Reverse Logistics Podcast

This podcast is a recording of a presentation Curtis Greve made at the June 2010 GBQ Redbank Executive Breakfast Series in Columbus Ohio.  In this presentation Curtis discusses the threats and opportunities posed by three external drivers every company will face in the next five to ten years:

1. Dramatic increases in transportation costs and the resulting changes that will be required in supply chain networks
2. Reverse logistics networks and how companies can increase their bottom line profits by as much as 4%  or more
3. Continued demand for development of sustainable solutions and how sustainability can dramatically increase profits

Curtis points out that most companies will agree these three drivers are going to happen.  Business executive also realize that these elements will have a negative impact on their business if they don’t address the situation, yet few are doing anything about it.  How a company deals with these inevitable changes will determine if they will thrive or if they will find themselves at a significant disadvantage that could result in their ultimate demise.

The Reverse Logistics Podcast

Your host is Curtis Greve.

The most important question that an executive in charge of reverse logistics can ask about a new item is “What is the merchandise exit strategy?”  It is easy for a company to get excited about a seasonal item or the newest widget in their product line, but it is important for them to think about the exit strategy.  Just like an investor who is going to acquirer a company, manufacturers and retailers need to have a clear exit strategy for their goods.

In today’s podcast, Curtis Greve talks about how to develop an exit strategy for products and critical factors to consider when working within an organization to develop merchandise exit strategies.  Whether it is a seasonal item that is part of a guaranteed sales agreement, an item with a limited life span like a computer or fashion item, or if it is an item that is coming to the end of it’s life and is going to become obsolete, having a well thought out exit strategy could significantly improve that item’s contribution to the bottom line.

The Reverse Logistics Podcast

Your host is Curtis Greve.

In today’s podcast Curtis Greve explains the basics of the secondary market and liquidation.  According to Dr. Dale Rogers, the secondary market accounts for over 2.25% of GDP.  The secondary market is much bigger than most think and a great opportunity for many companies looking to develop additional sources of revenue and working to reduce their carbon footprint.

With imports growing, economic pressures increasing, and shareholder demands for more sustainable business practices continuing to build, developing liquidation capabilities is an effort that is well worth any executive’s time and attention.

The Reverse Logistics Podcast

Your host is Curtis Greve.

In Part 1 – Five Components to a Recall Action Plan it was pointed out that there are many reasons for product recalls. Causes range from poor buying decisions to mandatory recalls ordered by government authorities.  Product recalls are a fact of life for both resellers and manufacturers.  If your company sells products of any type, it isn’t an exaggeration to say it is only a matter of time before you will have recalled products to deal with.  Therefore it is every organization’s responsibility to be prepared and to have a plan in place to deal with this inevitability.

Whether you are a pharmaceutical manufacturer, infant toy maker, an electronics retailer, or grocer who sells ground beef, recalls can impact both short term costs and long term relationships that your business depends on.  Like many things in life, companies get to choose how they will deal with these recall issues and whether the impact on their organization will be positive or negative. 

When talking about how a recall impacts an organization, we are talking about not only the cost of pulling the product off the market and writing off the inventory, but we are talking about how a company’s reputation with employees, customers and shareholders can be harmed.  Often, these indirect consequences can cost a great deal more than the cost of processing.  In order to minimize the risk of a recall and the unknown product liability you could face, a company must have a comprehensive plan of action to deal with recalls.  This “Recall Action Plan” must include guidelines for:

1. Internal communications procedures

2. External communications procedures

3. Physical process of removing the recalled goods

4. Product sorting, accounting and disposal process

5. Data gathering, reporting and record keeping

In  Part 1 – Five Components to a Recall Action Plan internal and external communications were discussed in detail.  In Part 2 physical processing, sorting and reporting will be addressed.

