When I spend my money I buy from companies that are easy to do business with.
I want a company that makes the purchasing process easy and just as importantly I want it to be easy
to return the item.
If I’m not satisfied.
This is even more important when I’m buying online because I can’t actually handle the item before buying
it if it is not what I expected.
I want to be able to send it back.
Most companies know this and have made their return policies much more liberal than they were a few
In short companies have transferred the risk of the purchase from the customer and taking it upon themselves.
If they can provide outstanding customer service meaning they’re easy to do business with.
This should yield a satisfied group of repeat customers that results in increased sales over time.
Nordstrom’s for example has an excellent reputation for customer service through their very relaxed
returns policies and Amazon certainly has built its business in part with a very customer friendly process
OK what does this have to do with logistics.
Well these returns create a reverse flow through your logistics network and this movement is expected
to increase year by year as time goes by.
We are seeing not only looser return policies but also more and more green laws enacted around the world.
These are laws that govern how products are treated or disposed of at the end of their lifecycle.
For example packaging transportation items such as pallets and high end products with hazardous components
are increasingly required to be recovered by the manufacturing company or the distributor extended warranties
safety recalls and overstocking might also increase the traffic and reverse logistics network.
There also might be some salvage value that my company wants to capture.
So I incentivize my customer to return the item rather than throw it away.
And this is the reason for example that my appliance store will take away my old refrigerator for free
or perhaps even give me a trading discount.
They want the salvage value of the refrigerator and its components so as more and more goods move backwards
through my supply chain it as more and more important for me as a logistics professional to control
the returns management process.
There are several ways I might accomplish this.
First is avoidance.
Simply put making high quality products reduces the amount of returns for defects recalls and warranties.
Next is gatekeeping.
This practice is especially useful in the retail industry.
In short returned items are screened at the source to determine the appropriate disposition.
If the item is not damaged for example it can go right back on the shelf without ever entering the logistics
Another process is using return centers.
Some companies establish specific locations and layouts within their distribution centers to exclusively
A common practice for handling returns is outsourcing.
Just hire someone else to handle this function for you.
Third party recovery facilities can accept returns from the retailer and decide if the item goes back
to you to a reuse market or to disposal.
Because of its expertise in reverse logistics and the benefit of economies of scale the recovery facility
can usually perform this function at a much lower cost the outsourcing decision does not have to be
an all or none consideration.
For example Toshiba laptops that are returned under warranty are actually repaired by Toshiba certified
U.P.S. employees and delivered back to the customer by U.P.S..
Finally some companies opt for a zero returns policy.
Sometimes it is just not worth the expense of managing the return’s process instead of having a return’s
You give the customer an allowance or you replace the item and ask the customer to destroy the original.
My wife ordered some kitchen cabinets recently and one of them was damaged.
She emailed a photo of the damaged cabinet they replaced it at no charge and asked us to dispose of
the broken cabinet.
This was fine with us because the cabinet installer salvaged some valuable spare parts from the broken
Everyone was happy and nothing entered the logistics network another very important aspect of return’s
management was to control costs.
The more efficient my reverse logistics system is for example the more value can be gained from reselling
remanufacturing and refurbishing transportation is the key expense in returns management.
So controlling costs via better scheduling and consolidated shipping is very important.
Efficient distribution center activities can reduce the cost of handling sorting and packaging returns
for transport activity based costing is a very effective tool for realizing value from your returns
ABC breaks down the process and to each specific activity and then assigns the costs for each activity
activities for returns management which includes such things as transportation storage labor and packaging.
Once you get a handle on your costs the next step is to understand what savings are being realized for
At each of those activities this appreciation of both the costs and the savings can help you to determine
if the returns management process is really adding economic value for your company.
As a logistics professional you need to recognize the importance of an efficient returns management
process and how this reverse flow impacts your logistics performance overall.
Apply an activity based costing is a really good place to start.
Simply put international logistics is hard to manage today’s logistics world includes so many specialists
from freight forwarders to customs clearinghouses to import export professionals.
And that’s just to name a few.
It’s very hard to keep up with them all.
No wonder so many companies are forced to hire third party logistics providers.
This world is just so complex.
There are also a host of factors that have to be considered such as longer lead times volatile fuel
prices and port congestion.
The list goes on and on.
In 2008 as major companies were reeling from high transportation costs they began to rethink their global
supply chain strategies.
They began to look at shorter transportation channels which resulted in the discovery of regional supply
In short you make the product close to the customer and you source locally as much as you can.
Now this was not a new concept in 2008.
Many companies were already employing regional supply chains but higher logistics costs made many additional
companies look to a shift in business strategy.
For the first time regional supply chains give you three distinct advantages first by shortening your
You have reduced your transportation costs and you shorten your transportation time as well.
A shorter supply chain reduces uncertainty like determining how long your ship will wait to be unloaded
in Los Angeles and therefore increases reliability of on time deliveries.
