As many of you know, I recently authored a white paper titled Reverse Lifecycle Management: The Next Opportunity in Reverse Logistics. I received a lot of favorable comments from people who took the time to download and read the article. Thank’s so much . There were, or course, a few readers who expressed words of caution about the promise of the Reverse Life-cycle Management (RLM) concepts discussed in the paper. One person commented that an optimal RLM system based on best practices might be a good idea but without good project management and a willingness by the client to re-engineer some business processes the best solution can easily turn into a nightmare. Another person expressed concern about the quality of data being captured by the system. Their view was that a RLM solution may be world class but if it doesn’t collect that right data to improve operating effeciency and productivity or product performance, then it is useless.
Well, I couldn’t agree any stronger. Good project management and executive level buy-in are critical to a successful RLM implementation. I would say these components are important to any type of initiative that involves change. This is also true with respect to caputuring good, useful and reliable data as expressed by the old adage… “garbage in/garbage out”. RLM must consider the needs are all stakeholders, and that is an important distinction and decision that designers of a RLM solution need to take into account. Who are the stake-holders? Where do they fit in? What is their relationship? Where to they have an impact? These are are questions that must be answered when determining what type of data needs to be captured in the RLM solution.
One of the greatest benefits of RLM, and there are many, is that it provides a systemic platform for capturing, managing, analyzing and disseminating critical business intelligence necessary for optimizing an Reverse Logistics Operation regardless of the end-user's demographics (i.e., years in business, number of employees, market served, number of customers, type of business, etc.). Basically, RLM is a strategic framework for defining system functional requirements. Our view, which is supported by very extensive market research is that the current R.L. systemic infrastructures of most OEMs/3PSPs/Retailers/etc. are very fragmented and lack critical feature functionality for capturing critical data about the R.L. Supply Chain. Up until now, RL Supply Chain professionals have not had many available options for resolving systemic issues such as data accuracy, visibility, root cause analysis, etc. Instead, these professionals have had to either ignore the situation, create workarounds, or use brute force to resolve problems as they occurred. This in turn has had negative consequences on operating costs, personnel productivity, and the overall customer experience.
RLM is a new industry standard and will help entrenched management mitigate and avoid the above challenges by helping them to anticipate, plan, and monitor RL events. I hope you will see the value of the RLM concept. Please share with me you thoughts, comments, and criticisms so that we may continue to build awareness of the challenges and potential solutions to Reverse Life-cycle Management.
Date line: February 16, 2010 Reverse Logistics Association (RLA) Las Vegas 2010 Conference & Exhibition was held from February 7-10. I have had the long President's Holiday Weekend to reflect on what I found to be the key highlights of this conference. RLA Las Vegas is one of the key industry events of the year for Reverse Logistics and After Market Service Professionals. Chock full of workshops, presentations, exhibitors. It is a great forum to learn about industry trends and conduct commerce.
I look forward to attending RLA LV every year. It gives me a chance to network with long time business associates, make new contacts, and even conduct business. Each year that I have attended, the organization has asked me to conduct workshops on "Service Marketing" and "Best Practices & Benchmarks in Reverse Logistics". It gives me a great sense of fulfillment to share my knowledge with others, and this year, I noticed that the workshop participants were taking more copious notes then I ever before. I also moderated a panel with key executives for Motorola, Comtek, LTX-Credence, and Applied Materials on the subject of supply challenges and opportunities in managing high value, long lifecylce requirements. A "Lunch & Learn" workshop on Reverse Logistics Management Systems co-presented with Pat Anderson of Take Supply Chain Solutions was also a key highlight for me.
The most important aspect of going to RLA is that it provides me with a venue where I can conduct field research in order to validate current market trends and identify new opportunities. It allows me to roll-up my sleeves and get down in the trenches with RL professionals. The key take-aways for me this year were that RL professionals are resilient and last year (2009) was not such a bad year for most 3rd Party Service Providers. The observations and anecdotal evidence I collected lined up nicely with the issues I have been blogging about. Here's a quick run down of what I've found:
- Many 3rd Party Services providers followed their Strategic Business Model to increase top line revenue and/or improve profits.One CEO told me that he added 6 new customer accounts by outsourcing lead generation.
- Remember my blog about 2010 being the year of the Reverse Logistics Management System (RLMS)? Absolutely !! I met a number of software vendors for the first time who have developed state of the art RLMS and have flagship customer accounts to prove it. Expect a lot more interest and implementations in the future !!
- There is an increased interest among the financial community in the Reverse Logistics Market Space. I ran into 4 private equity groups who are interested in learning more about this market and searching for transactions. Obviously, companies will need growth capital to implement their new RLMS.
