Determining when it's time to evaluate reverse logistics practices
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By Tom DeVroy, senior product evangelist, North America, IFS
Reverse logistics is becoming an integral part of operations for manufacturers, distributors and service providers to minimize lost revenue when moving products, parts and sub-components back into inventory. Recent Statista research shows that goods returns cost $246.3 billion per year in North America and must span customers, service organizations, supply chains, receiving departments and even a repair depot operations or subcontractors.
In order to minimize lost revenue, organizations need to assess their approach to reverse logistics. Here are three common reverse logistics scenarios. If these ring true then it may be time to evaluate whether your reverse logistics strategy is costing you time, money and customer satisfaction.
1. Do you deploy technicians and support assets in the field?
The field service process alone includes multiple reverse logistics steps. The technician pulls a component out of a repairable piece of equipment at the customer site and replaces it with a part out of his truck inventory. In a situation where the technician does not have a spare part and cannot, an inventory order will need to be placed. The field technician will need complete visibility of whether the part is under warranty or if the customer is entitled to special pricing as a result of a contractual commitment.
Without an integrated end to end service platform, you would be relying on a technician to communicate with separate field service, reverse logistics, warranty management, contracts and installed base systems to get the answers he or she needs.
Obviously, some type of communication between field service and reverse logistics software is necessary if only to prevent losing track of parts or components pulled from customer equipment in the field. But in these situations, there needs to be a seamless way to track whether or not the part is going to be repaired, who owns the item as it enters the reverse logistics process, whether the part, or repair, is billable, and then the part must be tied with a return materials authorization (RMA) through the original field service order.
Regardless of whether an environment is focused entirely on reverse logistics or in the field, companies expect their software platform to handle knowledge transfer. A technician in the field should be able to access tutorials on various repair processes, which in turn makes those with less experience more productive while increasing first time fix rate. Reverse logistics software can now embed in the workflow detailed videos designed to walk a worker on the repair bench in the workflow. The result — increased productivity and putting knowledge into the hands of technicians where and when they need it.
2. Do you rely on an intricate supply chain?
In most organizations, the reverse logistics process can be delineated by new product and after use returns. In an after-use environment, the reverse logistics process involves multiple stakeholders, and this means that a software product used to manage this value chain must encompass all, not some, of these stakeholders.
The customer service department generally authorizes the service and repair work through the call center, or increasingly, digital customer portals, chatbots or even social media.
If a replacement part is due for shipment, the customer service representative will check inventory availability, and may have to contact purchasing. If the product replacement requires a build order, the customer service representative may have to involve manufacturing or supply chain departments. If the defect is to be received for repair, logistics will be engaged to receive the defect and route it for repair. Each of the stakeholders has a role to play, and each has their specific process to follow. This gets even more complicated when there is a field service component to the reverse logistics process.
Throughout this process, there is a set of rules that must be followed. These rules cover everything from the asset or product itself, which parts are sent to which repair facility or depot, whether the part is covered by warranty or contract entitlement, whether a customer has a replacement for the part in inventory or whether you need to ship one and much more. Clear communication, beginning with the task of defining processes and ensuring that the correct business process is followed, maybe with configured workflow, is very difficult without some enterprise reverse logistics and repair software. Check yours out.
3. Are you outsourcing elements of your field service operations?
Combining reverse logistics with field service is challenging enough when you are relying on your own employees. But more and more organizations now outsource field service work to subcontractors for specific tasks or in times of peak demand. Subcontractors introduce several new logistical steps into a reverse logistics process. Reverse logistics software needs to account for multiple subcontractor types, and reimbursement policies in order to manage the complex situations caused by sub-contracting.
First, in order to delegate tasks to a subcontractor, you need to establish their availability given the time constraints and ensure they have the parts and expertise needed for the job. The contractor must provide a not-to-exceed cost figure, receive a purchase order and perform the work.
But what if the subcontractor removes a part from a customer's equipment for return?
This is where things can get very, very complicated. If they replace part A with part B, what happens to part A? The subcontractor may send an invoice and want to get paid for the part they used out of their inventory. Depending on the arrangement you have with the subcontractor, they may get paid for the new part only when you receive the returned original part. Or, if we have a stronger relationship and have built more trust, the subcontractor may be paid once a material return is authorized or when shipping confirmation is received by the contractors. All of this can change by individual subcontractor, customer, product line or by geography.
If the work and part are covered by a warranty, the subcontractor will bill the vendor for the part. But if the part and work is out of warranty and the subcontractor in fact owns the relationship with that customer as an independent service provider, as a reverse logistics organization you may only get back parts if there is a core credit involved.
Looking back to go forward
It's clear that reverse logistics operations span a complex network of players, parts and, in some case, organizations. If you are encountering these common challenges on a regular basis then it's time to reassess your approach to reverse logistics as a discipline. The next step is to see how enterprise software can alleviate reverse logistics pain-points — the right solution should help handle large supply networks and reduce costs.