Global Logistics: Strip the risk out of reverse logistics
June 01, 2012
As companies within the hi-tech and electronics industry work to differentiate themselves, add value to their products, and develop new revenue streams, reverse logistics and after sales services are proving to be valuable tools, say researchers for Eyefortransport (EFT), a London-based logistics and transportation think tank.
In a recent EFT survey, respondents were asked to classify the strategic role of after sales services and reverse logistics in their businesses. Not surprisingly, a clear difference was seen in the responses from hi-tech companies and the lead logistics providers (LLPs) they rely on.
Researchers say that the vast majority of hi-tech companies see after-market sales services and reverse logistics as either a cost center supporting product sales (45 percent), or as a cost center supporting product sales and creating competitive differentiation (43 percent).
“What’s interesting here is the number of hi-tech companies that don’t consider aftermarket services and reverse logistics as a competitive differentiator or as a profit center,” says Katherine O’Reilly, EFT’s executive director. “Clearly some companies are able to leverage after-sales services and reverse logistics into profits, some add value and differentiation to their products, while some are just using it as a support mechanism for sales.”
When it came to costs and performance in product returns, hi-tech companies favored greater transparency. In fact, 18 percent of shippers had complete transparency—as opposed to 2 percent of their lead logistics providers—with 36 percent being very transparent. In contrast, the majority of the LLPs (53 percent) could only claim to be somewhat transparent.
“Consequently, the survey shows a mismatch in expectations between hi-tech companies and LLPs with regards to transparency expectations,” says O’Reilly.
Respondents were then asked to identify the extent to which they’re collaborating with partners (retail customers, call-center providers, repair providers, and reverse logistics providers) in after-sales processes. Again, a notable contrast was seen in the responses from hi-tech companies and LLPs.
While both groups had the highest number of respondents seeing their level of collaboration as either partial or substantial, a much greater number of solution providers (23 percent as opposed to 8 percent) saw full collaboration, while a much greater number of hi-tech companies (25 percent as opposed to 11 percent) saw minimal collaboration.
“In essence, shippers found there to be less collaboration in after sales services than LLPs—further emphasizing the disconnect between the two parties with regards to transparency,” O’Reilly says.
Gary Cullen, chief operating officer of 4PRL, the reverse logistics arm of the supply chain consultancy The Georgetowne Group, tells shippers that there are two reasons for signing a contract with a third-party when outsourcing reverse logistics.
“The first reason is so that there are clear terms and conditions for running the operation and billing,” says Cullen. “The second reason is to have a framework to dismantle the operations if something goes awry.”
Finally, if all else fails, know when to call it quits, says Curtis Greve, Principal at Greve Davis, a reverse logistics consultancy. “Many companies that outsource don’t seem to think about the details and what they are going to do if they have to fire the service provider,” he says. “Make no mistake, terminating a contact with or without cause can cost millions.”
Davis advises shippers to think about what happens to the inventory, the capital equipment, the building, ongoing worker compensation issues, shut down and closing costs, and what they’re going to do after the third-party is gone.
“Once they’ve decided to end the relationship, they could save a lot of money if the contract addresses the shut down process correctly,” adds Davis. “There are many valid reasons to outsource reverse logistics to a third-party, but the key is to have a good contract that will protect everyone’s interest, achieve the original goals that drove the decision to outsource, and ensure a win/win relationships between the parties.”
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