E - Commerce Reverse Logistics

Dr.Dale S.RogersDr.Ron Tibben-Lembke

Center for Logistics Management University of Nevada

Council of Logistics Management Kansas City, MO1 October 2001

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 origin to the point of consumption for the purpose of

conforming to customer requirements.

Source : The Council of Logistics Management

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.

Source :Rogers & Tibben-Lembke

Total U.S. Logistics Cost The U.S. Business Logistics System Cost is the

Equlvalent of 10:1 Percent of Current GDP in 2000

Carrying Costs $1.485 Trillion All Business Inventory

Interest

Taxes, Obsolesence, Depreciation, Insurance

Warehosing

$ billions

95

204

78

377

Transportation Costs

Motor Carries :

Truck-Intercity

Truck-Local

Other Carries

Railroads

Water (International 18 Domestic 8)

Oil Pipelines

Air (International 8 Domestic 19)

Forwarders

Shipper Related CostsLogistics Administration

Subtotal

323

158

481Subtotal

36

26

9

27

6

104Subtotal

539

1006TOTAL LOGISTICS COST

U.S. Reverse Logistics Costs

Total U.S. Logistics Costs Approximate RL cost %

Estimated U.S. RL Costs

$1,006,000,000

4.00%

$40,240,000

Source for U.S. total Bob Delaney, 12th Annual State of Logistics report

Adding Valve

■Reverse Logistics should be a set

of business processes that adds.value

to the firm.

■Most firms do not view reverse logistics

as a value adding process.

• Gatekeeping• Compacting Disposition Cycle Time• Reverse Logistics Information Systems• Centralized Return centers• Zero Returns• Remanufacture and Refurbishment• Asset Recovery • Negotiation• Financial Management• Outsourcing

Key Reverse Logistics

Management Elements

Key Reverse Logistics

Management Elements

■ Improve return “gatekeeping.”

■ Compact disposition cycle time

Information systems

Gatekeeping

• First critical factor• “Play the ball. Don’t let the ball play

you.”• Gatekeeping Innovation

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.

Reverse Logistics Information Systems• Very few firms have successfully

automated information surrounding the returns process.

• Few good reverse logistics management information systems exist.

• IS queues• Have to emphasize flexibility.

• Most returns processes are paper intensive.• Reverse logistics processes have so many exceptions.• EDI standards to facilitate this boundary spanning have b

een developed to handle returns.180 transaction set was developed to manage the flow of information surrounding the return process.

• Internet may replace EDI.• Additionally, some firms are testing licence plates and tw

o-dimensional bar codes to fill gaps between systems.

Reverse Logistics Information Systems

Financial Management

• Avoid Policies that make little Long-run Financial Sense.

• Battle of the Chargebacks• Cash Flow• Third Party Specialists in Accounting

and Reconciliation

Barriers Barrier Percentage

Importance of reverse logistics ralative to other issues 39.2%Company policies 35.0%Lack of systems 34.3%Competitive issues 33.7%Management inattention 26.8%Financial resources 19.0%Personnel resources 19.0%Legal issues 14.1%

Strategic Role of ReturnsCompetitive reasonsProduct FreshnessCustomer Trust/Risk ReductionIncrease Switching CostsClean ChannelLegal Disposal IssuesRecapture ValueRecover AssetsProtect MarginCash FlowGood Corporate Citizenship

Reverse Logistics Executive Council■ Mission - The Reverse Logistics Executive Council is a not-for-profit professional organization whose purpose is to : ㆍ develop best practice industry standards that take costs out of the system for consumers, retailers and manufactures; ㆍ provide on-going benchmarking; ㆍ return casual information in order to improve the entire Reverse Logistics process

E-Commerce vs. E-Business

US Market sizeExpected eCommerce Growth in US

E-Business MarketPenetrationin 2004

Size of Returns

• Data unclear.Return rate vary by category.

• E-commerce retail returns generally higher than brick-and-mortar.

