Reverse Lifecycle Management (RLM) provides integrated, end-to-end functionality for the management and control and execution of reverse logistics transactions. The feature functionality in an RLM system enables the automation of key processes and tracking of critical data related to returns, warranty, inventory, transportation, shop floor control, etc. As the acronym implies, RLM supports the lifecycle of a reverse logistics transaction
An Reverse Logistics operartion can realize a number of quantifiable benefits by implementing an RLM solution. These benefits include but are not limited to:
- Cost reduction through better utilization and planning of assets and resources. This is brought about through visibility and planning tools.
- Administration consolidation through reduction of touch points which can be achieved through the integration capabilities, business rule work flows, and standardized management reports found within an RLM solution.
- Protected revenue and income recognized when companies better understand how much revenue and income associated with Aftermarket Service is at risk in the RLSC. This is achieved through the implementation of better controls found within end-to-end functionality and continuous monitoring of RL events (e.g., recall, returns, and warranty service).
- Liability protection: Many companies in diverse industries are susceptible and exposed to legal and regulatory action due to environmental and governmental regulations. The tracking and tracing features within an RLM provide up-to-date, real time information on the disposition of every item within the RLSC.
- Resource optimization: Inventory, transportation assets, employee allocation, and other resources are wasted on improper RL practices. Through business rules and better data, an RLM helps to conserve and manage a company’s resources.
- Productivity and efficiency gains: Poor RL processes take too much time resulting in poor customer satisfaction and wasted money. RLM streamlines and optimizes RL process time through standardized processes and procedures.
- Customer experience improvement: OEMs, 3PLs, Carriers, and Retailers can dramatically improve customer satisfaction through the implementation of self monitoring reverse logistics processes and systems. 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 a state of the art RLM solution.
- IT resource reduction: By deploying an RLM on a SaaS platform, multiple instances and replication of expensive hardware and its maintenance are eliminated. The time to deploy the standardized SaaS RLM platform allows for any location to be ready in hours, not weeks or months.
These benefits help an RL operation achieve a best in class standard level of performance. The benefits can in turn be measured in terms of improved operational metrics such as:
- SLA compliance
- Repair Turnaround Time (TAT)
- Cycle Times
- Output Yield
- Quality Levels
- Repeat Failures
In turn, these improvements in operational performance can be monetized directly in the form of cost savings, productivity gains, revenue gains, and improved cash flow. Clearly, the implementation of an RLM will produce a significant ROI that justifies the business case and results in higher gross margins and reduced operating costs, not to mention improved quality levels and customer satisfaction. As such, RLM offers a strategic framework for transforming a Reverse Logistics operation jnto a strategic profit center.
To learn more about the benefits of RLM and how to acheive them in your organizations click here.
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.
The last 18 months have seen an up tick in M & A activity within the IT After Market Services Industry. Most notable transactions include but are not limited to:
- Pomeroy IT Solutions by Platinum Equity Holdings
- Anacomp Multivendor Services by Decision One (Cerberus Capital)
- National Support Services (NSS) by Global Equity Capital
- Halifax Corporation of Virginia by Global Equity Capital
- PTS Electronics by Moduslink Global Solutions (May 2008)
Despite this fact, the Aftermarket Services Industry is currently viewed as a buyer's market from the standpoint of acquisition opportunities. This is a valid description if one were to define aftermarket services as either Electronic Repair Services (Depot Repair), Hardware Break Fix, and Installation services . It is true that this segment of the market is faced with declining revenues and low profit margins.
The demand for Hardware Break Fix services will continue to decrease as the installed based of technology declines with the the adoption of SaaS, Cloud Computing, and Server Virtualization. Remote Support and Variable Workforce service models are putting hardware maintenance companies at further risk. As result, acquisition multiples for these types of companies are not very high, typically in the range of 3 to 5 times EBITDA. However, Break Fix companies provide a predictable and defensible income stream which makes them very attractive to Private Equity/Buy-Out Firms.
