Dr Ron Lembke Free Book Amazoncom 20 wwwrlecorg 0 Free download CSCMP Free to all members Flow of Retail Goods Retailer would like to stop it all at the red line Reverse Logistics ID: 559581
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Slide1
Reverse Logistics
Dr. Ron
LembkeSlide2
Free Book
Amazon.com: $20
www.rlec.org
- $0Free downloadSlide3
CSCMP
Free to all
membersSlide4
Flow of Retail Goods
Retailer would like to stop it all at the red lineSlide5
Reverse Logistics
Logistics is the process of getting products from the point of production to where someone wants to buy them.
Cell phone from manufacturer in China to US distribution center
Reverse logistics is products going the “wrong way” to recapture value or proper disposal.
Like Salmon spawning, swimming against the currentSlide6
Reverse Logistics is:
The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information
from the point of consumption to the point of origin
for the purpose of
recapturing value
or
proper disposal
.Slide7
Things you don’t wantSlide8
Reverse Logistics MaterialsSlide9
A Bunch of JunkSlide10
RL and Green Logistics
Air & noise emissions
Environmental impact of mode selection
Packaging reduction
Product returns
Marketing returns
Secondary markets
Remanufacturing
Recycling
Reusable packaging
Disposal issues
“Green” Logistics
Reverse LogisticsSlide11
U.S. Reverse Logistics Costs
Total U.S. Logistics Costs $970,000,000
Approximate RL cost %
4.00%
Estimated U.S. RL Costs
$38,800,000
Source for U.S. total costs Bob Delaney, 13
th
Annual State of Logistics Report.Slide12
Size of Reverse Logistics
Logistics costs 9.5% U.S. economy.
(
State of Logistics Report)
Logistics costs were $1.2 trillion in 2005
Reverse logistics costs 4-5% total logistics costs or
Roughly one-half percent of the total U.S. gross domestic product (GDP).
Reverse logistics costs approximately $60 billion in 2006. Slide13
How much stuff comes back?
We estimate 6% based on extensive interviews
5.5% Shop.org
6% was “typical” in 19584-5% in 192915% - Chicago (State St.) 1933 12.5% - Boston 1933Slide14
How much stuff?
$870b furniture, clothing, electronics, sporting goods, general merchandise, catalog sales
6% return rate
$52b product returned annuallySlide15
Productivity PressSlide16
Key
RL Management
Elements
GatekeepingCompacting Disposition Cycle Time
Reverse Logistics Information Systems
Centralized Return Centers
Zero Returns
Remanufacture and Refurbishment
Asset Recovery
Negotiation
Financial Management
OutsourcingSlide17
Reverse is Different
Forward
Reverse
Product quality uniform
Product quality not uniform
Disposition options clear
Disposition not clear
Routing of product unambiguous
Routing of product ambiguous
Forward distribution costs more easily understandable
Reverse costs less understandable
Pricing of product uniform
Pricing of product not uniform
Inventory management consistent
Inventory management not consistent
Product life cycle manageable
Product lifecycle less manageable
Financial Management issues clearer
Financial Management issues unclear
Negotiation between parties more straightforward
Negotiation less straightforward
Type of customer easy to identify and market to
Type of customer difficult to identify and market to
Visibility of process more transparent
Visibility of process less transparentSlide18
Cost Comparisons: Reverse vs. Forward
Cost
Comparison to Forward Logistics
Transportation
Higher
Inventory holding cost
Lower
Shrinkage (theft)
Much lower
Obsolescence
May be higher
Collection
Much higher -- less standardized
Sorting, quality diagnosis
Much greater
Handling
Much higher
Refurbishment / Repackaging
Significant for reverse logistics, very low for forward
Change from book value
Significant for reverse logistics, nonexistent for forwardSlide19
CRCs: What do they do?
Store sends to CRC – centralized return center, which:
Identifies the product
Assesses its conditionSell as newSell as is via outlet, retail
RTV return to vendor if possible
Sell to brokers
Landfill / recycleSlide20
Typical Benefits from
Centralized Return Centers
Simplified store procedures
Improved supplier relationshipsBetter returns inventory control
Improved inventory turns
Reduced administrative costs
Reduced store level costs
Reduced shrinkage
Refocus on retailer core competencies
Reduced landfill
Improved management informationSlide21
Centralized Return Centers
Consistency - Impose procedures
Space Utilization
Labor Savings
Transportation Costs
Improved Customer Service
Compacting Disposition Time
Visibility of Quality Problems
Forward/Backward
Accounting Issues
Information system improvement
Bottom line impactSlide22
Key Reverse Logistics Management Elements
Improve return “gatekeeping
.”
Compact disposition cycle time.
Information systemsSlide23
Disposition Options
What are we going to do with it?
Sell as new and make a profit
Open box – discounted, smaller profitRTV – money back, but have to pay shipping, paid to stock, repack, etc.Sell off for 10% of cost
Recycle – less than 10% at best
Landfill – pay to haul awaySlide24
Compact Disposition Cycle
Respondent firms that have very short reverse logistics disposition cycle times have lower average reverse logistics costs as a percentage of logistics costs.
