reverse logistics
DESCRIPTION
Wabona GroupTRANSCRIPT
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REVERSE LOGISTICS: IMPORTANT
OR IRRITANT?
Estimated $100 billion industry in 2006
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“In an ideal world,
reverse logistics would not exist.”
Jim Whalen, “In Through the Out Door,”
Warehousing Management, March 2001
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Reverse Logistics - What is it?
The Army’s 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
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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.
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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
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Why Reverse Logistics?
Competitive advantage
Customer service
- Very Important: 57%
- Important: 18%
- Somewhat/unimportant:23%
Bottom line profits
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Reverse Logistics - New Problem?
Sherman
Montgomery Ward’s - 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
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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
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REVERSE LOGISTICS
A US Army Perspective
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Operation Iraqi Freedom
The US Army moved the equivalent of 150 Wal-
Mart Supercenters to Kuwait in a matter of a few
months
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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.
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Jane’s 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.”
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From GAO Audit Report
Does this create a problem?
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From GAO Audit Report
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REVERSE LOGISTICS
The Commercial Perspective
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Reverse Logistics
Rate of returns?
Cost to process a return?
Time to get the item back on the shelf if
resaleable?
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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.
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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
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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
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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
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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
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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
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Impact?
Every re-saleable 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
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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.
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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
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“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”
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RFID and Returns
Visibility Tracking
Component tracking
Data Warehouse on what, why, when
Altered products
Not for every product
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Impacts of Reverse Logistics
Forecasting
Carrying costs
Processing costs
Warehousing
Distribution
Transportation
Personnel
Marketing
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CHAPTER 4Quality Management
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
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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
manufacturer’s cost and price that the
purchaser must pay.
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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….
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Deming’s 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.
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“The degree of excellence of a thing”
(Webster’s Dictionary)
“The totality of features and characteristics
that satisfy needs” (ASQ)
Fitness for use
Quality of design
What Is Quality?
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Quality
Quality Management – not owned by any
functional area – cross functional
Measure of goodness that is inherent to a product
or service
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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
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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
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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
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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
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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
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1. Time & Timeliness Customer waiting time, completed on time
2. Completeness Customer gets all they asked for
3. Courtesy Treatment by employees
Service Quality
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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
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Quality of Conformance
Ensuring product or service
produced according to design
Depends on Design of production process
Performance of machinery
Materials
Training
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Deming’s 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
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Deming’s 14 Points
7. Instill leadership among supervisors
8. Eliminate fear among employees
9. Eliminate barriers between departments
10. Eliminate slogans
11. Remove numerical quotas
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Deming’s 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
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The Deming Wheel(or PDCA Cycle)
1. PlanIdentify the
problem and
develop the plan
for improvement.
2. DoImplement the
plan on a test basis.
3. Study/CheckAssess the plan; is it
working?
4. ActInstitutionalize
improvement;
continue the cycle.
Also known as the Shewart Cycle
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Six Sigma
Quality management program that measures and
improves the operational performance of a
company by identifying and correcting defects in
the company’s processes and products
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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
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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
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Cost of Quality
Cost of achieving good quality
Prevention
Planning, Product design, Process, Training, Information
Appraisal Inspection and testing,
Test equipment,
Operator
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Cost of Quality
Cost of poor qualityInternal failure costs
Scrap, Rework, Process failure, Process downtime, Price-
downgrading
External failure costs Customer complaints,
Product return,
Warranty, Product
liability, Lost sales
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Employees and Quality Improvement
Employee involvement
Quality circles
Process improvement teams
Employee suggestions
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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
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Hot House Quality
Lots of Hoopla and no follow
through
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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
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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
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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)
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Wabona Logistics
Contact DetailsChris Magagula - Group Chairman
Wabona Offices
Head Office
Durban Office: Suite 811 Salmon Grove Chambers
407 Anton Lembede Street Durban 4001 South Africa
P.O. Box 1901 Durban, 4000 South Africa
OperationsChris (Group Chairman) [email protected] [email protected] [email protected]: +27(31) 301 9489 Fax : +27(86)512 8520 Cell: +27(72) 578 7638
Port Elizabeth Branch:27 Goedehoop Street
Windsor Port Elizabeth, 6200,
South Africa
Email: [email protected]
Johannesburg Branch:
44-48 Fountain Road2nd Floor Adoni's Centre,
Fordsburg, Johannesburg, 2092,
South Africa
Email: [email protected]
Cape Town Branch:Business Unit 28B Foreshore, Lowershore, Cape Town, 8001, South Africa Email: [email protected]
Benoni Branch:Suite 21c, 2nd Floor
71 Woburn Avenue,
Benoni, 1500,
South Africa
Email: [email protected]
Business Development ExecutivesCarl LupkeTel/Fax: +27(31) 301 9489
Cell : +27(82) 464 8139
Email: [email protected]
Dashen
Tel: +27(31) 301 9489
Cell No: +27(71) 873 3878
Email: [email protected]