February 2010

What would you say if you were told you were ignoring 10% of your logistics costs?  I'm sure you'd be surprised - and probably incredulous as well.  But if you haven't paid as much attention to your reverse logistics as the rest of your supply chain, that's exactly what's happened.

You're missing a big opportunity if you don't look critically at your reverse logistics. And what's more, it's an opportunity to cut cost out of an activity that doesn't add value - so what's not to like?

You'll already know that one of my messages to you is that "Why?" is a more powerful question than "How?" if you want to save money.  So let's put this technique into action - let's ask the "Why?" question that will show us where the opportunities to cut out wasteful activity are.

Why do you need to return products back up the supply chain? 

Now you've asked yourself this, you'll realise there are several distinct reasons - and each reason has it's own method of saving money.  That's why it's so important for you to ask yourself "Why?"  Until you're clear about the reason, you can't be clear about the solution.

So here are the three most common reasons you need reverse logistics - and ideas for each that will help you save some of that 10%.

First, products can just be SUPERSEDED.  Anything that's got an element of fashion in it falls into this category.  There's nothing wrong with these products - it's just that they're not what your customers want any more. 

 
All too often, these products are returned to the warehouse in the hope that they can be sold later.  But why do this?  One thing's for sure, you won't sell them while they're sitting on a warehouse shelf.  So why don't you try to dispose of them where they are by discounting?  You may lose margin, but you won't incur all the costs associated with storing and handling this stock.

Secondly, there's stock that's OUT-OF-DATE.  Usually there's not much you can do except dispose of this stock.  If it's obsolete, who wants it?  What's surprising is how often companies bring these products all the way back to their warehouses in order to dispose of them. Given that you've got to dispose of them, try to do that on site - or as near as you can.  There's no point spending money on transporting something that you then just throw away.

I'm sure the third example's familiar to you - that's when one of your products is returned because it's FAULTY - or just because your customer decides they don't want it!

There are two points to think about here.  First of all, even if you can fix the product, is it worth it?  Certainly, for some products, by the time you've sent them all the way back up the supply chain to your warehouse - and then all the way down again - you're never going to get your money back.

Then if it is sometimes worth putting your product back into stock, make the decision about that as close as possible to where your product is. There's no point spending time and money moving something all the way back to your warehouse only to discover when it gets there that you have to throw it away!

Of course, I know there are times when you can't avoid moving products back up the supply chain.  Perhaps there are statutory requirements, or perhaps you're in a business where that's just how the business works - like mail order.

But in many cases there are big opportunities.  So let me just summarise this month's message for you.  Think about why you need reverse logistics - and then take action to remove the need to move things back up your supply chain.

Then you're on the way to saving that 10%.

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