An entirely different market dynamic exists for Depot Repair companies who operate within the large and growing Reverse Logistics Services Industry. A Depot repair infrastructure is needed by any company who provides Warranty Services, Returns Management, Asset Recovery & IT Disposal, Liquidation, and/or Refurbishment. In addition, Depot Repair often pulls through additional profitable, service revenue streams such as inventory management, spare parts logistics, and warehousing services for RL providers. Furthermore, customers of RL Service Providers increasingly want to turn to a single point of contact for a bundled package of RL Services. Since ERS requires a significant investment in infrastructure, many 3rd Party Services Providers, particularly those who are publicly held, are looking at acquisitions as a strategy for aggressive growth. As such, it is possible that Depot Repair companies can realize a higher valuation multiples if positioned properly and targeted to strategic buyers within the RL Industry.
Regardless of which part of the Aftermarket Service Industry you reside in, it is still a good time for M & A among Depot Repair and Hardware Break Fix companies. For companies in the Break Fix market who lack an innovative growth strategy and/or access to capital, this maybe a good time to sell. Given the trends described above, we may even be seeing the top of the market for break fix companies. The time is also right for Depot Repair companies supporting the Reverse Logistics Market to sell as the trends suggest that only large, full service, and well capitalized service providers are those that will succeed in the future. The keys to successful M & A transactions is to "let the trend be your friend" and work with advisers & intermediaries who truly understand the market.
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 Reverse Logistics Industry has evolved so much in
this last decade. Back in the early 2000s, Reverse Logistics (RL)
was considered to be a “new frontier” of opportunity. Although there was a general recognition that Reverse
Logistics was an important part of the supply chain, much of the focus of
attention was on defining what activities and functions comprised the Reverse
Logistics Supply Chain (RLSC). Basically, the emphasis was on understanding the
basics of the RLSC: 1) how it worked, 3) key touch points and stake-holders,
and 4) critical challenges and pitfalls. Many RL professionals refer to this level of
knowledge as “RL 1.0”.
By the mid part of this decade, the knowledge of RLSCs expanded.
The focus of RL 2.0 was on making RLSCs work better and more efficiently. This meant understanding the true costs of the
RL value chain and finding ways to improve it by either streamlining or
re-engineering processes, implementing new systems to automate functions and
track key data about the supply chain, or outsource/out-tasks critical
functions to more efficient vendors. Prior
to 2.0, the conventional wisdom was that the RLSC was characterized with uncertainty.
As RLSCs evolved, we learned that there
was indeed some predictability and certainty to events. In RL 2.0 we learned not only how to track and
control the receipt of these incoming products but we also learned that there were also
multiple options for the back end processing of these items ranging from
replenishment of the returned good into the forward supply chain, to repair
first then replenish, to liquidate as is, to destroy and recycle, to any other
flavor in between.
I believe the industry has now entered the realm of RL
3.0. Here the focus is on managing disparate RL functions on an integrated
basis and adopting a more customer centric view of the RLSC. The
fact that there are so many different inbound and outbound RL processes means
that even more focus is needed to ensure maximum productivity and quality while minimizing
cost and time associated with these activities. The fact that products in the
RLSC may be purchased for consumption by other types of buyers down the line also
means that we have to focus on meeting customer requirement and achieving high
levels of customer satisfaction while earning a profit. 3.0 is about managing multiple and often
conflicting business objectives of the RLSC.
In other words, RL 3.0 is about optimization. In contrast, 2.0 was focused on cost control
and cost reduction.
Optimization in the true sense involves real-time,
dynamic planning. Today, most attempts at optimization are manual based and simply
involve business rules which prioritize the flow of goods in to various
back-end channels (e.g., liquidation, replenish, etc.). Unfortunately, most companies lack the proper
tools and technology to attain real optimization. This first requires an investment
in the proper systemic infrastructure to capture the information necessary for
real-time data management. Unfortunately, many companies have not been able to
build a business case for even this type of investment.
