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Reverse Your Reverse Logistics Strategy

reverse

Reverse Your Reverse Logistics Strategy

On average, retailers received back 16.6% approximately $761 billion of total merchandise purchased in 2021, up from 10.6% in 2020, according to The National Retail Federation[1]. There is no sign that the increasing volume of returns will level off. Moreover, returns double during the all-important holiday season. According to UPS, between 27% to 33% of adult Americans make a return before the end of January[2].

Most companies have unprofitable, costly reverse logistics networks that cycle returns slowly and fail to help alleviate any of the strain. Managing returns is so problematic that many companies have told their consumer base to simply keep products rather than return them. Moreover, the cost of managing returns is draining working capital and squeezing retailers’ already stressed margins, especially at a time when many retailers are offering deep discounts to consumers to move piled-up inventory[3]. Companies of every stripe need to reverse their thinking on this approach. It is not sustainable, and there is ample room for consumers to take advantage of the system by overbuying and returning excess products. 

Reverse logistics can, and should, add value to a company’s supply chain. To fix their reverse logistics processes, manufacturers, consumer goods companies, and retailers need to:

  1. Prioritize gathering data throughout the collection, inspection, reprocessing, and redistribution channels to map flows for both useable and end-of-life returns: Most retailers do have baseline visibility into the volume and quality of returns or even why a customer has initiated a return. However, without granular visibility into returns channels, retailers and sellers cannot pinpoint inefficiencies at various network stages and uncover where they must direct resources to streamline processes. Retailers who do prioritize data collection discover wasteful steps in their overall reverse network design. With that information, sellers reevaluate the appropriate channels for returns, remove waste, and even reshape the overall network design, redefining how they should construct facility layouts and adjust transportation modes for their specific products.

 

2. Integrate artificial intelligence into the returns network to digitalize processes and improve decision-making: Collecting data and improving network visibility allow retailers to focus on how artificial intelligence and machine learning can help remove costly errors in returns routing. Empirical evidence shows that most costly errors stem from resources guiding customer returns through inefficient and unprofitable channels. That is where AI can proactively address these challenges. For example, many CPG firms will use AI to determine what channel will produce the most value for an incoming return, whether recycling, refurbishing, reuse or even disposal. AI will synthesize data sets, including the demand for a product, the return’s condition, the amount of inventory on hand, and external market dynamics, to direct returns down the appropriate channel to generate maximum value.

 

3. Outsource the reverse logistics network to a third party if it continues to inflict strain on the retailer: Mapping processes and leveraging technology, data, and AI will transform and evolve a retailer’s reverse network, but only if the company has an appetite to manage reverse logistics processes in-house. Some companies wish to focus solely on core competencies and strategic endeavors. Outsourcing reverse logistics to a third-party provider will alleviate some financial and operational burdens, allowing those companies to direct capital and resources to their area of choosing. Moreover, these third-party organizations make investments in sustainability and ensure that components and scraps are repurposed and disposed of in the most environmentally friendly way. 

Reverse logistics is increasingly essential. But, if not well managed, it is a significant drag on retailers’ razor-thin margins. It has also been mainly ignored, especially during the last few years, as companies focused on getting the product to market against worldwide shortages, high demand, and supply chain disruptions. However, we are now in an era that threatens stagflation, where no retailer and seller can ignore the cost of handling the growing volume of returns. It certainly cannot be so costly and inefficient that it warrants telling a customer to keep their product rather than return it. Retailers who effectively prioritize reverse logistics to generate value for the consumer and their own bottom line will have a competitive advantage in the future.

 

automate

AUTOMATE TO SLASH TARIFF MISCLASSIFICATIONS, PENALTIES AND DELAYS

A Fortune 500 chemicals company experienced surges in its tariff classification requests and predicted future volume would be even greater. Without support, the risk of misclassifying items was extremely high. Procuring an automated global trade system helped alleviate the strain on resources and mitigate the risk of delays and penalties. It also allowed the company to cut outsourced services, which yielded meaningful P&L savings and helped the organization manage its growth projections efficiently.