The first step in the physical process of removing the recalled goods must start with the internal notification of the customers, stores, distribution centers and other partners concerning the recall.  This notification must be designed to standout from the other notifications.  In the old days when everything was on paper, we put all recall notifications on red paper.  Today with emails, companies should designate a specific subject heading such as”

Subject: RECALL NOTIFICATION – IMMEDIATE RESPONSE REQUIRED

You must get everyone’s attention and you must send out notification repeatedly.  I recommend that notification be sent out through a series of six different communications.  In some cases, such danger to the public, potential fines, emanate litigation,  or over exposure in the press, companies will want to have a combination of verbal and written communications.  I’ve had some recalls that were so serious that all parties were required to call in on conference calls twice a day for over a week until it was clear all products had been returned.  Remember, when it comes to product recalls, you cannot over communicate when it comes to providing direction and support when pulling product off the market. When in doubt, repeat.

When developing transportation channels and packaging instructions, do not overlook the normal regulatory requirements.  If a government agency is involved, it is advisable to get their approval on all instructions and logistics arrangements.

Once the product is physically removed from the market, it must be taken to a secured location for processing.  Many companies ship product back to their return center, some use recall outsourcing specialists, and others simply send the product back to a warehouse or storage facility within their supply chain.  Regardless of where the product ends up, the receiving facility will need to know:

1. When the product is going to start arriving
2. When is the last date they should receive any new inbound shipments.
3. What are SKU’s, model numbers, serial numbers, or other identifying codes that are to be received and processed.
4. What is to be done with any receipts that are not included in the list of product on the recall.
5. What are the condition requirements for the recalled goods.  Examples would be sealed cases, or opened box, de-ticketed, or other similar conditions.
6. How is the product to be stored.  (Pallet quantities, in the DC, off site, storage trailers, etc.)
7. What information is needed from the product. (quantities, condition, diagnostics, sender information etc.)
8. What will be the final disposition of the product. (return to OEM, landfill, incinerator, modified, shipped to location etc.)

NEVER destroy or ship any government mandated recalled product unless given approval by internal council and the government agency involved.  When developing these instructions, give thought to the amount of reporting that will be required.  It is better to track to much information and a lot cheaper than it would be to have to go back and get addition information on processed goods.

The last component of a Recall Action Plan is record keeping.  You must keep good track of when, where, and how much was received and processed and where did it come from.  For most recall processes, the information is the only thing an attorney or government inspector will want to see.  You must be prepared to give regular updates throughout the recall and a complete report at the conclusion of the recall.   For the vast majority of recalls a written report is not required but you may be asked to provide quantities and other basic product information.  Failure to be able to produce this type of information could result in fines and a lot more attention from regulators.

It is important to keep detailed records of all activities related to a recalled product.  Many times, companies are able to file claims against another party, and file insurance claims to recoup financial damage.  A companies ability to show how much money, time and effort was spent to ensure they processed a recall “properly” can reduce risks of shareholder suits, customer suits, and employee issues.

As you can see, developing a Recall Action Plan cannot be done on the fly.  Companies must know who is going to process the recall, where it is going to be processed, who is going to provide oversight internally and who will be responsible for reporting on all recall activities.  Companies must plan ahead.  You Recall Action Plan must be thought through and completely locked down before you have a major recall to deal with.  It is like installing the red phone in White House.  You hope you never have to use it, but if you ever do need it, you won’t want to waist any time on details and you will have no time to lose.

There are many reasons for product recalls. Bad buying decisions are a big one reason for recalls. Regulator’s orders is another. Every year for the past twenty years, for example, the FDA has ordered between 200 and 300 pharmaceuticals off the market. Most of these recalls go unnoticed and were recalled for reasons other than any adverse effects on people who may have taken the drugs.

You have probably heard of many of the famous Rx recalls for serious adverse effects such as death, or other serious health problems. However, the vast majority of Rx recalls are for reasons such as a microscopic variance in the chemical compound, or some quality issue with packaging or an issue with the labels and inserts. There are other recalls driven by other regulatory agencies that find an issue with manufacturing of products. Often these recalls are ordered after a significant number of accidents. Recalls for products such as infant products, cars parts, desk lamps, and items such as computer batteries are all good examples of regulator driven recalls.

