How to Stop Leaking Millions of Dollars in Your Reverse Logistics Supply

Chain
By Michael Wooden, CEO, OnProcess Technology
Imagine asking a quarterback to run a play without looking up to check out the
defense, or buying a used car without taking it for a test drive. Without visibility, all
youre operating on is hope. Clearly not the ideal strategy. And certainly not one
your companys sales team would bank on. Yet, when it comes to the post-sale or
service supply chain (SSC), hope, or guesswork, comes into play all too often.
The post-sale supply chain is critical to every product companys business. It fuels
aftersales service, which can account for up to 80 percent of core profits and is a
huge factor in customer loyalty. The problem is, the SSC is highly complex with
many moving parts and stakeholder interdependencies (3PLs, customers, field
engineers, repair vendors, spare parts suppliers, and more). Its very challenging to
get a handle on, and as a result, its burdened by high cost-to-serve, causing OEMs
to lose millions of dollars annually.
Reverse logistics, in particular, is a huge part of the SSC. It heavily impacts cost-ofinventory, cost-of-repair and cost-of logistics. If you want to improve reverse
logistics cost and profitability in a significant way, you need a continual pulse on
where inefficiencies and unnecessary spend exist, and insights into how to course
correct. However, most companies dont have the visibility or tools to do this
leaving cost-to-serve largely unexamined.
Thats not to say businesses havent been trying. Smart companies have been
collecting valuable data and using analytics to gain insights into reverse logistics
performance for quite some time. However, their results often fall short for these
reasons:

Insights are siloed. Visibility is within, rather than across reverse logistics
supply chain functions. This means analytics are also confined within these
areas. However, because reverse logistics functions dont operate in a
vacuum, this limits the impact you can have on overall cost-to-serve.

Analytics are project-based. Analytics are focused on a particular point in

time, rather than real-time. This might work in a static environment, but
reverse logistics is anything but static. It changes continuously.

Long reaction time from IT. Getting IT to make changes to allow the use of
different data streams is often extremely difficult, given the long lead times
required by IT organizations.
Often, reverse logistics teams resort to reviewing a variety of historical
reports and cobbling together visibility on spreadsheets, with little or no
predictability and no prescriptive actions.

Root causes arent exposed and business actions to fix them arent planned.
Companies arent segmenting their data to determine cause-and-effect
relationships. Without performing real-time root cause analysis, theres no
way to pinpoint inefficiencies or waste at the source, or take corrective
actions to reduce cost-to-serve.

The New Control Tower Rx: Continuous, End-to-End and Predictive

Without real-time, integrated visibility across every area of your reverse logistics
supply chain, its impossible to make substantial improvements in cost structure.
Real-time, end-to-end visibility gives you a view into current data, metrics, customer
demands, ecosystem partner performance and more, on-demand. It enables you to
perform analytics that are continuous and predictive, so you can foresee likely
future behaviors and outcomes, and take actions to optimize them.
All of this is possible with advanced Control Tower approaches. However, while
Control Towers have been used in reverse logistics to varying degrees, they typically
dont meet advanced criteria.
An advanced Control Tower performs root-cause analyses. It embeds analytics into
the workflow to continually and automatically make processes smarter. And it uses
predictive analytics and intelligent business rules to direct the supply chain teams
attention to specific actions that can save money or improve customer experience,
and even prevent errors at the source before they have a chance to happen.
Four Areas for Cost-to-Serve Improvements
By using this new reverse logistics Control Tower approach to gain visibility and take
action, you can vastly improve inventory, repair, administration and shipmentrelated cost-to-serve.
1. Inventory
Getting customers to quickly return unwanted or malfunctioning parts is key
to keeping inventory acquisition costs in check. The more high-value or
critical the part, such as those that are difficult to acquire, the greater the
impact that slow or non-existent recovery will have on an OEMs expenses
and ability to service customers.
To minimize inventory costs, use the Control Tower to run an algorithm that
constantly looks for critical and high-value parts, against an algorithm for
Propensity to Return (PTR). When a low PTR case surfaces, a bulletin can
immediately alert teams to contact the at-risk customer, explain the
companys return rules and provide advice on how to easily return the part.
2. Repair
Ensuring that parts are returned quickly is just part of the picture when it
comes to reverse logistics costs. The other critical part is getting them into
repair. Often, a part is returned only to sit in cross dock or at receiving for
days and, hence, be not received in repair. If the planning team doesnt

see that part as received in repair, theyll order a new one. However, if
analytics shows this is a recurring problem, you can address it with Control
Tower business rules.
For instance, a business rule may state that if a part hasnt moved from the
cross dock to repair within 24 hours, the Control Tower dashboard will
instantly light up a yellow alert. If its been 48 hours, the alert will show as
red. Linking this alert to the demand of the part for outbound orders shows
the severity of the problem, and analytics can then pro-actively prompt
actions to resolve this particular backlog and suggest business rule changes
to reduce future incidents.
3. Administration
To impact cost of administration, eliminate the manual work that reverse
logistics teams do to gain visibility. For example, a multi-billion dollar
networking equipment manufacturer was spending 30 hours per month
manually comparing their return ticket reports with those in their repair
vendors system. By using a reverse logistics Control Tower dashboard to
monitor return tickets as Pending Vendor Processing, the company not
only saved valuable time, it also gained detailed visibility into problem
areas and the ability to quickly take corrective action with the vendor.
4. Outbound Shipments
When a replacement part is received by the customer, the assumed-to-bebroken part is returned and assessed for repair. However, about 50% of
these parts turn out to be No Trouble Found (NTF). They werent broken; the
problem was misdiagnosed by customer support. NTF issues result in
inventory and logistics costs that are largely avoidable with a robust Control
Tower approach.
By using an advanced Control Tower to improve upstream triage and spare
part shipment accuracy, your company can minimize redundant dispatches.
This, in turn, will reduce NTFs and prevent unnecessary spend in the
reverse logistics supply chain.
If youre not using an advanced Control Tower approach that offers on-demand, realtime visibility across your reverse logistics functions, continually analyzes your
processes and provides predictive, actionable analytics, youre not only running
blind, youre likely leaving millions of dollars in savings on the table.
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