Aftermarket services are a critical part of the “customer economy” and operating flawlessly can increase revenues and help with customer retention. However, in a recent survey of retailers by ARC Advisory Group and DC Velocity, less than half (42%) have the ability to measure the full financial impact of returns.
According to Deloitte, US companies spend over $200B on reverse logistics. In B2B environments, reverse logistics is inherently multi-party, which adds complexity and can create gaps in visibility and control. Combined with globalization trends, the reverse logistics supply chain is getting longer while end- customers are demanding more visibility and increased service levels on returns.
Reverse Logistics Processes Have Integral Challenges
According to Flash Global, 8.1% of product comes back as returns. Reverse logistics are more challenging than outbound customer deliveries. It starts with having basic visibility of what is coming back as a return. In a simple returns process, too often the first indication of product being returned is when it shows up at the warehouse. In the case where there is visibility to incoming returns, the product may not match what is expected. It might be a different product, model, style, or for serialized items, mismatched serial numbers. Worst case, it could be from an entirely different manufacturer or retailer. Finally, demand for returns/spare parts is harder to forecast, making planning more difficult.
Once the product is received there is an inspection process, and for electronics, and equipment components, there may be questions to answer about warranty. Product condition and warranty information impact the downstream steps. Should the product be repaired, re-stocked, or disposed of? Again, each of these paths also impacts parties in the network as well as work steps and transportation milestones. Products under warranty might be exchanged with a supplier, or a 3PL may be responsible for its disposal/recycle.
Add global supply chains with overseas suppliers and repair partners and the logistics further adds to the complexity. Again, imagine multiple partners, but each specialized by region, product, or function. Contrasted against forward logistics where larger quantities of products are ordered, shipped, and deconsolidated, reverse logistics is trickier due to the volume, mix of products, and varied activities across partners.
Supply Chain Orchestration Delivers Better Visibility and Control
With expanded product sets and multiple service offerings, manufacturers and service providers often need to provide an expanded set of services and work within tighter cycle times while attempting to understand and control costs across their partner network. Given the spectrum of order flows and the extended supply chain, companies should investigate Supply Chain Orchestration to extend their current systems and provide end-to-end visibility and control.
Here’s a couple of reverse flow scenarios from our customers:
This global high-tech manufacturer had completely outsourced their reverse and repair network. The majority of their customers were served through a global provider that provided technology for visibility and customer service. However, as they expanded through acquisition and penetrated new geographies, they needed additional providers to handle the varied product requirements and service levels in new geographies. Unfortunately, they also had limited visibility into the repair activities, and their global visibility was fragmented. By adopting their own Supply Chain Orchestration solution, they improved visibility by having a uniform application across partners. It also provided them with greater flexibility in what partners they used.
This US-based manufacturer uses their own warehouses for spare parts, though they have a number of repair partners. Their most common scenario is advanced replacement whereby they send out the new part to their end customer and receive the returned part at their local warehouse. Once inspection is performed the part is sent to a repair vendor. Provided it can be repaired, it is re-shipped back to the warehouse to be re-stocked. The manufacturer did not have visibility into the steps occurring at the repair depot and were also incurring extra costs for 3 shipment legs as well as additional handling at the main warehouse upon return. With Supply Chain Orchestration, they optimized their process and moved some of the inspection to the customer at replacement time. This enabled more efficient routing such as direct shipment to the repair center, greater visibility into the repair steps, and better control of consolidation.
Critical Capabilities of Supply Chain Orchestration
Given these increased customer demands, it is important to understand some of the important capabilities of a Supply Chain Orchestration platform when applying it to reverse logistics. Here are the common requirements we see:
· Configurability – having configurable order flows gives you the ability to better support simple return, advanced replacement/swap, multiple legs with consolidation, and spare parts fulfillment
· International Capabilities – with cross-border e-commerce expected to make up 20% of all orders by 2022 and having greater visibility and control over these orders flows with collaboration across brokers, forwarders, carriers is crucial
· Extensibility - robust API integrations extend core ERP/WMS/TMS systems and give enhanced visibility and control across external parties
· End-to-end Visibility – having the ability to see and make decisions on all potential milestones in a flow including manufacturing, repair, and transportation
· Multi-tier inventory – Getting visibility to inventory across locations, including central distribution centers, forward stocking locations, additionally inventory with suppliers, 3PL partners, customers, and what is in transit.
Finally, with a highly flexible platform, they can implement flows quickly and without technical intervention as they need them, creating rapid payback and adapting the solution to be unique as their business.