And business partners inside Mexico often have undisclosed tier-two, tier-three, and tier-four relationships that are difficult to track from the U.S., said Beth Kussatz, Manager of Northern American Network Design & Implementation, Deere & Co.
Still, dedicated companies can work with Mexican authorities, regulators, and providers to overcome those bottlenecks with clever solutions, the panelists agreed. “Don’t be afraid,” Habe said. “It just makes sense in today’s world, the local regionalization of manufacturing. It’s in our interest that this works.”
A quick reaction in the first 24 hours is critical for keeping your business running after a cyberattack, according to Estes Express Lines, the less than truckload (LTL) carrier whose computer systems were struck by hackers in October, 2023.
Immediately after discovering the breach, the company cut off their internet, called in a third-party information technology (IT) support team, and then used their only remaining tools—employees’ personal email and phone contacts—to start reaching out to their shipper clients. The message on Day One: even though the company was reduced to running the business with paper and pencil instead of computers, they were still picking up loads on time with trucks.
“Customers never want to hear bad news, but they really don’t want to hear bad news from someone other than you,” the company’s president and COO, Webb Estes, said in a session today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
After five or six painful days, Estes transitioned from paper back to computers. But they continued sending clients daily video updates from their president, and putting their chief information officer on conference calls to answer specific questions.
Although lawyers had advised them not to be so open, the strategy worked. It took 19 days to get all computer systems running again, but at the end of the first month they had returned to 85% of their original client list, and now have 99% back, Estes said in the session called “Hackers are Always Probing: Cybersecurity Recovery and Prevention Lessons Learned.”
As the final hours tick away before a potential longshoreman’s strike begins at midnight on the U.S. East and Gulf coasts, experts say the ripples of that move could roll across the entire U.S. supply chains for weeks.
While some of the nation’s largest retailers were able to pull their imports forward in recent weeks to soften the blow, “the average supply chain is ill-prepared for this,” Tom Nightingale, the former CEO of AFS Logistics, said in a panel discussion today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Despite that grim prognosis, a strike seems virtually unavoidable, CSCMP President & CEO Mark Baxa said from the stage. At latest report, the White House had declined to force the feuding parties back into arbitration through its executive power, and a voluntary last-minute session had failed to unite the International Longshoremen’s Association (ILA)’s 45,000 union members with the United States Maritime Alliance that manages the 36 ports covered under their expiring contract.
The ultimate impact of a resulting strike will depend largely on how long it lasts, the panelists said. With a massive flow of 140,000 twenty foot equivalent units (TEUs) of shipping containers moving through the two coasts each week, each day of a strike will require 7 to 10 days of recovery for most types of goods, Nightingale said.
Shippers are desperately seeking coping mechanisms, but at this point the damage will add up fast, whether a strike lasts for an optimistic “option A” of just 48 to 72 hours, a pessimistic “Option B” of 7 to 10 days, or even longer, agreed Jon Monroe, president of Jon Monroe Consulting.
The first full day of CSCMP’s EDGE 2024 conference ended with the telling of a great American story.
Author and entrepreneur Fawn Weaver explained how she stumbled across the little-known story of Nathan “Nearest” Green and, in deciding to tell that story, launched the fastest-growing and most award-winning whiskey brand of the past five years—and how she also became the first African American woman to lead a major spirits company.
Weaver is CEO of Uncle Nearest Premium Whiskey, a company she founded in 2016 and that is part of her larger private investment business, Grant Sidney, Inc. Weaver told the story of Uncle Nearest—as Nathan Green was known in his hometown of Lynchburg, Tenn.—to Agile Business Media & Events Chairman Mitch MacDonald, in a keynote interview Monday afternoon.
As it turns out, Green—who was born into slavery and freed after the Civil War—was the first master distiller for the Jack Daniel’s Whiskey brand. His story was well-known among the local descendants of both Daniel and Green, but a mystery in the larger world of bourbon and a missing piece of American history and culture. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
“I believed it was a story of love, honor, and respect,” she told MacDonald during the interview. “I believed it was a great American story.”
Weaver told the story in her best-selling book, Love & Whiskey: The Remarkable True Story of Jack Daniel, His Master Distiller Nearest Green, and the Improbable Rise of Uncle Nearest, and has channeled it into an even larger story with the founding of the brand. Today, Uncle Nearest Premium Whiskey is made at a 323-acre distillery in Shelbyville, Tenn.—the first distillery in U.S. history to commemorate an African American and the only major distillery in the world owned and operated by a Black person.
Weaver and MacDonald's wide-ranging discussion covered the barriers Weaver encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she said she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, emphasizing a recent project to fast-track a new Uncle Nearest product in which collaborating with the company’s supply chain partners was vital.
Uncle Nearest Premium Whiskey has earned more than 600 awards, including “World’s Best” by Whisky Magazine two years in a row, the “Double Gold” by San Francisco World Spirits Competition, and Wine Enthusiast’s “Spirit Brand of the Year.”
CSCMP’s EDGE 2024 runs through Wednesday, October 2, at the Gaylord Opryland Hotel & Convention Center in Nashville.