“Stuff” happens and product recalls are a  fact of life for retailers and manufacturers.  Therefore, it is critical to have a complete recall procedure in place to deal with these unfortunate yet inevitable events.  Having a comprehensive plan of action in place will remove the threat from the public and avoid or at least minimize the liabilities associated with the recalled item.

For many recalls, the liability and the risk to human life is too great not have a well defined recall procedure in place, before it is needed. If a you wait until you need it, the costs and the additional liability could literally put your company out of business.

Recalls can increase exposure to many different risks. There are the obvious potential liabilities such as law suits from customers, clean up costs, and fines from regulatory agencies. But, there could also be significant risks, costs, and exposure caused not by the recalled product itself but how your organization handles the recall. These risks include the impact on long term customer attitudes and satisfaction because of bad press; stockholder concerns and related lawsuits; and the impact from negative employee morale. In order to minimize these risks companies must have a buttoned up recall procedure that addresses the following five key areas:

1. Internal communications procedure

2. External communications procedure

3. Physical process of removing the recalled goods

4. Product sorting, accounting and disposal process

5. Data gathering, reporting and record keeping

Communications is the most critical component of any recall process. This post is the first of a two part series on recalls. The rest of this post will focus on communications and the second post will go into more detail are the physical movement, processing, and reporting of regulated recalls.

The internal communications procedure for a mandatory recall must include emergency communications chain. Who has to be notified and each person must know what their roll is in the recall. Speed is critical. There must be a clear line of communications and the internal communications must be fast. The first hours after being notified of a recall will determine if the rest of the plan has a shot at succeeding. The internal communications process is the start gun to the race to get the recalled goods off the market. This is also where you decide who is going to speak for the company, what they are going to say and who they are going to say it to.

Regardless of what anyone may say, it is always better to be completely honest with every communications. External communications is probably the most critical component to minimize the impact of a recall on customers, employees, and shareholders. Again, honest is the best policy. It is actually the only option. Even companies that try to spin the facts or dodge the truth always end up telling the truth. It is only a matter of time and in some cases that means jail time.

Employees will want to hear from the CEO directly. They will want regular updates and they will want closure when it is over. Remember, employees have families so you must arm with enough information so they can tell their children why their mommy and daddy are good people working for a good company. Many organizations underestimate the impact of bad press and lack of any credible communication will have on employees. It is a big deal to them and can cost a company more than just money for years to come, if not addressed properly.

Shareholders have similar concerns and they have a legal right to know about potential liabilities and actions that could impact the value of their investment. There have been a number of companies that never recovered because management lost the faith of their investors because of their poor communications on negative events.

Talking to the press can be very tricky when dealing with recalls as well. A key thing to remember is that journalists are there to get a story. They aren’t necessarily concerned with right and wrong, or giving your company a fair shake. A professional PR person can be worth their weight in gold during a major recall or any negative event. In the middle of a major recall is not the time to try to your hand at press relations. You will have plenty to keep you busy.

The last group to address in you external communications plan are the regulators. There are two ways management teams can deal with regulators. One way is to treat them as adversaries. Don’t offer any help. Answer only the exact question asked. Make them get a court order for everything, etc. This is a terrible way to deal with people who decide the size of the fine and the scope of the investigation.

The other way to deal with regulators is to politely cooperate with them. This means be polite, escort them around, ask if they need help. This means politely saying things like “Sir, I was told to get you a cup of coffee and set you up in my office until our Vice President of Loss Prevention gets here. This is a big deal and we want to cooperate fully. We want our best and brightest here to assist you with your needs so please bear with us for a few minutes until they arrive.” While you are waiting, talk to them like the intelligent professionals they are.

This is the only way to deal with any kind of public authority figure. You must ensure that your entire staff is trained to be respectful and cooperative. They must have a clear idea of what they can and cannot say, as well. They must know the difference between being cooperative and saying things that will can cause your company harm. Training your staff on who is authorized to speak to regulators, along with what, how, and when to speak to regulators is a prudent, operational best practice.  Don’t leave this up to your staff to figure out on their own. Train your management team.