- Many of the larger 3rd Party Service Providers are pursuing acquisitive growth strategies to increase top line revenue and profits. This was eye opening for me as many of the other "analysts" have been predicting that 2010 will be about organic growth. Can we expect higher price valuations given the increasd competition for acquisitions? Will we soon see conditions where M & A in th RL space becomes a seller's market?
My analysis and prognosis is that RL is alive and well. The next three quarters of 2010 should be very interesting. RLA has given me a lot to think about. I can't wait unitil next year to see how things panned out. Please do not hesitate to contact me if any of these issues sparked your interest.
The Field Service Automation landscape looks very different than it did 25
years ago when I began my career. Back
then, the market was in its early growth stage. Today, the market is mature.
Field Service functionality can be found in different types of applications
which we categorize into ERP/CRM (e.g., SAP, Oracle, Microsoft Dynamics, etc.),
Integrated Service Management (i.e., Astea, Metrix, Vertical Solutions, Amdocs,
etc.), Field Mobility (e.g., Antennae Software, Agentek, etc.), Service Parts
Optimization (e.g., MCA, Servigistics/Click Commerce, Baxter, etc.), and Field
Service Optimization (i.e., Service Power, Click Software, TOA, etc.). Applications are available for purchase either
through an On Premise (i.e., License) or On Demand (e.g., SaaS) solution. As
such the decision making process is much more complex.
In the past, the business user had a very vocal voice in the selection of Commercial Off the Shelf Systems (COTS). Sure
the perspectives of technical and economic decision makers were considered but
now these participations have a greater role in placing constraints and/or
mandates on the types of systems that are purchased. The technical platform on which the field
service application is written is often more important as the feature
functionality of the application itself. The ability of this application to integrate
with other corporate systems is also extremely important consideration and
constraint. One thing which is continued
to remain certain is the applications will continue to evolve and new vendors
will continue to enter the market while others disappear.
Given all these complexities, we believe end-users can benefit from working
with an independent and objective third party advisor such as ourselves to help
define the solution, recommend a qualified vendor short list, and evaluate proposals. We believe our understanding of where this
market place has been and where is it heading, combined with our knowledge of
the current state of the art and vendor market is critical in helping clients
to select and implement solutions which meet the needs of today and the
requirements of the future.
In our last blog post we wrote about early development in Field Service Automation (FSA). There have been many advances since those early days (circa 1986). Back then, most
of the vendors were focused on winning business from large and very large
end-user organizations. After all, the
conventional wisdom was “that’s where the money is”. As
consultants, our firm played a hand in promoting Commercial Off The Shelf (COTS) Solutions and helping end-users define
their requirements, and evaluate and select qualified vendors. We encouraged our clients to give serious
consideration to the depth and breadth of software functionality, its
applicability to their business needs, and the stability of the software
platform over the technical features and bells and whistles of software’s user
interface. As the market become
increasingly competitive many software developers took heed of our advice by
expanding their functional capabilities and implementing segment specific
marketing campaigns.
Over time we saw new developments in Field Service Automation. First,
we saw the development of wireless technologies which led to the roll out of field
service mobility solutions. At first, the vendor evaluation and selection was based on network coverage and
device feature functionality. Overtime, the focus moved toward the capabilities
of the middle software and its ability to integrate with corporate systems and
provide a user friendly interface to the field. In parallel to the wireless
evolution we also saw the development and roll-out of point solutions focused
on various aspects of Field Service Management from dynamic scheduling to parts
forecasting to remote diagnostics. Software developers were constantly looking
at ways to incorporate new technologies such as RFID, GPS, Remote Monitoring, and
advancement in Internet technology into their applications. Over time, we also saw new players come and
go either through acquisition or market shake out. We also saw sales cycles and resulting
implementations become longer, as field service applications become
increasingly more complex and involve cross functional integration with other
corporate systems.
Be sure to check back with us soon as we provide more informaiton on today's FSA environment provide advice for selecting and implementing an optimal solution.
As many of you know, I have written a great deal about the size and forecast of the Aftermarket & Reverse Logistics Service Market. The reason why I am so passionate about this subject is because I strongly believe that the days of relying on intuition to determine the size of a market are long gone. I have found that companies who take a strategic, statistical, and econometric approach to determining the size and forecast of a market are more likely to experience sustainable, continuous, and profitable revenue growth. This is because a quantitative approach to market analysis enables a company to be more precise and accurate about market demand and revenue potential. As a result, the management team can do a better job at allocating resources and prioritizing investments resulting in the company being better prepared to handle challenges and respond to opportunities.