• Because of gatekeeping advantages some items have lower return rates than brick-and-mortar

US Market returns• Typical retail returns 6%

B2C Returns

• Nearly 3billion parcels delivered to consumers by 2003.

• 1.4items per order.• E-commerce markets do not know how

to manage returns.Chaos exists.• In many firms, forward processes not

under control. Unlikely that reverse logistics will be an addressable priority soon for many 2-commerce marketers.

Myth of Disintermediation

•Few customers will avoid intermediaries and go directly to original source.

•Opportunities for third parties.• Inventory management and

positioning.

Supply Chain Complexity

• As a supply chain matures, it almost always becomes more complex.

• Number of middlemen increase.

• In long run, middlemen may become most powerful portion of supply chain.

Reverse Logistics Elements

■ Customer Touch - Gatekeeping - “Severe Desk” - Technical support - Sale save - Routing

■ Product Touch - Gatekeeping - Routing - Disposition - Asset recovery - Defacing - Refurbishment - Recycling

Reverse is Different

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 unclearer

Negotiation between parties more straightforward

Negotiation less straightforward

Type of customer easy to identity and market to

Type of customer difficult to identify and market to

Visibility of process more transparent

Visibility of process less transparent

Who Pays ?

Manufacturer?

Costs Reverse Logistics

ㆍ In bank & mortar models, consumers subsidize return transportation costs.ㆍ Negotiated sharing of costs.ㆍ Consumer transaction costs need to be low.

Ownership ?

• At what point does ownership transfer from the consumer?

• Supply chain ownership transfer.• End of quarter – end of period.

Return Policies:From the Consumers Points of View• Purpose - Determine return habits and

examine attitudes surrounding return policies and processes for both brick and mortar and e-commerce retailers.

Focus Groups

Stay at home moms Reno , NV 3/13

Stay at home moms Fabyan, CT 3/21

Hispanic , immigrants Reno , NV 4/11

Hispanic , immigrants Reno , NV 4/12

Young professionals Toronto , Canada 4/14

Affluent women Marin County , CA 4/27

College students Azusa , CA 4/27

College students Chicago , IL 4/29

Women(35-45) Grand Rapids,MI 5/4

Senior women Lansing , MI 5/5

Jazzercise women Cleveland , OH 5/6

College students Newnan , GA 5/19

Women(45-70) Newnan , GA 5/19

Is it easier or more difficult than returning a product to a traditional store?• Generally, the belief was that it is

easier to return Internet items• Prefer on-line store that has brick-

and-mortar location to return to• “They come pick it up”

City Logistics

E-commerce Players

Pure Play

Pure Play

• Focused on building business – not focused on returns.

• Using fulfillment infrastructure – often not well.

• Supply chain not efficient in either direction.

Current Fulfillment(Catalog)

• Most experienced similar return cannel.

• Some having difficulty.• Easy to add selling capacity.

Difficult to add fulfillment capabilities – particularly returns.

Clicks & Mortar

• Benefit of storefronts.• Strain capacity.• Drop-off.• Blend returns into store inventory.

Brick & Click Return Advantages• Customers get prompt credit processing • Immediately get replacement item• Web shoppers less likely to be willing to

wait for credit or exchange• Customer may have already seen item

in store, and be less likely to return it.• Online and brick & mortar too close

Return Models

Website Guys

Physical

Processors

Full Service

Return Models – Website Guys

• Ping database• Attempt to disposition• Credit reconciliation• Select shipping method• Print label• Procure RMA• Need infrastructure

Return Models – Physical Processors

• 3pls• Consolidation• Refurbish• Recycle• Hot replenishment & backorders• How fed?

Return Models – Full Service

• Ping database• Advantage of both• Infrastructure may be necessary• Returns not standardized process. Separation of inventory and

information more difficult.• Value-Added service

Returns Volumes

• Brick & Mortar customer returns established at 6%

• On-line returns higher? - Easier to return items - Catalogs much higher• Lower? - Customized product - Gatekeeping at service desk