It is a timely case study as enterprises that engage in international trade continue to experience increases in tariff classification requests as their import and export shipments surge. With global merchandise volume forecast to grow 7.5% this year and 4.1% in 20221, organizations still using manual processes for product classifications — researching and applying HTS codes — may be misclassifying a variety of their products, including anything from direct materials to back-office supplies.

Misclassifications not only cost organizations shipping delays — sometimes from two to 14 days — increasing the likelihood of an audit, but they also lead to steep penalties. In fact, some companies have had more than 80% of their classifications incorrect for products and have incurred U.S. Customs and Border Protection fines of up to four times the lawful duties, taxes and fees.2

However, there is an overlooked solution. Today’s global trade management systems come equipped with automation and machine learning capabilities to streamline classification requests. They cut classification errors and the cycle time, improve a team’s productivity, and help prevent fines and border delays.

Here are the keys to success for organizations using trade systems to overhaul their tariff classification process:

1. Automate the consistent, repetitive classification requests that take up more than 60% of a resource’s time. Organizations can immediately alleviate the workload for classifiers by leveraging automation and machine learning for repetitive product classifications that have slight deviations. Those items can take hours of a resource’s time, leaving little to no bandwidth for other categories that may require more research. As the system learns more about the minor deviations in product types, it can provide accuracy of close to > 95%. Taking manual processes out of the equation helps guarantee supply assurance to an organization’s customer base while mitigating penalties from errors.

2. Eliminate third parties or outsourced contracts involved in classification overflow assistance. Implementing automation for tariff classifications allows an organization to remove outside brokerage services, equating to an immediate P&L savings impact. Some organizations have seen upwards of 10% savings captured by eliminating these obligations. That, in turn, helps positively impact the overall trade governance budget. Not only are the short-term effects instant, but for the long-term, global trade systems can help identify discounts for various classification codes based on trade agreements between importing and exporting countries. These discounts usually go overlooked by internal resources because of how busy they are with other tasks.

3. Use machine learning to help realize a cycle-time reduction for classification requests. Enterprises should leverage global trade services to automate customs rulings updates, ensuring compliance is current for all import/export nations. That leads to a reduction in the time spent by internal resources on researching the data each time a regulatory change occurs. Also, organizations should integrate databases with their global trade management systems to classify past and new unique classifications. Machine learning can leverage past classification mistakes for the future, but for new items, linking information flows from databases can help automate requests as they appear for the first time.

Organizations experiencing growth in their imports and exports must pay attention to global trade systems with automation and machine learning now more than ever to ensure business continuity and future scalability. While digitizing classification processes results in crucial P&L and cost savings, it’s also critical to mitigating the risk of future border delays and steep fines.

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Alex Hayes is a consulting manager at GEP, a leading provider of procurement and supply chain solutions to Fortune 500 companies.

1. https://ihsmarkit.com/research-analysis/global-trade-outlook-for-2021.html#:~:text=We%20forecast%20the%20volume%20of,2021%20and%204.1%25%20in%202022

2. https://www.govinfo.gov/content/pkg/USCODE-2011-title19/pdf/USCODE-2011-title19-chap4-subtitleIII-partV-sec1592.pdf

shipper

Be More Than a “Shipper of Choice” to Differentiate from The Competition

Severe truck capacity shortages mixed with high freight demand continue to plague the road transportation market for shippers in 2021. As a result, shippers are having trouble maintaining pricing power and contract rate compliance in this inflationary market. According to the latest DHL Supply Chain Pricing Power Index, road carriers will retain pricing power in the transportation market for the foreseeable future.1 One major component of the index is freight tender rejections, which have jumped to a staggering 30%, further reinforcing the magnitude of truck capacity shortages.1 To combat these unfavorable conditions, shippers cannot continue to exercise a transactional approach to supplier relationship management and expect to retain service providers and grow relationships in the future.