It does not suffice a company's management team to say "let's not worry about the precise size of the market, we know the market is really big, so let's just focus on getting new business". This is tantamount to taking a trip from NY to LA in your car by just driving west and without a map. You wouldn't expect to such behavior from any educated or even sane person, so why would a company behave in such an irrational manner? I believe that it is because market analysis is more complex than meets the eye. Determining the size of the Aftermarket & Reverse Logistics Service market is part science and part art. It requires that a company really understand the true dimensions and dynamics of the market. And there's the rub. Unlike a product market, which is much easier to define the Reverse Logistics market is large, complex, and fragmented. This makes the task of sizing & forecasting a market very difficult. However, it is not, I repeat not impossible.
Unlike product markets which require knowledge of limited set of factors like competition, product features, price points, number of potential users, and market demand; the Aftermarket & Reverse Logistics Market must be analyzed against a broad array of factors and dimensions that are inter-related and dependent on each other. Examples of these factors/dimensions include:
- Size and age of equipment installed base
- Annual Sales and Return Rates
- Disposion of Product returns
- Expenditures for in-warranty versus out- of- warranty service
- Percent of market served by 3rd Party versus internal repair organizations
- Percent of 3rd Party market served by authorized providers versus multi vendor (i.e., non-authorized) providers
- Service Expenditures by type of service performed (e.g., repair, technical support, advanced exchange, e-Waste, service parts logistics, etc.)
- Service Expenditures by type of equipment supported
- Gross Domestic Product
- Annual Growth Rate of GDP and market participants
By considering these factors, a company can accurately arrive at the size and forecast of the available, relevant, and addressable market. This requires an extensive knowledge of the market and access to multiple databases that track this information as well as a working knowledge of the relationship of each of the factors listed above with respect to how they impact/influence market demand and revenue potential.
This level of complexity should not be overlooked. Some companies only focus on single attribute when sizing the market like percentage of GDP or Warranty spend by OEMs. However, this sort of thinking is much too myopic and results in a under estimate of the true size of the market. The rule of thumb is the more distinctions that one can make about the market and the more facts that one has to support these distinctions, the more likely they will to arrive at a much more accurate and valid view of the market.
In the next series of postings, we’d like to delve into Reverse Logistic ManagementSoftware (RLMS). This first post in an overall introduction to RLMS, while thenext will focus on specific functionality. Feel free to leave any questions inthe comment section.
The currentstate of the Reverse Logistic Management Software (RLMS) should be categorizedas an industry that is set for rapid growth while solidifying its viability byvalidating its approach to Reverse Logistic (RL) operations through automation.
Our currentanalysis of the RLMS State of the Art finds software applications to beflexible and durable solutions that can operate as standalone system or as partof an enterprise package. Evidence that companies are looking for RLMS to be integratedinto other systems was evident when the highest percentage of our respondentschose that to be the most important factor in selecting a RLMS vendor.Additionally, a very large number of respondents in an extensive survey weundertook reported that they used Enterprise Resource Planning (ERP) to managetheir company’s RL. Overall, RLMS’s inerrant flexibility permits customizationto meet precise requirements and gives a distinctive amount of control to theclient to meet their specific needs.
We perceive RLMSfunctionality as analogous to a family where the different applications arelike the individual family members that compose this nucleus. Just like familymembers, these applications share the same “genes,” or in our context, featurefunctionality that makes them very similar. At the same time, it is thevariance or combination of these functions that make each application uniqueand effective. This commonality shapes an almost predefined internal structureof RLMS that facilitates the interlinking or synchronization of variousapplications. This framework allows the optimization of the service chain.
We found thatalmost universally, all reverse logistics functions benefit from “real-time”visibility of selective logistical information. This is a pervasive featurethat enables and maximizes other functions. Benefits such as inventorymanagement, forecasting, recall auditing, return management, and others arecontingent on having an accurate and current picture of where a given asset ison the supply chain.
We see a definite trend of RLMSfunctions becoming more expansive and more encompassing. However, our researchshowed that there remain many functions, such as Liquidation Management, thatneed to be created and incorporated into current offerings or offered as astandalone application.
An important aspect of this blog, Reverse Logistics Today, is that we plan on sharing insiders information with industry professionals that read this blog. Some posts will be for novices and some will be for experts. This blog post is for the latter. In this vein, we'd like to share with you some of the insight we've gleaned from working with companies and learning about their misconceptions about Reverse Logistics.
Many companies we work with incorrectly envision reverse logistics to be simply the opposite of forward logistics. Therefore, we see an immediate need for potential RLMS end-users to understand the complex factors that make reverse logistic problems different from those faced by forward logistics. These factors include, but are not limited to:
a) The complex natures of product lifecycle- today, products rarely “die,” but have after-lives in a post-sales market. This means that manufacturers and retailers need to know how to deal with their products that end up on their doorstep.
b) The multitude of disposition options that exist-Dealing with a returned product is not as simple as throwing it in the trash. Many options exist, such as recycle, refurbish, and reuse.
c) Non-uniformity of product quality- There are many different tiers of returned product quality, from like-new to damaged, and these grades dictate what RL process is best for the product.
d) Complicated forecasting- It is extremely hard to forecast or predict RL trends and volume. Unlike forward logistics, RL flow is not dictated or controlled by the manufacturers or retailers initiatives.