This training should address both verbal and written communications guidelines. Emails have become law firms favorite hunting grounds. As the team at Goldman Sachs will attest, written communications can cause significant damage in a number of ways, even if you did really do anything illegal.

Recalls are a fact of life and every company must have a well defined recall process that is focused on doing the right thing, communicating the right message, and minimizing all the liabilities and costs associated with every recall. Your recall plan of action must clearly and directly address internal and external communications in order to minimize the damage caused by the recall.

In part 2 of Five Components to a Recall Action Plan, I will discuss the best practices and steps to be taken to properly remove, process, and record physical products that have been recalled.

In a recent study published by The Aberdeen Group, 36% of retailers plan to use some form of automated self-service tools within the next twelve months.  In addition, 58% of retailers have a self-service transformation strategy in place to be executed over the next two years.  The study found that retailers are going to focus their efforts around automating the following:

• Implementation of self-service product information options
• Upgrade store life cycle management
• Execute multi-channel selling at store or business unit
• Implement customer self pay options

There is a bevy of labor saving reasons for the push to automate the front end of retailing.  However, like many improvements there will be some customer push back that the retailers and by extension their manufacturers will have to address.

Continuing to reduce the amount real human interface with the customer will only heighten the importance of what little human interaction is left in a store.  One of the last and most important customer interface points will be the returns desk.

The return desk is the one place in a retail store where an organization can snatch victory out of the jaws of defeat. However, for many stores their service desk is the best marketing tool their competition has.  As the purchasing process is automated, I suspect that return rates will increase, not because of the automation but because of the customer.

How many people do you know that actually take the time to figure out how to set the clock on a DVD player?  When was the last time you read all the fine print on an item you purchased?  Automating the store side of a purchase makes sense but buyers will still be the same people coming into the store that on average, have a sixth grade reading.

All of these factors will make the returns policy, returns process, and service desk employee training critical.  As companies develop the next generation of retail POS systems & layouts, they must invest in the returns part of the business which accounts for over 8% of all purchases today.  Return rates for online retailers are typically triple the rate of brick and mortar stores.  The drivers behind the high return rates for online retailers will drive higher return rates in the brick and mortar stores as they adopt similar automation and customer service interfacing processes.

Are retailers going to address the new drives behind customer returns from automate store processes?  Also, are they going to invest in resources and training returns desk employees?  Are retailers going to redesign their layouts to accommodate returns volumes that could double or triple as they automate store sales processes.  It comes down to the old saying “Failing to plan is planning to fail.”

Someone once said that the only way you can change the way you act is to change your perspective.  This is true in in life and in business.  One of my favorite stories to illustrate the impact of perspective is the story of a friend of mine named Danny Parker, a Minister at Orchard Hill Church in Pittsburgh.

When Danny was studying to become a Baptist Minister he needed a job during the summer to help pay for school and he wanted to spend the summer working close to a Florida beach.  He bought a bus ticket and was soon on his way.  On the long ride down to Florida, Danny decided to put his faith to the test and take the first job he saw with a  “Help Wanted” sign in their window.  Danny was a trusting soul to say the least.

As luck would have it, when he got off the bus the first “Help Wanted” sign he saw was for the local porta-potty company.  For the next few weeks Danny cleaned porta-potties, by hand.  When he told me this story, some thirty years later, he said “I learned two important things that summer.  First, there is no job that I am too good to do.  We should all be humble regardless of what our job is.  The second thing I learned was that most people don’t chew their corn.”

There are many reasons I respect Danny Parker. One is that he is a man of great faith.  The second is that he always has a unique perspective on life that everyone can appreciate.

While porta-potties and corn have nothing to do directly with reverse logistics, it does illustrate the point of the value of perspective.  Reverse logistics can provide great insight into many aspects of your companies business, if you have resources focused on developing that perspective.