Shorter reverse logistics disposition cycle times result in
reverse logistics costs having a smaller impact on profitability.Slide25
Outsourcing:
Bottom-Line Impact
In-House
Outsourced
Central Return Center 4.8% 3.7%
By what percentage did reverse logistics costs reduce your profits?
Companies that outsourced Central Return Centers saw profits reduced by smaller about due to returns.Slide26
RL Service Providers-2002
Contacted 135 3PLs offering RL services
Inbound Logistics, Google
52.4% response rate (9 wouldn’t respond)55 actually provide some kind of reverse logistics services (10 don’t)38 actually touch the product
17 sell a software product
35 manage transportation of RLSlide27
Does your firm have reverse logistics IT system capabilities?Slide28
What type of systems?
Return tracking, RMA 33%
Dispositioning 9%
WMS 24%Retail 3%
Manufacturing 2%Slide29
Do you expect reverse logistics activities to increase?Slide30
Zero Returns
Reduces the variability of returns costs.
Retailer has to take responsibility for minimizing returns.
Enables the firm to avoid the problem of physically dealing with returns altogether.
Does not reduce much of the physical burden placed on downstream channel participants.
Cannibalization of “A” channel concerns.
2%/6% ProblemSlide31
Customer ReturnsSlide32
Marshall Field’s
1861 ad
“Give the Lady What She Wants”Slide33
Return Percentages
Book Publishers 20-51%
Book Distributors 10-20%
Greeting Cards 20-30%
Catalog Retailers 18-35%
Electronic Distributors 10-12%
Computer Manufacturers 10-20%
CD-ROMS 18-25%
Printers 4-8%
Mail Order Computer Manufacturers 2-5%
Mass Merchandisers 4-15%
Auto Industry (Parts) 4-6%
Consumer Electronics 4-5%
Household Chemicals 2-3%Slide34
Efforts to Reduce Returns
Shorter Returns windows
Restocking fees
Mandatory Receipts, IdentificationLook up purchaseGift cards instead of refunds w/o receiptSell instead of gifts – nothing to return!Slide35
Customers Accepting ChangesSlide36
Elaine: Hey. Oh, is that a label
maker?
Jerry
: Yes it is. I got it as a gift, it's a Label Baby Junior.
Elaine: Love the Label Baby, baby. You know those things make great gifts, I just got one of those for Tim Whatley for Christmas
.
Jerry: Tim Whatley
?
Elaine: Yeah. Who sent you that one
?
Jerry: One Tim Whatley
!
Elaine. No, my Tim Whatley? I think this is the same one I gave him. He recycled this gift. He's a
regifter
!
Copyright © 2005 Reverse Logistics Trends, Inc.
“
Regifting
”Slide37
Regifting?
Copyright © 2005 Reverse Logistics Trends, Inc.Slide38
Harris Interactive Poll
Men Women Total
Have done it 39% 64% 52%
Think it’s OK 70% 86% 78%
By Age: 25-34 35-44 45-54
Plan to do it 46% 36% 28%
Copyright © 2005 Reverse Logistics Trends, Inc.Slide39
Giftcards?
Gift cards estimated at $60b
10-15% go unused
CardAvenue 5,000/moCopyright © 2005 Reverse Logistics Trends, Inc.Slide40
Consumer Returns Focus Groups
Consumer Electronics Association
Focus Groups:
Half men, half women
10 online, 2 in-person groups
All across US
eBrain market research
Recruited through SurveySavvy.com
Returned consumer electronics product recently.Slide41
Focus GroupsSlide42Slide43
What if you could never return?
not buy any thing
I sometimes make bad purchase decisions..
I wouldnt shop thereI’d be very reluctant to buy with a no returns policy. Stuff happens.
I won't buy nothing at a store with such policy
“Tuck the Tags”
Receipts? Look me upSlide44
How choose a store
“It's the closes electronics store to where I live, not that much thought really”
“the cheapest cost or closest location or sale”
“looked up ads for a couple of weeks, found the cheapest price”
“FREINDS FAMILY”
“long relationship”
“COOL”
“Price and location”
No one mentioned returns policy Slide45
Shifting Policies
Returns Avoidance
Customer behavior adaptingSlide46
Even The Almighty is ConfusedSlide47
Secondary Markets
Who is in it?