All too often, RL professionals talk about improvements
from a cost saving perspective making comments like “these improvements won’t
increase profits but they will reduce costs and offset losses”. This seems to meet the definition of a
“profit increase”. All too often,
executives and managers responsible for RL often ask question “why doesn’t my company
get it?” It is difficult to expect the
C-Suite to get excited about RL when improvements are described as isolated events
affecting the operating budget of a single department. C-level executives will look at each incremental
cost saving as nothing more than round off errors on the company’s income
statement. Instead, RL professionals
need to speak about these improvements as an integrated set of activities that impact
the company’s bottom line in and multiple stake holders in a significant way. This
will get the C-suite to take notice. These
conversations will all part of the RL 3.0 programming language and just like the older versions of RL, the
development, roll-out, and adoption of 3.0 will depend on the efforts of RL
professionals like you. Are you ready
for RL 3.0?
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.
During most of the 1990's and early part of this decade we saw a tremendous interest among OEMs and 3rd Party Service providers (3PSPs) in the Multivendor Services (MVS) Market. MVS is essentially the business of providing hardware services (i.e., depot repair, field service, remote support,etc.) on products from multiple OEMs. Over the years MVS played a key role in generating incremental streams of profitable service revenue to both OEM and 3rd Parties. Our research has continously showed that end-users prefer to deal with a single point of contact for the provision of a broad array of aftermarket service & support.
OEMs and 3PSPs like the concept of MVS because it allows them to build economies of scale, improve market share, and increase profits. More importantly, the provision of MVS enables a service provider to increase their customer or installed base "density" which is a key toward building economies of scale and increasing profits. Density provides the service provider with a large volume of customers with the similar needs and thus requiring the same type of services. As such, the service provider can be more effective in managing service resources on a effecient and productive basis, and acheiving optimal levels of profit.
Around the middle of the early 2000s (circa 2002), MVS started to lose favor among service providers. This was due to several factors. First, many service providers began to realize high profit margins via the provision of managed services and/or professional services such as Business Process Outsourcing (BPO). By comparison, basic services such as field service and depot repair offered lower margins. Why focus on the plumbing when managing the whole apartment complex was more lucrative? As such, OEMs began to out-task these lower margin services to low cost 3rd Parties. Second, OEMs were in the unique position of having year of year growth in new product sales. Usually, service revenue is less of a concern for OEMs with products sales are booming. As long as products were selling, OEMs just needed to fullfill service demand and outsourcing and out-taskings was percieved to be the most effecient and economic way of meeting growing demand for suppport of new products.
The current recession and long term outlook that economic growth will be very slow for the foreseeable future is forcing many OEMs and 3PSPs to rethink their Afermarket service strategies. In board rooms and meeting rooms around the world, executives and managers are rethinking the value of MVS. Without revealing any client confidences, we are certain that a number of OEMs and 3PSPs will be aggressively entering or re-entering this market space either directly or thorugh strategic partnerships and/or acquisitions. Certainly, some very large service providers will continue to offer managed services and BPO. However, it has become increasingly obvious that it is better for these providers to concentrate on very large transactions and higher end, long term, strategic consulting assignments. We are beginning to see that some of these large providers are ceeding market share of more basic services like break-fix to mid-tier service providers and/or divesting of their infrastructure service business to indepedent organizations.
The implementation of an MVS business strategy or even a strategy involving the provision of a broad array of value added services beyond basic repair forcing OEMs and 3rd Parties to operate thier Aftermarket Service Organizations as strategic profit centers or lines of business. This has very positive effects on the industry as a whole. First, it requires service providers to add new business functions to their organization such as service marketing, human resources, finance, and IT. This in turn leads to new hires which should be a boom to employment. Second, it requires service providers to re-evaluate their service delivery infrastructure. As such, many will find they need to deploy new technology to automate processes and achieve optimal level of service qaulity and profitability. More importantly, the avaibility of increamental profits allows service providers to build a stronger business case for investment in new technology which in turn is a plus for software vendors.
History truly repeats itself. Over the years we have helped a number of OEMs and 3PSPs build very profitable aftermarket service strategies based on a provision of multivendor services. We are bullish on growth opportunities within the Aftermarket Service Industry provided that OEMs and 3PSPs seize the opportunities created by today's challenges.
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.