DC Velocity - November 2010

strategicinsight REVERSE LOGISTICS

outsource this activity—largely for reasons of cost. For most companies, it’s more cost-effective to use a 3PL that has specialized equipment and a specially trained staff in place, says Dale Rogers, professor of supply chain management at the University of Nevada-Reno and author of a textbook on reverse logistics.

But that doesn’t mean you should just hand off this task and forget about it. It’s important to monitor the process to make sure that your partner is running an efficient, cost-effective operation.

For example, Steger recommends keeping an eye on parts usage. Most third parties charge the contract owner for the parts they use, so it’s wise to put a mechanism in place to assure providers aren’t replacing parts unnecessarily, he says.

Another way to keep costs from
getting out of hand is to establish a
“time required to refurbish” thresh-
old, Pepperworth says. “If the prod-
uct takes longer than X minutes to
refurbish, it should move to recycle
or scrap disposition,” he explains.
“If it is within the threshold, a com-
pany can refurbish it and increase
asset recovery.”

4. Choose the right location
for your operation.
Where a refurbishment operation
is located can have a big impact on
the overall cost. While a centralized
location provides economies of
scale with respect to labor and
facility expenses, the savings could
be offset by higher transportation
costs if the goods have to travel far.
By the same token, using regional
or local refurbishment centers usu-
ally cuts transportation costs but is
likely to mean higher facility costs.

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For this reason, Steger recommends using a local model for heavy or large products that are costly to transport and a more centralized model for lighter products.

These days, some companies are relocating their refurbishment operations to Mexico to take advantage of lower labor costs, Rogers says. But labor costs are only part of the picture, warns Konrad. When considering whether or not to move your operation south of the border, he says, be sure to factor in the additional transportation costs as well as any political and security considerations.

Steger notes that it may be possible to employ a mixed strategy—for example, using a Mexican facility to serve Southern California and the Southwestern states and a U.S.-based facility to handle the rest of the country. That might allow you to take advantage of Mexico’s low labor costs without having to bear the costs of shipping from Mexico to, say, New England.

5. Make full use of the available data.

One of the biggest mistakes companies can make when it comes to their reverse logistics operations is failing to collect and mine data on returns. “The real value in refurbishment lies in tracking and analyzing data,” says Gary Noone, vice president of global aftermarket services for 3PL ModusLink.

It can also make the returns operation itself more efficient, Noone says. For instance, if a company is able to identify the most common causes of failure for a particular item, it could then use the findings to improve the triage operation— say, by having employees at the processing center sort returns by type of failure. Those items could then be shipped together to the refurbishment operation, which improves efficiency downstream.

Perhaps more to the point, however, the company could share its findings on product failures with the original manufacturer’s product design or engineering team. That kind of information has the potential to lead to advancements in the product’s design, which would ultimately produce the biggest improvement of all: reducing the actual volume of returns. ;