REVERSE LOGISTICS: IMPORTANT OR IRRITANT?

Estimated $100 billion industry in 2006

In an ideal world, reverse logistics would not exist.

Jim Whalen, In Through the Out Door, Warehousing Management, March 2001

Reverse Logistics - What is it? The Armys 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

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.

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

Why Reverse Logistics?

Competitive advantage Customer service - Very Important: 57% - Important: 18% - Somewhat/unimportant:23% Bottom line profits

Reverse Logistics - New Problem?

Sherman Montgomery Wards - 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

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

REVERSE LOGISTICS
A US Army Perspective

Operation Iraqi Freedom

The US Army moved the equivalent of 150 WalMart Supercenters to Kuwait in a matter of a few months

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.

Janes 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.

Does this create a problem?

From GAO Audit Report

From GAO Audit Report

REVERSE LOGISTICS
The Commercial Perspective

Reverse Logistics

Rate of returns? Cost to process a return? Time to get the item back on the shelf if resaleable?

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.

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

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

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

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

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

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

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.

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

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

RFID and Returns

Visibility Tracking Component tracking Data Warehouse on what, why, when Altered products Not for every product

Impacts of Reverse Logistics

Forecasting Carrying costs Processing costs Warehousing Distribution Transportation Personnel Marketing

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

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 manufacturers cost and price that the purchaser must pay.

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.

Demings 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.

What Is Quality?
The degree of excellence of a thing (Websters Dictionary) The totality of features and characteristics that satisfy needs (ASQ)

Fitness for use

Quality of design

Quality

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

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

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

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

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

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

Service Quality
1. Time & Timeliness
Customer waiting time, completed on time

2. Completeness
Customer gets all they asked for

3. Courtesy
Treatment by employees

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

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

Demings 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

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

Demings 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

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
Assess the plan; is it working?

2. Do
Implement the plan on a test basis.

Also known as the Shewart Cycle

Six Sigma

Quality management program that measures and improves the operational performance of a company by identifying and correcting defects in the companys processes and products

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

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

Cost of Quality
Cost of achieving good quality
Prevention
Planning, Product design, Process, Training, Information

Appraisal
Inspection and testing, Test equipment, Operator

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

Employees and Quality Improvement

Employee involvement Quality circles Process improvement teams Employee suggestions

Cause-and-Effect Diagram
Measurement
Faulty testing equipment Incorrect specifications

Human
Poor supervision Lack of concentration Inadequate training

Machines
Out of adjustment Tooling problems

Improper methods

Old / worn

Inaccurate temperature control

Quality Problem
Defective from vendor
Not to specifications

Poor process design

Ineffective quality management Deficiencies in product design

Dust and Dirt

Materialhandling problems

Environment

Materials

Process

Also known as Ishikawa Diagram or Fish Bone

Hot House Quality Lots of Hoopla and no follow through

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

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

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)

Wabona Logistics
Contact Details
Wabona Offices Head Office Durban Office:

Chris Magagula - Group Chairman

Johannesburg Branch:
44-48 Fountain Road2nd Floor Adoni's Centre, Fordsburg, Johannesburg, 2092, South Africa Email: jhb@wabonagroup.com

Suite 811 Salmon Grove Chambers 407 Anton Lembede Street Durban 4001 South Africa P.O. Box 1901 Durban, 4000 South Africa

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

Operations
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:

Business Unit 28B Foreshore, Lowershore, Cape Town, 8001, South Africa Email: cape@wabonagroup.com

Port Elizabeth Branch:

27 Goedehoop Street Windsor Port Elizabeth, 6200, South Africa Email: pe@wabonagroup.com

Benoni Branch:
Suite 21c, 2nd Floor 71 Woburn Avenue, Benoni, 1500, South Africa Email: jhb@wabonagroup.com