Reverse Logistics: Important or

Irritant?
Estimated $100 billion industry in 2006
In an ideal world,
reverse logistics would not exist.
Jim Whalen, In Through the Out Door,
Warehousing Management, March 2001
Reverse Logistics - What is it?
The Armys Definition
The return of serviceable supplies that are
surplus to the needs of the unit or are
unserviceable and in need of rebuild or
remanufacturing to return the item to a
serviceable status
Reverse Logistics - What is it?
The Commercial Perspective
Reverse Logistics is the process of moving
products from their typical final destination to
another point, for the purpose of capturing
value otherwise unavailable, or for the proper
disposal of the products.
Typical Reverse Logistics Activities
Processing returned merchandise - damaged,
seasonal, restock, salvage, recall, or excess
inventory
Recycling packaging materials/containers
Reconditioning, refurbishing, remanufacturing
Disposition of obsolete stuff
Hazmat recovery
Why Reverse Logistics?
Competitive advantage
Customer service
- Very Important: 57%
- Important: 18%
- Somewhat/unimportant:23%
Bottom line profits
Reverse Logistics - New Problem?
Sherman
Montgomery Wards - 1894
Recycling/remanufacturing in 1940s
World War II - 77,000,000 square feet of
storage across Europe with over $6.3 billion in
excess stuff
Salvage and reuse of clothing and shoes in
the Pacific Theater World War II
Key Dates in Reverse Logistics
World War II the advent of refurbished
automobile parts due to shortages
1984 - Tylenol Scare - Johnson and Johnson
1991 - German ordinance that put teeth in
environmental reverse pipeline
Summer 1996 UK Packaging and Packaging
Waste Legislation
1998 - first real study of reverse logistics in
the US - University of Nevada, Reno
2001 EU goal of 50-65% recovering or
recycling of packaging waste
A US Army Perspective
Reverse Logistics
Operation Iraqi Freedom
The US Army moved the equivalent of 150 Wal-
Mart Supercenters to Kuwait in a matter of a few
months

Military Operations and Excess
In battle, troops get temperamental and ask
for things which they really do not need.
However, where humanly possible, their
requests, no matter how unreasonable,
should be answered. George S. Patton, Jr.
Janes Defence Weekly
Recent report (Aug 2003):
There is a 40 hectare (~100 acres)
area in Kuwait with items waiting
to be retrograded back to the US.
From GAO Audit Report
Does this create a problem?
From GAO Audit Report
The Commercial Perspective
Reverse Logistics
Reverse Logistics
Rate of returns?
Cost to process a return?
Time to get the item back on the shelf if
resaleable?
Costs - above the cost of the item
Merchandise credits to the customers.
The transportation costs of moving the items
from the retail stores to the central returns
distribution center.
The repackaging of the serviceable items for
resale.
The cost of warehousing the items awaiting
disposition.
The cost of disposing of items that are
unserviceable, damaged, or obsolete.
Costs
Process inbound shipment at a
major distribution center = 1.1 days
Process inbound return shipment =
8.5 days
Cost of lost sales
Wal-Mart: Christmas 2003 - returns =
4 Days of Supply for all of Wal-Mart
= 2000 Containers
PalmOne - 25% return rate on PDAs
More Costs
Hoover - $40 Million per year
Cost of processing $85 per item
Unnamed Distribution Company - $700K items
on reverse auction
2001 - over $60 billion in returns; $52 billion
excess to systems; $40 billion to process
Is it a problem?
Estimate of 2004 holiday returns: $13.2 billion
% of estimated 2004/2005 holiday returns: 25%
Wal-Mart: $6 Billion in annual returns = 17,000
truck loads (>46 trucks a day)
Electronics: $10 Billion annually in returns
Personal Computers: $1.5 Billion annually =
approximately $95 per PC sold
79% of returned PCs have no defects
Home Depot ~ $10 million in returns in the stores
alone
Local Wal-Mart ~ $1 million a month in returns
Is it a Problem?
European influence spread to US - Green Laws
Estee Lauder - $60 million a year into land fills
FORTUNE 500 Company - $200 million over their
$300 million budget for returns
Same Provider - 40,000 products returned per
month; 55% no faults noted
K-Mart - $980 million in returns 1999
Warranty vice paid repairs

More consequences
Increased Customer Wait Times
Loss of Confidence in the Supply System
Multiple orders for the same items
Excess supplies in the forward pipeline
Increase in stuff in the reverse pipeline
Constipated supply chain
Impact?
Every resaleable item that is in the reverse
supply chain results in a potential stock out or
zero balance at the next level of supply.
Creates a stockout do-loop
Results?
This potential for a stock out results in
additional parts on the shelves at each
location to prevent a stock out from
occurring.
More stocks = larger logistics footprint = the
need for larger distribution centers and
returns centers.
Reverse Logistics
According to the Reverse Logistics Executive
Council, the percent increase in costs for
processing a return, as compared to a forward
sale, is an astounding 200-300%.
In the U.S. alone, the cost is an annual $100
billion. Forbes, March 2005
Typically, as many as 8-12 more steps per item in
the reverse pipeline than items in the forward
pipeline
The truth is, for one reason or another,
materials do come back and it is up to
those involved in the warehouse to
effectively recover as much of the cost for
these items as possible.
- Whalen, In Through the Out Door
RFID and Returns
Visibility Tracking
Component tracking
Data Warehouse on what, why, when
Altered products
Not for every product
Impacts of Reverse Logistics
Forecasting
Carrying costs
Processing costs
Warehousing
Distribution
Transportation
Personnel
Marketing

Quality
Management
Chapter 4
Quality is a measure of goodness that is
inherent to a product or service.