Shippers must differentiate from the competition and go beyond the best practices of reducing detention time, providing driver amenities, implementing favorable payment terms, and tendering steady freight volume. These “Shipper of Choice” best practices should already be standard procedures for any organization today. Instead, they need to adopt a new mindset to differentiate themselves and remain competitive.

Today, manufacturers, distributors, and retailers need to be more than just a “Shipper of Choice” to grow their business and add value to their supply base. For shippers to provide real competitive value from now on, they need to address each of the following:

1. Adopt a partnership first mindset by developing a robust strategic carrier base and minimizing transactional relationships:

Shippers should continue to form deep alliances with carriers and prioritize collaboration over temporary rate cuts; it will provide a competitive advantage. In the North American truckload market, buyers often engage in transactional relationships with suppliers, operating directly from the spot market or leveraging continuous sourcing initiatives and short-term contracts. While this might temporarily raise positioning power for a shipper, it falls short as an overall approach to procurement and carrier management, ultimately harming supplier relations. Instead, strong carrier integration will provide shippers with more value opportunities such as joint ventures, cooperative savings strategies, detailed service level agreements, and optimized distribution networks. An efficient long-term partnership with a strategic carrier base nets more significant savings opportunities and helps a shipper remain innovative, profitable, and competitive.

2. Share consistent performance transparency through a voice of supplier and carrier scorecards:

Move away from a reactive approach to supplier relationship management to a strategic one by improving carrier communication and continuously refining operations. Through a “Voice of Supplier,” a carrier can provide reliable market intelligence to a shipper, including insight into how a shipper compares to the competition. Organizations should use this feedback to invest in improvement initiatives, such as internal development programs, to keep carrier turnover low and attract new service providers.

Use carrier scorecards to ensure suppliers understand where their performance ranks based on a set of key performance indicators. Then detail those metrics, especially on-time delivery and tender acceptance rate, to make immediate changes and correct recurring inefficiencies. That process helps provide a pathway to successful future interactions and strengthens a partnership. If a carrier is to remain compliant, a shipper must hold their performance accountable too. Measuring performance, such as OS&D percentage and freight allocation, will instill trust in the carrier base that a shipper will work at their improvement areas.

3. Embrace technology for improved connectivity, visibility, and communication:

Logistics companies deal with vast quantities of data simultaneously. Employing a global Transportation Management System (TMS) and Freight Bill Payment and Audit (FBP&A) program yields increased accuracy for shipment tracking, rate compliance, and freight spend visibility. They reduce rework that comes with manual process errors, allowing a shipper to streamline operations and identify more cost-saving opportunities. With the increased market volatility in the logistics industry, logistics managers must maintain real-time visibility into the flow of goods through their worldwide network. The ability to track a product’s location from the first mile to the last is now a must-do.

Application Program Interface (API) is becoming the preferred system over Electronic Data Interchange (EDI) for information exchange between shippers and carriers. Purchase orders, shipping statuses, payment confirmations, and other data sets are sent seamlessly between carrier and shipper without delay. API enhances connectivity, leverages automation, and seamlessly integrates a supply base. Carriers embrace that technology and are no longer inclined to haul for those shippers who are still reluctant to invest and adapt.

If shippers have not already, they need to begin treating carriers as core business partners. 2020 marked a year filled with uncertainty and market volatility for the logistics industry. In 2021, shippers will continue to wrestle with severe capacity constraints and will need to tackle unique challenges in the future market climate. Collaboration with suppliers makes overcoming those hurdles much easier. Employing the covenanted “Shipper of Choice” best practices is now a requirement but adopting a new supplier relationship mindset and embracing new technology will help organizations remain competitive and differentiate from the competition. 

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Alex Hayes is a Senior Associate at GEP, a leading provider of procurement and supply chain solutions to Fortune 500 companies.

Citations: 1https://www.freightwaves.com/news/stimulus-round-3-provides-huge-boost-to-consumer-economy-freight-volumes-are-next