Reverse Logistics: Important or Irritant?

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Reverse Logistics Important or Irritant?
The Reverse Logistics Association was founded in
2002 when research studies were completed which
revealed that over 750 billion annually was
being spent on reverse logistics processes in
North America alone.
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In an ideal world, reverse logistics would not
exist.
Jim Whalen, In Through the Out
Door, Warehousing Management, March 2001
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Now, more than ever, reverse logistics is seen
as being important.
Dale Rogers, Going Backwards, 1999
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Reverse vs. Forward

• Forecasting
• Distribution Centers
• Quality
• Disposition
• Marketing

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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.

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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

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Why Reverse Logistics?

• Competitive advantage
• Customer service
• - Very Important 57
• - Important 18
• - Somewhat/unimportant23
• Bottom line profits

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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

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Key Dates in Reverse Logistics

• World War II the advent of refurbished
  automobile parts due to shortages
• 1982 - Tylenol Scare - Johnson and Johnson
• 1991 - German ordinance that put teeth in
  environmental reverse pipeline
• Summer 1996 UK Packaging and Packaging Waste
  Legislation
• 2001 EU goal of 50-65 recovering or recycling
  of packaging waste

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Reverse Logistics

• A US Army Perspective

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Operation Iraqi Freedom

• The US Army moved the equivalent of 150
  Wal-Mart Supercenters to Kuwait in a matter of a
  few months

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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.
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Reverse Logistics

• The Commercial Perspective

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• Recalls.gov
• Mattel's expanded product recall
• of 19 million toys is pushing a lot
• of product back through the supply chain.

• Recall of 3912 items from Peanut Corporation of
  America Salmonella problems causing
  constipation of forward supply chains

• Dell recall of faulty laptop batteries - 2007

• 2010 toys, pallets, Tylenol

• 2011 4 million Toyotas

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Reverse Logistics

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

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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.

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Costs

• Cost of lost sales
• Wal-Mart Christmas 2003 - returns 4 Days of
  Supply for all of Wal-Mart 2000 Containers
• Hoover - 40 Million per year
• Cost of processing 85 per item

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Is it a problem?

• Estimate of holiday returns in 2004 13.2
  billion
• of estimated holiday returns 25 (2009-2012)
• If true, value of 2012 returns 150 billion
• Wal-Mart 6 Billion in annual returns 17,000
  truck loads (gt46 trucks a day)
• Personal Computers approximately 95 per PC sold
• 79 of returned PCs have no defects
• Home Depot 10 million in returns in the stores

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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

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Impact?

• Every resaleable 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

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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.

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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.
• Typically, as many as 8-12 more steps per item in
  the reverse pipeline than items in the forward
  pipeline

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Electronics Reverse Logistics

• 677 billion
• 132 billion
• 60 million 12 million
• 100 million
• 20-50 million metric tons
• 2-5
• 70
• 4 billion pounds
• 4 million pounds
• 75 pounds/40,000 pounds

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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
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Impacts of Reverse Logistics

• Forecasting
• Carrying costs
• Processing costs
• Warehousing
• Distribution
• Transportation
• Personnel
• Marketing
• Customer Service
• Bottom line profits

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http//www.remarinc.com/?page_id89
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Supply Chain Security
the single biggest threat facing American
traders is supply chain security Website for
C-T PAT
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Supply Chain Security

• We have proved to our management that good
  security is good business. Ann Lister of Texas
  Instruments

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Supply Chain Security

• Whats the cost of 9/11 to the Supply Chain?
• Fortune Magazine - 50-80 billion a year
• inefficient supply chains
• higher transportation costs
• increased inventory

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Problem?

