Viva Las Vegas – Reverse Logistics Observations

Viva Reverse Logistics

The 7th annual Reverse Logistics Conference and Expo in Las Vegas held a lot of promise.  I expected to be blown away by the largest event of its kind in the world… and in many ways, I wasn’t disappointed (see my previous posts on my impressions of the conference itself).

It was very evident that there are some existing and emerging trends that will define our industry over the next few years.  Also, my discussions with other attendees exposed several challenges that will cause friction and create opportunities for those understanding the ramifications.

Observation number 1:  People still struggle to define Reverse Logistics

As I’ve discussed in previous posts, there is a lot of difficulty and debate surrounding the term “Reverse Logistics” and the definition.  In the opening address, Gailen Vick the CEO of the RLA, redefined the RLA’s definition to:

All activity associated with a product/service after the point of sale, the ultimate goal to optimize or make more efficient aftermarket activity, thus saving money and environmental resources.

Immediately after Gailen’s address Dr Dale S. Rogers proceeded to rubbish Gailen’s definition and I think that reflects the lively debate around the concept and terms.  Clearly, reverse logistics is NOT forward logistics in reverse.  There are many branches and alternative paths as products move from retailer to repairer or OEM (manufacturer) to recycler etc and often processes involve an element of forward logistics to return goods to the end user.

It’s not necessary for there to be 100% agreement about the terminology, but consistency would help the industry to progress.

Observation number 2:  It’s all about the Environment

A very powerful theme of the event was the importance of the environment and sustainability now.  State, federal and international law requires OEMs and retailers to take responsibility for the environmental impact of the goods they sell.  Unfortunately, each state has its own laws regarding this and in many cases the laws are contradictory and inconsistent.  Therefore, reverse logistics entities are having real difficulty in meeting their obligations in a practical manner.

Organisations are now scoring their partners on their environmental credentials.  Walmart evaluates potential suppliers with a score-sheet before purchasing any goods from them, and the last thing they want to hear from a supplier is “just throw away returned goods”.  When a new supplier comes on board, the reverse logistics division of Walmart has the right to veto the supply agreement if the returns process is not handled appropriately.

Observation number 3:  But it’s actually all about Cost Reductions

The economic environment has brought cost of reverse logistics into sharp relief.  Most organisations have rationalised their operations and outsourced work that is not considered to be “core operations”.  This has resulted in opportunities for reverse logistics participants, but has also resulted in scrutiny of RL providers to ensure that they are providing true value for money.

So we are seeing a market with lots of opportunity, but also a lot of risk to existing business.  There is also a lot of flux which, while exciting to be involved in, makes it very difficult for organisations to budget for and fund.

Despite the new environmental laws, economic factors are more of a driver than the environment for now.

Observation 4:  Retailers and Telcos wield the Power

In New Zealand we are starting to see some power plays between the retailers and the OEMs as far as reverse logistics is concerned.  In the US, the battle is over and the retailers and telco network providers have won.

In many cases retailers dictate the returns and service processes to the OEM.  Supply agreements specify the processes that the retailers want, and suppliers are expected to accept those terms if they want the business.  Retailers and telcos are consolidating all their returns then shipping them back to the suppliers with no customer or fault details.  This makes it difficult for the supplier to refuse the returns (they simply don’t have enough information about the reasons).

However, it’s not all bad news for the suppliers.  As long as they can meet the retailers’ requirements, they will have a market advantage quite separate from price.  In doing so they should be able to afford to resource their design and quality control departments in order to reduce the reverse logistics needs and thereby improve quality and profit.

Observation number 5:  Asset recovery is a big industry

Repair, refurbishing, stripping for parts, and recycling is big business in the US.  The secondary market (i.e. sales of secondhand and refurbished goods) is about 2.5% of the US economy so you can imagine there is a demand for companies that can consolidate and process high volumes of returned product.  I’m not sure how this applies to New Zealand as we don’t have a ready supply of cheap labour to perform the service like the do in Mexico or China, but it is important to perform asset recovery as close to the market as possible.

Observation number 6:  There was not much emphasis on the importance of Reverse Logistics in improving Sales or Customer Satisfaction

This was a surprise.  I expected a big push regarding the importance of using reverse logistics to enhance the customer experience and increase sales… but it appeared to be an aspect that was overlooked by many.  This aspect is a big element of the pitch for Service Plus.  Retailers and manufacturers who have efficient, transparent, and high quality repair and returns processing have a significant advantage when it comes to sales.  Service Plus helps retailers and suppliers to drive more visitors to their outlets and increase the sales opportunities.

Conclusion:  New Zealand and Australia have a very different reverse logistics market to the US and Europe

Our small, well educated population and unique consumer laws mean different services have been developed for the Australasian market.  In many ways, the services and systems offered here are better (better communication, higher quality repairs, faster turnaround) but at the same time we have a lot of catching up to do.

Europe and the US environmental laws are well ahead of ours so our sustainability measures require a lot of work.  The US also has the efficiencies of scale and cheap neighbouring workforces; allowing for very efficient reverse logistics processing.  We will have to come up with unique methods to overcome the disadvantages we have in those areas.

It’s going to be an interesting few years!

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    • Thomas Welsh
    • February 19th, 2010

    Sam,
    I like your observations. I think you can chalk up the differences in how RL is treated to cultural expectations and proclivities. WEEE and ROHS do drive some behaviors, especially in Europe, but the rest of it is driven by cost and the pains associated with acting against local and regional accepted practices. Offering an unvalued service will not support a premium margin.

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