Such reliability allows you to better control your inventory and further reduce costs.
Sometimes the cost savings in logistics can more than outweigh an increase in labor costs.
This is why companies like Toyota make products for the U.S. market right here in America.
Second you’re making a product that is suited for that particular region which allows you to focus your
factories warehouses and transportation vehicles on fewer types of materials components and products.
And sometimes your final product may be vastly different from one region to the next.
Caterpillar for example learned this years ago.
The ground in Montana is much firmer and harder than the ground in Malaysia.
The earth moving equipment needed by these two customers is very different is not easy to manufacture
in one central factory and is very expensive to transport.
The third regional supply chains helped to build the economy of the region which is especially good
for manufacturing companies.
As the economy grows new customers can be created for your products.
This is especially true of household goods.
Whirlpool Corp is a great example here.
Years ago they established a regional supply chain based in Shanghai China to make washers and dryers
for customers in Japan and South Korea specifically as wages and household incomes rose and China customers
there began to purchase appliances for their home.
Good news for Whirlpool.
Now here’s the embarrassing part of the story.
This new customer market was not even noticed by the executive suite.
They only found out about it when the logistics folks started asking why are we shipping finished goods
from Shanghai to Tokyo and then from Tokyo back to Shanghai caught by surprise.
Whirlpool immediately set up a distribution center in China for their Chinese customers.
For these three very strong reasons.
Even after oil prices fell dramatically.
Major corporations have continued to appreciate the benefits and move some of their operations into
regional supply chains for some products.
It just makes sense.
So I hope you can see how closely logistics is connected to your company’s business strategy.
A strong logistics capability helps to ensure continued growth by providing excellent service to happy
A flexible logistics system allows the company to switch its emphasis as business conditions change
a shift to regional supply chains.
It’s just one example of why today’s logistical networks must be both flexible and strong.
Change is inevitable.
We all know this.
The company that reacts best to changes and customers their preferences and their overall demand not
It thrives as your company reacts to those customer changes your logistics system must change also.
You really want your logistics network to be three things at once nimble responsive and flexible.
The fast fashion industry is a great example of being nimble and the king of that industry was the Spanish
company Zorah the fast fashion industry specializes in bringing new clothing styles to market very quickly.
The problem with new clothing styles is that it is very hard to predict what will and will not be popular
with the customer.
Zahra is famous for keeping very low inventories in case the style does not catch on.
And at the same time being able to quickly replenish that inventory if the style does indeed become
They manage their entire logistics system in a very lean manner not just by keeping low inventory levels
but also by delivering immediately and partially filled trucks even sometimes using air transportation
by keeping some factory capacity in reserve and by maintaining distribution centers with extra equipment
and people to handle those peak demand periods.
All of these extra costs were covered by making sales that would otherwise have been lost.
And by avoiding the cost of disposing of unwanted inventory the logistics network at Zohra is very nimble
and it is also very responsive because it is not just customer preferences that can change.
You also must respond to unexpected increases in customer demand for your product.
Once the factory makes the additional products needed it is your logistics network that actually fills
those extra customer orders to do this.
You have to have very efficient distribution networks and you somehow have to maintain additional transportation
Now this does not mean you have to buy extra trucks and have them sit idle just in case you need them.
Companies like Wal-Mart maintain a fleet of trucks that can support their normal transportation needs
and they have contracts with commercial trucking firms to provide support as needed to meet the extra
A company like Dell computers outsources its delivery process but certainly negotiates contracts with
U.P.S. to provide priority service as needed.
When these outsourced relationships are managed properly.
You truly have supply chain partnerships if not managed properly.
You have situations in which your company is accepting orders that your transportation provider cannot
possibly deliver as promised.
This has happened more than one holiday season when Amazon and U.P.S. were not well coordinated.
Now what if you’re working in a small company that does not have this kind of leverage.
Well quite honestly you might have to pay a premium price for last minute delivery contracts.
But this certainly is preferable to losing the new orders.
A wise man once told me that a small profit is much better than NO profit at all.
Now what do I mean by being flexible.
Sometimes your entire customer base may change not their preferences not their demand but the customer
Take cell phones for example.
They began as a business instrument for doctors and lawyers and executives and other key employees who
needed to stay in touch.
And as prices decreased and services improved they quickly evolved into a personal device.
The logistics system to distribute and deliver those products had to evolve also from one that originally
filled relatively large orders directly to corporations.
They soon had to deliver to retail distribution centers and directly to the retail stores.
Now with so much business conducted on the Internet they also must deliver directly to the individual
consumer at home.
The distribution and transportation systems of your company must be adaptable to such changes in the
market itself as customers and products evolve.
What is the best way for your company to be nimble responsive and flexible.
Logistics must be closely aligned with the overall corporate strategy.
Today logistics is such a large part of the cost of goods sold.
We are seeing more and more companies elevating the logistics function to positions such as Chief logistics
officer and chief transportation officer.