These four points need to be explained to potential companies looking to venture into the profitable, and usually necessary, realm of Reverse Logistics.
The RLMS market is a largely undefined and untapped entity. Many industries see reverse logistics as un-glamorous and non-high tech. They therefore discount their inherent need for RLMS. In short, companies need to first understand what RLMS before they can know they need it. Therefore, potential customers have a need to understand the complexities and benefits of RLMS. Many industries are unaware of the different modalities and functions of RLMS and how dramatically RLMS can improve their business. Customer awareness can be raised through concise and simple definitions and models of RLMS. Factors that should shape this description of RLMS are:
1) Cost reduction- Explain both the money lost from poor reverse logistic practices and the revenue possible through proper reverse logistic practices controlled by RLMS.
2) Administration consolidation-Business’s that do practice RL are often doing so through heavy administrative allocation. Additionally, many companies are hesitant to enact RL practices because of concern of needing to adopt a large and costly administration. These companies need to understand that RLMS makes the majority of this infrastructure unnecessary by streamlining and automating critical functions.
3) Protected Income-Companies are often unaware of how much income is unprotected (i.e., at risk) because of seemingly uncontrollable factors that only come into effect after the product is on the market, such as returns and recalls. Companies need to understand that RLMS brings a large measure of control into their hands.
4) Liability protection-Many companies in diverse industries are susceptible and exposed to legal and regulatory action because from environmental and governmental regulations. RLMS allows companies to be up-to-date on regulations and also performs auditing functions that protect companies from investigations.
5) Resource reservation-Inventory, transportation assets, employee allocation, and other resources are wasted on improper RL practices. RLMS conserves and manages a company’s resources.
6) Time saving-Poor RL processes take too much time resulting in poor customer satisfaction and wasted money. RLMS streamlines and optimizes RL process time.
7) Customer Experience Improvement – OEMs and retailers can dramatically improve customer satisfaction through proper RLMS practices. Refined business practices, such as issuing proper credit for returns, fast turnaround on sending products back to customers, balanced books, and issuing replacements are some crucial and improved processes that are automated by RLMS.
These seven benefits of RLMS are crucial points that impact the deployment of new software solutions. Additionally, the size of the after-market for refurbished, returned, and other dimensions of the post-life of a product needs to be defined in able to establish the exact scope of RLMS automation required.
Earlier this year we released a major study which examined the State of the Art of Reverse Logistics Management Systems (RLMS). In the next several blog postings, we reference key learning’s from our study by looking at the challenges the industry faces with respect to bringing RLMS adoption to its full growth and development. Our analysis will highlight the most crucial problems as well as offer insight toward their solutions. In this blog we will focus specifically on how RLMS can effectively support and impact the efficiency of product returns.
Return management is perhaps the most “high profile” dimension of reverse logistics. However, a conclusive, standardized model of this service has yet to be created. In addition the progressive shortening of products’ forward life cycle, a built in and growing array of product obsolesces of products, high consumer demands, liberal return policies, and legal and cultural demands of environmental regulations, contribute to the difficulties of constructing such a model. The returns management model should incorporate the following eight dimensions into its system:
1. Workflow and business rules that process returns quickly from key channels in order to halt or decrease products value. The longer a product is out of the cycle the more its value decreases.
2. Ability to handle large volumes of returns with little advance knowledge of incoming amount of returns.
3. Accurate and current funnels of disposition points and their connecting branches.
4. Data entry points and reporting that enable real-time tracking of products through the supply chain. Visibility is paramount for both the company and the consumer.
5. Analytics to process data in order to inform tighter forecasting, gate keeping, and logistics management.
6. The ability to have flexibility is setting return policy, based on general trends and individual customer habits, through visibility, reporting, and tight BI.
7. Fraud protection against such scams as habitual returns and defense against free “renters”, i.e. customers who buy products with the intent to return them after functional use of them.
8. Accurate and immediate return entitlement validation facilitates customer satisfaction and also provides companies with accurate data for inventory, forecasting and logistical requirements.
Product returns have reached unprecedented heights especially when non-traditional retailing, such as catalog sale returns that can be as high as 20%, is factored into the total volume of global returns. Therefore, the re-evaluation of return management processes in order for companies and firms to run more efficient and cost-effective is necessary. Conversely, when returns are not properly managed, profits go unprotected; there are higher costs in processing returns, and missed opportunities for growth and development.