Reverse logistics programs are fast becoming a major requirement in 3PL and procurement contracts. Not long ago “returns” were considered a nuisance by manufacturers, retailers, and logistics providers. They were handled only as a courtesy to customers. Today, environmental legislation is forcing companies to take responsibility for waste. At the same time consumers expect clear and efficient returns programs when making purchases. The EU is leading the way on reverse logistics with strong legislation and policies. In the US reverse logistics is evolving as progressive companies realize the opportunities to enhance their public image, lower operating costs, and improve productivity. In other words reverse logistics is moving from an added cost “returns” program to a value add process. Here are some recovery options in reverse logistics*

• Reuse– inspect, clean, and use again for identical or similar purpose, value add
• Remanufacturing– dismantle and reassemble or use for parts, value add in remanufacturing w/improvements
• Recycle– sorting process for scrap, no real value add but can recover some costs

While the above  is good business practice it is difficult to plan and execute from a logistics point of view. One reason for this is uncertainty in timing and quantity of returns. Product life cycle and rate of technological innovation play a big role in timing of returns.

Successful reverse logistics implementation involves both external and internal factors. External factors include legislation, customer demand, and incentive. Internal factors include environmental concerns, strategic cost/benefits, volume and quality of returns, resources utilized, and integration and coordination.

• Customer demand– environmental responsibility is becoming a competitive necessity
• Incentive– companies need to make returns worth it for end users
• Environmental concerns– growing trend, not optional going forward
• Strategic cost/benefit– can help increase sales and asset utilization but will increase costs. Benefit is mostly long run after initial investments in equipment, design, process, and labor.
• Volume and quality– returns must be managed to avoid scrap as much as possible
• Resources– use available resources and assets as much as possible
• Integration and coordination– must use info systems to gain competencies in recovery so reverse logistics does not become a profit drain but a profit center
• Performance measures– forward logistics measures are not adequate for return logistics. Need to develop different metrics for return logistics. Ex: time required for product recovery, % recyclable/reusable at end of product life, core return rate, % product weight or volume disposed in landfills

*Global Logistics and Supply Chain Mgt by Mangan, Lalwani, Butcher, and Javadpour, 2nd Ed, John Wiley & Sons, 2012

Measuring and managing logistics performance is a full time job for logistics professionals. The volume of data can be daunting. Managers in other functions such as finance, marketing, or manufacturing may need a quick view of logistics data as it relates to their responsibilities. Here are a few general measures for the dashboard. Please let me know of others you have used.

Absolute Performance- monitor absolute logistics failures rather than averages. For example, 99.5% on time performance appears very good. However, in a high volume operation, it could mean hundreds or thousands of late orders per day.

Inventory Turnover- common measurement in asset mgt.

Order Fill Rate- customer service and warehouse productivity measurement. Can also use item, line, or value fill rate.

Warehouse Utilization %- indicator of good asset mgt.

Warehouse Productivity- measure of units received, stored, picked, packed, and shipped per hour.

Order Cycle – reduced order cycle means less inventory in the system and greater customer satisfaction. Longer order cycle means more inventory in the system and reduced customer satisfaction.

Lost Sales- inverse relationship with inventory. Higher inventory costs, lower risk of lost sales. Lower inventory costs, higher risk of lost sales.

Transportation costs- always a trade off…. bulk shipments can reduce transportation costs but leads to higher inventory levels in system. Higher transportation costs due to mode shift (air vs. ground or air vs. ocean) can reduce inventory in system by shortening the order cycle.

Commodity value- higher dollar value means increased transportation, inventory, and packaging costs.

Density of product- High density (lbs/ cubic ft or kgs/ cubic meter) means lower transportation and inventory costs since the product takes up less space in containers or warehouse.

Loss and Damage- greater susceptibility to loss or damage means higher transportation rates and higher warehousing costs due to special handling.

Location Decision- Distance from sources or markets = relative advantage or disadvantage vs. competitors. This is an upper mgt responsibility.

In a previous post I gave a brief overview of inventory management. All companies are interested in reducing inventory as long as the result is no lost sales, customer service issues, or material shortages. One way to reduce total inventory is to consolidate DC’s or warehouses. This is due to the fact that safety stock is held at each location, so fewer locations equals less safety stock. The effect on inventory levels by adding or eliminating warehouses can be calculated by using the Square Root Rule. I am attaching a summary of the Square Root Rule and an example.

INVENTORY AT MULTIPLE LOCATIONS

EXAMPLE IMPACT OF SQ ROOT LAW ON INVENTORY

Logistics Management magazine hosted a very informative webinar on Jan 30th which featured a number of experts discussing managing costs via multiple modes. The speakers presented forecasts of rates and capacity in their respective areas of expertise. They also offered advice to shippers. Here are my takeaways from the webcast:

Trucking

• Large and small  fleets are reducing fleet size but replacing older equipment with newer, more fuel efficient units resulting in not much change in overall TL capacity
• Flat demand plus trend towards Supply Chain Optimization will delay capacity crisis in trucking industry
• LTL rates hikes approx. 1-3% in 2014 if YRC survives and could be as much as 7-9% if YRC does not survive
• Capacity issues may surface in 2016-2017 due to more restrictive regulations and driver shortages
• Shippers are advised to develop partnerships with a small number of core carriers to maintain service levels if capacity does become an issue

Rail and Intermodal

• Intermodal volume will grow 4-5% in 2014
• Railroads continue to improve OR’s on the strength of intermodal
• Although intermodal demand is up rate increases expected to be modest due to pressure on OTR rates
• Shippers are advised to have contingency plans in place in the event of rail disruptions due to catastrophic events or natural disaster

Air Cargo

• Load factors increasing
• On shoring or Near Shoring trends worrisome to air cargo operators
• Air cargo rate making differs by geography and capacity is the major factor
• Fuel costs always a concern
• Carriers will continue to replace older aircraft with newer, more fuel efficient, planes
• Carriers will continue to manage capacity to control costs and improve load factors

Container Shipping Rates

• Global supply/demand balance will not reach equilibrium until 2016
• Excess supply continues in 2014
• Rates, especially spot rates,  will be volatile as carriers manage demand
• East-West rates will fall 1.5% in 2014
• Global rates flat after falling 5% in 2013. Little change in 2014
• Risk to shippers is carriers may skip sailings due to volatility but no real capacity shortage
• Shippers  advised to develop relationships with carriers to ensure access to capacity

Parcel

• Duopoly enables carriers to raise rates in 2014
• FedEx + 3.9%
• UPS + 4.9%
• DHL +3.9%
• USPS +2.4%