Studies have shown that companies that are considered best-in-class in reverse logistics have, on average a 12% higher customer satisfaction rating than their competition.  That is a significant differentiator for any company.  Clearly there are a number contributors to customer satisfaction.  Reverse logistics is one part of a larger overall program but it’s importance is often overlooked.

A strong returns management program will influence every aspect of the customer experience from improving the package and design of a product, to properly communicating the refund policy, to providing alternatives to help satisfy the customer.  However, to apply the lessons that can come from managing returns, you have to work at it and you must have a dedicated team working with operations, sales, merchandising and others.

Reverse logistics must have a seat at the table and a voice in all aspects of the business.  Reverse logistics executives are often kept to processing the returns only and have no input in other areas such as vendor agreements, disposition rules or developing a more customer friendly return policy.  These leaders could bring valuable information to the table that could provide insights that would have a great impact on the customer.

The key is to take a team approach.  For example, too often, the customer return policy and front end process is sole responsibility of Loss Prevention or some other department that is more focused on preventing theft than satisfying customers.    As a former internal auditor for Wal-Mart I understand the need for prudent policies to protect against abuse, however, one must remember that the majority of customers that return goods are not thieves.  Further, if that customer has a bad experience in returning an item, they will tell nine other people about their customer.  Studies have also found that if the returns experience is good, they are twice as likely to buy in the future and tell more people about their p leasant experience.

Before an effective customer return policy can be developed, information on what is returned, why it is returned, and the relative impact of the returns must be analyzed.  Do you really want to write a policy based solely on anecdotal evidence provided by somebody whose job is to catch shop lifters?  They should be part of the team but not the only voice that counts.

Similarly, a company can’t really decide if an item is a winner until they factor in not only the sales but the return rates, reason for returns, and customer comments.  Reverse logistics completes the picture and provides the needed insight to make future decisions that impact what you sell and most importantly, customer satisfaction.

In today’s Podcast Curtis Greve shares three tips that can help improve returns processing; improve relationships with key vendors, suppliers, and liquidators; and increase the bottom line contribution of your reverse logistics program.

Do you know how to eat an elephant?  One spoonful at a time.  Curtis will share his experiences and time tested best practices that will help you improve, one step at a time.

Like Alan Weiss says “If you improve 1% everyday, in 70 days you will be twice as good.”  Here is three percent to help get you started.

The Reverse Logistics Podcast

Your host is Curtis Greve.

In today’s podcast, Curtis Greve discusses what consolidation fees and return authorizations are and how they are used to negotiate better return agreements between retailers and manufacturers.

Consolidation fees are the fees that retailers charge to manufacturers to cover the costs associated with processing returns through a centralized return process.  A return authorization, better known as RA or RMA, is the mechanism used by manufacturers to “give permission” for their customers to ship to them.  It is also the means used to track specific inbound shipments and reconcile the associated financial transactions.

Many retailers and manufacturers leverage consolidation fees and the type of RA used to negotiate better return privileges.  Listen to today’s podcast and learn how you can improve the financial performance of your reverse logistics process, one claim at a time.

The Reverse Logistics Podcast

Your host is Curtis Greve.

Today I am launching my new web site under the new company name of Greve Consulting, formerly known as Metreks.  The focus of my practice is to help companies develop their returns management, aka reverse logistics capabilities.  Viewers will find a lot of useful information on returns including the Reverse Logistics Podcast, which will feature industry leaders from the world of reverse logistics, and my blog which is packed with articles and information to help service providers, manufacturers, retailers, and liquidators make more money.

Register to get the blogs sent to your desktop automatically or save www.GreveConsulting.com as a favorite on your browser.  Your comments, questions, suggestions and feedback are encouraged.  I will use your feedback to improve the value delivered from the site.

Check in from time to time to see what is new.  For example, you might want to check out The Cost of Doing Nothing.  This is a form you can fill out to find out how much opportunity you and your company have in developing your reverse logistics capabilities.

Whether you call it returns management or reverse logistics, it’s all about improving returns and maximizing profits.  I hope you enjoy the new site and get a lot of value out of GreveConsulting.com.