Bottom line: perspective has to be from the
Customer fitness for use
Out of the Crisis
Failure of management to plan for the future
and to foresee problems has brought about
waste of manpower, of materials, and of
machine-time, all of which raise the
manufacturers cost and price that the
purchaser must pay.
More Deming
The consumer is not always willing to
subsidize this waste. The inevitable result is
loss of market. Loss of market begets
unemployment. Performance of management
should be measured by potential to stay in
business, to protect investment, to ensure
future dividends and jobs through
improvement of product and service for the
future, not by the quarterly dividend.

Demings solution
The basic cause of sickness in American
industry and resulting unemployment is
failure to top management to manage. He that
sells not can buy not.
The job of management is inseparable from
the welfare of the company.


The degree of excellence of a
thing (Websters Dictionary)
The totality of features and
characteristics that satisfy needs
(ASQ)
Fitness for use
Quality of design
What Is Quality?
Quality
Quality Management not owned by any
functional area cross functional
Measure of goodness that is inherent to a
product or service
FedEx and Quality
Digitally Assisted Dispatch System
communicate with 30K couriers
1-10-100 rule
1 if caught and fixed as soon as it
occurs, it costs a certain amount of time and
money to fix
10 if caught later in different
department or location = as much as 10X cost

100 if mistake is caught by the
customer = as much as 100X to fix
Product Quality Dimensions
Product Based found in the product
attributes
User Based if customer satisfied
Manufacturing Based conform to specs
Value Based perceived as providing good
value for the price
Dimensions of Quality (Garvin)
1. Performance
Basic operating characteristics
2. Features
Extra items added to basic features
3. Reliability
Probability product will operate over time
Dimensions of Quality (Garvin)
4. Conformance
Meeting pre-established standards
5. Durability
Life span before replacement
6. Serviceability
Ease of getting repairs, speed & competence of repairs
Dimensions of Quality (Garvin)
7. Aesthetics
Look, feel, sound, smell or taste
8. Safety
Freedom from injury or harm
9. Other perceptions
Subjective perceptions based on brand name, advertising, etc
1. Time & Timeliness
Customer waiting time, completed on time
2. Completeness
Customer gets all they asked for
3. Courtesy
Treatment by employees
Service Quality
4. Consistency
Same level of service for all customers
5. Accessibility & Convenience
Ease of obtaining service
6. Accuracy
Performed right every time
7. Responsiveness
Reactions to unusual situations
Service Quality
Quality of Conformance
Ensuring product or service
produced according to design
Depends on
Design of production process
Performance of machinery
Materials
Training
Demings 14 Points
1. Create constancy of purpose
2. Adopt philosophy of prevention
3. Cease mass inspection
4. Select a few suppliers based on
quality
5. Constantly improve system and
workers
6. Institute worker training
Demings 14 Points
7. Instill leadership among supervisors
8. Eliminate fear among employees
9. Eliminate barriers between
departments
10. Eliminate slogans
11. Remove numerical quotas
Demings 14 Points
12. Enhance worker pride
13. Institute vigorous training and
education programs
14. Develop a commitment from top
management to implement these 13
points
The Deming Wheel
(or PDCA Cycle)
1. Plan
Identify the
problem and
develop the plan
for
improvement.
2. Do
Implement the
plan on a test
basis.
3. Study/Check
Assess the plan; is it
working?
4. Act
Institutionalize
improvement;
continue the
cycle.
Also known as the Shewart Cycle
Six Sigma
Quality management program that measures
and improves the operational performance of
a company by identifying and correcting
defects in the companys processes and
products
Six Sigma
Started By Motorola
Define
Measure
Analyze
Improve
Control
Made Famous by
General Electric
40% of GE executives
bonuses tied to 6 sigma
implementation
Malcolm Baldrige National
Quality Award
Category 3 determine requirements,
expectations, preferences of customers and
markets
Category 4 what is important to the
customer and the company; how does
company improve
Cost of Quality
Cost of achieving good quality
Prevention
Planning, Product design, Process, Training, Information
Appraisal
Inspection and testing,
Test equipment,
Operator
Cost of Quality
Cost of poor quality
Internal failure costs
Scrap, Rework, Process failure, Process downtime, Price-
downgrading
External failure costs
Customer complaints,
Product return,
Warranty, Product
liability, Lost sales
Employees and Quality
Improvement
Employee involvement
Quality circles
Process improvement teams
Employee suggestions
Cause-and-Effect Diagram
Quality
Problem
Out of adjustment
Tooling problems
Old / worn
Machines
Faulty
testing equipment
Incorrect specifications
Improper methods
Measurement
Poor supervision
Lack of concentration
Inadequate training
Human
Deficiencies
in product design
Ineffective quality
management
Poor process design
Process
Inaccurate
temperature
control
Dust and Dirt
Environment
Defective from vendor
Not to specifications
Material-
handling problems
Materials
Also known as Ishikawa Diagram or Fish Bone
Hot House Quality
Lots of Hoopla and no
follow through
ISO 9000:2000
Customer focus
Leadership
Involvement of the people
Process approach
Systems approach to management
Continual process improvement GAO
Factual approach to decision making
Mutually beneficial supplier relationships

Implications Of ISO 9000
Truly international in scope
Certification required by many foreign firms
U.S. firms export more than
$150 billion annually to Europe
Adopted by U.S. Navy,
DuPont, 3M, AT&T, and others
ISO Accreditation
European registration
3rd party registrar assesses quality program
European Conformity (CE) mark authorized
United States 3rd party registrars
American National Standards Institute (ANSI)
American Society for Quality (ASQ)
Registrar Accreditation Board (RAB)
Upcoming Events
Final Exam due by Saturday
Harley Papers by Saturday