• Terrorism/Piracy
• Obsolescence
• Pilferage
• Information Breach
• Proprietary Data Camera Phones Thumb Drives
• Cyberspace Security
• RFID Data Security
• 66 of Sealift Containers arrive at 20 Major
  Ports
• gt58 of all inbound containers come through New
  York/New Jersey, Los Angeles, Long Beach
• 44 through Los Angeles/Long Beach
• Lengthening of Supply Chains coupled with
  Globalization

12/19/2020
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Supply Chain Security/Disruption Headlines

• IMB identifies rash of false shipments into North
  Africa
• Pirates intensify attacks in new areas
• New High for Piracy
• Russia Sends Warship to Somali Coast to Fight
  Piracy Bloomberg.com
• UN adopts new Somalia piracy resolution

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Supply Chain Headlines

• New Budget includes 10.2 Billion for Border
  Security.
• Major Data Theft Leads to Major Legal Problems
  Baseline Magazine
• Polo Ralph Lauren Lost Point of Sale Data

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Examples

• Major Distributor, Dec 2006
• Locks on trucks
• SAFE Port Initiative
• Scanning of Containers
• C-TPAT

Threats in the international market-place know no
borders.
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Risk

• Supply Chains are inherently complex, dynamic,
  and fluid, characterized by uncertainty,
  ambiguity, and friction. These characteristics
  cloud the operating environment they create
  risks

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Risk Assessment

• Terrorism
• Theft
• Port Security over 14 million containers
  annually to the US 500 million world wide
• Port Security 300 US Ports
• Longshoremen Strike 2002
• LA/Long Beach Strike 2012/2013
• Potential Airport Attack LAX MPS LGA
• Potential loss of attack to major port - 20
  billion estimate

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Problems?

• gt58 of all inbound containers come through New
  York/New Jersey, Los Angeles, Long Beach
• 44 through Los Angeles/Long Beach
• Lengthening of Supply Chains coupled with
  Globalization
• Top 5 Hottest Global Markets China, Mexico,
  Eastern Europe, Southeast Asia, India

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New Problem?

• There were no secure rear areas. General
  Joseph Heiser on Vietnam Logistics
• Sun Tzu Chapter 1, The Art of War
• Native Americans
• American Civil War Great Train Chase
• Pirates of the Caribbean

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Supply Chain Security

• A Global Perspective

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Other Key Ports

• Singapore 25.87 million TEUs
• Shanghai 25 million
• Hong Kong 20.9 million
• Shenzhen 18.25 million
• Pusan 11.98 million

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SAFE Port Act

• The SAFE Port Act codified into law a number of
  programs to improve security of U.S. ports, such
  as
• Additional requirements for maritime facilities
• Creation of the Transportation Worker
  Identification Credentials
• Establishment of interagency operational centers
  for port security

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Safe Port Act

• Container Security Initiative
• Foreign port assessments
• Customs Trade Partnership Against Terrorism

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Container Security Initiative

• CSI consists of four core elements
• Using intelligence and automated information to
  identify and target containers that pose a risk
  for terrorism.
• Pre-screening those containers that pose a risk
  at the port of departure before they arrive at
  U.S. ports.
• Using detection technology (X-Rays) to quickly
  pre-screen containers that pose a risk. Using
  smarter, tamper-evident containers.

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Containers - Concerns

• Cost to X-Ray containers
• Manpower
• Delays
• Radiation

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C-TPAT

• Voluntary
• November 2001
• gt 10,000 members
• 50 of all imports
• Mutual Recognition Agreements New Zealand,
  Korea, Japan
• Canada has a program very similar to C-TPAT named
  FAST Free and Secure Trade.

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Orlando International Airport

• No staffing of doors for employee entrance to
  baggage claim areas
• Guns smuggled into planes by employees
• no requirement for us to staff those doors OIA
  Spokesperson TSA not my job!
• Identified as security issues in 2004
• 2006 ½ of TSA Screeners failed test that
  measured how well employees could identify
  explosives, guns and other weapons on the scanner
  but can identify bottles of mouthwash and
  toothpaste

Source Mike Thomas, Orlando Sentinel, Mar 15,
2007, p. B-1
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Food Security
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BioTerrorism?

• Cucumber - salmonella
• Dole Foods recall April 2012
• Peter Pan Peanut Butter e coli 2007
• E-coli from fresh Spinach 2006
• Chi Chis e-coli from green onions 2003
• Taco Bell e coli 2005
• None were terrorist attacks but impacted supply
  chains
• US Salmonella/e-coli scare 2008
• Salmonella epidemic 2009 - gt3921 separate items
  recalled

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Summary

• Direct link between supply chain security and
  homeland security
• Logistics costs are large part of manufacturing
  costs
• Savings in supply chain costs to bottom line