How a renewed focus on reverse logistics can result in many happy returns.

The high-tech industry is one of the more volatile sectors when it comes to customer demand, making customer service a top priority as well as a top challenge. While high-tech manufacturers don’t have much control over the lightening fast volatility of their industry, they can be prepared for it from a supply chain perspective. Preparation can go a long way in helping address challenges, particularly in the area of reverse logistics.

While reverse logistics is not a new concept for high-tech companies, its importance has increased dramatically over the past several years and will continue to do so going forward. Industry factors such as rapidly changing customer demands, shorter product lifecycles and more complicated products (the biggest driver of returns) are putting the spotlight back on this critical area.  




 

An industry conundrum

A big disconnect in reverse logistics is that many high-tech manufacturers are missing the relationship between the reverse logistics function and the opportunity to address their top business priorities.

The IDC  “Change in the (Supply) Chain” survey sponsored by UPS revealed that the top business priorities for high-tech companies over the next 18 months are to “operate more efficiently” (66 percent), “improve margins” (60 percent) and make changes to “keep up with customer demand” (46 percent). Meanwhile, for many companies, the reverse logistics process works against these priorities-involving multiple unnecessary steps, parties, and modes of transportation, which drives costs up instead of down and can lead to delays in getting repaired products back to customers. Delays negatively impact the customer experience, which can directly affect customer loyalty and revenue.

Companies recognize the business impacts of poor reverse logistics execution. Forty-six percent of survey respondents reported their greatest business concern related to reverse logistics as “meeting customer expectations” while “losing money” and “damaging brand reputation” tied for second place among reverse logistics-related business concerns.

This data indicates that the disconnect may lie not in the understanding of the impacts-good and bad-that reverse logistics can have on a company’s reputation and bottom line, but in knowing how to address the issues. The supply chains of high-tech manufacturers are among the most sophisticated in the world and continue to become even more complex as they expand to serve new markets and customers. This phenomenon certainly impacts the reverse supply chain and presents new challenges for manufacturers.

When asked about supply chain-specific challenges with reverse logistics, 22 percent of the survey respondents cited “getting customers to comply with processes” as their biggest issue. A well-designed reverse logistics process takes the ease of customer processes into account. Simplifying customer requirements and increasing the collection points will improve customer compliance and brand loyalty. There is also a need for greater customer education on product features and operation. Looking at the supply chain as a whole, high-tech companies reported their top “weak link” as “end-to-end visibility,” an area that also has significant implications for and impacts on the reverse logistics process.




 

Changing directions: How to move forward in reverse logistics

How can companies repair ailing or broken returns and repairs processes? As they prepare for 2011 and beyond, high-tech companies should take a step back and closely examine their reverse logistics processes and practices to determine whether this area is a weak link or a competitive advantage for their business. Four key considerations:

Turn Employees into Customer Service Advocates-Companies should start by taking a close look at the people who touch their reverse logistics processes. Employees working in reverse logistics functions should be viewed as part of a company’s customer service team. It’s critical for these employees to understand the significance of their job functions in accomplishing company goals related to the customer experience. It’s also essential to assign executives to manage the reverse logistics program. Reverse logistics should be treated as a business function with specific goals and resources, and this requires a dedicated team. Many reverse logistics functions might make sense to outsource from an economic and efficiency standpoint. When going this route, companies must ensure that third parties are part of the “team” and understand the company’s key business objectives.

Take Stock of Your Network-Location is critical when it comes to reverse logistics operations, which is why network design is essential to success. Determining where to stock replacement parts is a decision that impacts service as well as the bottom line. Many companies rely on centralized stocking locations, or a central facility where all replacement parts are stored. The challenge for companies that rely solely on centralized stocking locations is that these facilities are often located far from end users, leading to significant transportation costs. To get parts to technicians on time, companies often have to rely on air transportation, a potentially avoidable cost.

A faster option for stocking replacement parts is to use field stocking locations, or FSLs, in combination with centralized stocking facilities. FSLs are a network of smaller facilities located in strategic sites near customers. Companies with FSLs gain the assurance that inventory is always nearby, resulting in faster customer service and lower transportation costs. The value of the product as well as the value of the customer experience must be considered when calculating the increased inventory levels resulting from a distributed parts model. 

Key to succeeding with an FSL network is knowing where to place FSLs and what to stock in each individual location. This requires a demand planning exercise and supply chain analysis to determine where demand for parts is coming from today as well as where it will likely come from in the future.

Know What’s at Stake-Senior executives of high-tech companies must understand what’s at stake when it comes to reverse logistics. The reverse logistics function affects far more than how companies handle returns. In fact, it directly impacts numerous business functions and factors, including transportation costs, sustainability initiatives, cost reduction initiatives, and of course customer service. Educating executives on the business impacts of reverse logistics is crucial in gaining company buy-in for improvement initiatives. What’s at stake includes brand reputation, customer loyalty and future market opportunities.

Use Resources Wisely-The process for determining the best reverse logistics strategy and executing on it can seem daunting to many companies, and in fact, requires a significant amount of time and expertise. For companies that don’t have the infrastructure, assets and technology in place, it can also require significant investments. This is when outsourcing can prove a very attractive option for high-tech companies to leverage existing networks of third-party logistics providers as well as their supply chain consulting, planning and execution expertise. Outsourcing the reverse logistics function allows companies to focus on their core business and invest in innovative new products rather than those in the returns cycle.




 

The payoff: Reverse logistics as a competitive differentiator

The time to invest in reverse logistics is now. Whether or not companies are ready to expand their reverse logistics networks, it’s never too early to do a supply chain assessment, mapping current and future business goals against supply chain capabilities.

When it comes to the payoff of these investments, the benefits are many. Beyond driving down costs and improving customer service, reverse logistics can be a key competitive differentiator for companies. A strategic reverse logistics program can go far beyond responding to customer needs to capture customer opinions and identify future needs that can lead to deeper relationships and possibly even new business opportunities. Among the incentives to focusing on reverse logistics are: customer retention/satisfaction; container reuse, recycling, damaged materials returns, asset recovery/restock; downstream excess inventory; hazardous material programs, tracking obsolete equipment and recalls.

The IDC survey revealed that, looking ahead, high-tech companies will place a greater focus on areas that proved to be weaknesses during the recession, which in addition to cost containment, are “responsiveness” and “resiliency.” Smart companies will add a third “R” to the equation: reverse logistics. wt



Charlie Covert is Vice President, UPS Customer Solutions, at www.ups-psi.com.