How big is it?Slide48
Research Motivation
Companies typically sell to secondary market as last resort
First, mark down 50 or 75%, to roughly 50% of cost, still didn’t sell in stores
Broker buys for 10% of costA 1 percentage point increase gives a 10% in revenues
For a large retailers, that’s millions of $Slide49
Secondary Market Flow
We want to understand
the total dollars flowing through the secondary marketSlide50
Key Decision Factors
Price secondary to trust in choosing whom to sell to
Brand equity protection
Who are you? Why do you want to know?Very thin marginsBuy for 10-15% of cost typicallyMark up by 1%
Try to sell before taking possession, buyer takes it straight from retailer’s dockSlide51
Secondary Market Goods
New product:
Overproduction
Shelf pullsLiftsMarketing returnsSecond quality
End of life/season closeouts
Salvage / returns:
Customer returns
Freight damage
Defective
Recalls
Gray market
Black market
KnockoffsSlide52
Secondary Market Buyers
New vs. Salvage:
New: Close-outs, job-outs, surplus
DivertersDeal in salvage, deal in both
Primary brokers
Buy large quantities (truckload) from retail
Sell TL or pallet quantity to secondary brokers
Brokers want to resell before possession
“Direct from retailer”Slide53
Selling Process
Pricing
Per pallet, per pound, per item
“Cherry picking” despisedBuyers’ belief less information is betterCaveat emptor: Good & bad loads even outSlide54
Structure of Selling
No standardization, automation
Phone, fax often still primary tools
Retailers sell same things at same timesBrokers call and requestSome quasi-auctions, some FCFS Trust: Relationship-based processesOften Invitation only
Gordon Brothers exchangeSlide55
Information availability and
Risk to Buyer
Low risk to buyer
Maximize revenue
Predictable profits
for buyer
Low High
Information availability to broker
Low High
Variabilty of product
Brokers unwilling to risk
High trust requiredSlide56
Secondary Market value (% of cost) as Condition improves
Damaged Used New
100%
0%
Repaired
“As is”Slide57
Brokers
Overstock Brokers: new product
seasonal
package change product changeOverrunsSalvage Brokers: not new conditionReturned goods
Shelf damage
Acts of GodSlide58
Size of Secondary Market
Secondary Market:
$329B
US GDP:
$ 14,440B
2.28% US GDPSlide59
Salvage Dealer?Slide60
Highway 61 = eBay?
Well Mack the Finger said to Louie the King
“I got forty red white and blue shoe strings
And a thousand telephones that don't ring
Do you know where I can get rid of these things?”
And Louie the King said, “Let me think for a minute son.”
And he said, “Yes I think it can be easily done.
Just take everything down to Highway 61.”Slide61
Who buys from the brokers?
Sold directly on eBay
Buy a pallet, open a shop
Flea marketsWebsitesDollar / Bargain storesSlide62
Returns to Secondary Market FlowSlide63
Methodology
Delphi Panel Methodology
Lack of data, inability to measure directly
Panel4 mass merchandisers (RL and returns)4 3PLs specializing in RL
5 RL managers at CE firms
2 contract manufacturers
3 industry association executive directorsSlide64
Auctions
eBay,
amazon
, nobetterdeal, alibris
eBay goods
sold 2008 $59.7b
Not including autos
Market share estimated at 60%
Total market $99.4bSlide65
Pawn Shops
3 Largest Publicly Traded:
EZ
PawnCash America InternationalFirst Cash Financial Services10% of total market
Combined
CoGS
* 10:
$5,655 mSlide66
Dollar Stores
Dollar Tree (40% of US stores)
Dollar
GeneralFamily Dollar80% of goods estimated to be from asset recovery process$17,669 m
Underestimate
American consumers much more willing to purchase from secondary outlets.
Can be difficult to manage.
Fastest growing retail sectorSlide67
Charities Flea Markets
Salvation Army
Goodwill
Industries$2.7b combined revenuesClear underestimate
$30 billion estimate, 2006
10-15% increase since then
$33 billionSlide68
Reuse
Friends of Multiple Sclerosis will pick it up, sell it at Savers’
Washoe ARC pick up
Salvation Army, GoodwillSlide69
Value Retailers
Often returned to retail, or bought on secondary market
1-2 seasons behind current retail
Big Lots,
TJ Maxx, Marshall’s, Ross
Combined revenues $30,013 m
clear underestimateSlide70
Factory Outlets
Factory Outlet Stores:
Goal often 70% of retail price
80% of goods non-secondary marketFactory Outlet Sales58,579,379 SF 95% typical occupancy rate
$301 revenue/SF
$13,400 mSlide71
Salvage Dealers-2007
Econ Census
Avg
Cust
Returns %
% to Secondary
Mkt
$m of Cust Returns to Secondary Mkt
Marketing Returns
$m
Mktg
Returns to Secondary
Mkt
Computers & Consumer Electronics
87,664
6%
75%
3,945
7%
6,136
Clothing
Stores
157,715
10%
75%
11,829
7%
11,040
Department Stores
210,142
6%
75%
9,456
7%
14,710
General Merchandise
367,865
6%
75%
16,554
7%
25,751
Electronic Shipping & Mail Order
215,963
8%
75%
12,958
7%
15,117
Total
1,039,349
54,742
72,754 Slide72
Salvage Dealer Market FlowSlide73
Size of Secondary Market
Sector
Size
Auctions
99,416
Outlets
14,105
Dollar Stores
17,669
Flea Markets
33,000
Pawn Shops
565
Charity
2,691
Value Retailers
30,031
Retail Salvage Goods
127,496
Total Size of Secondary Market
324,973
2008 US GDP
14,440,000
Secondary Market as % US GDP:
2.25%Slide74Slide75
288 t-shirts & caps
Sewickley, PA: World Vision
Remote villages in Africa
Antithesis of revenue maximization
Security is Sometimes Key