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March 1, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Logistics in Reverse Gear

I think I am not the only one who has some interesting anecdotes about Reverse Logistics – a very hot topic these days.


Here are a few of my favorites:


  • I saw a woman we know at Sam’s Club a couple of years ago. She had purchased a new Compaq/HP computer, but had a minor (and easily solvable) technical problem with the networking card. Not real savvy about computers, she couldn’t get her problem addressed through technical support, for whatever reason. So she was bringing this perfectly fine computer back to Sam’s, which happily accepted the return, setting off a reverse logistics chain for Sam’s, Compaq, and probably others.
  • I led a warehouse automation project for totes-Isotoner a number of years back. Like many consumer goods manufacturers, it was very difficult – let’s say impossible – to well control returns from retailers, especially after the Christmas season. Returns would show up in every imaginable way, and frequently include products that weren’t from totes-Isotoner. About March of each year they had a sale where DC workers could buy all the televisions, hair dryers and other weird stuff that they received back – and for which they had incurred costs to process and store.
  • I was modestly connected to an effort Home Depot had a few years ago looking for software to help them improve returns processing. I don’t remember the exact figure, but I am pretty sure at the time Home Depot had on average tens of millions of dollars in returned goods in the back room of their stores, most of which sat for much longer than it should have. What to do with the merchandise wasn’t always clear, and there was no real tracking/event management that forced store personnel to do something to keep the flow going. I don’t know what Home Depot ultimately did, but I have heard this type of story from a number of other retailers and manufacturers in the past few years. (Note: see partially related story on Home Depot’s plans for supply chain/logistics transformation nearby in News Bites.)

We haven’t spent a lot of time on reverse logistics at SCDigest, and we will rectify that starting with this piece. Right now, it is finally getting better attention from many corporations. Three factors are driving that:


  • Growing recognition of the total costs: Reverse logistics expenses, in total, can be a larger absolute number, and larger as a percent of sales, than many companies realize.
  • Regulations: There are a growing number of regulatory requirements both in the U.S. and across the globe. Most of these are focused at the electronics industry, but today that means a lot more than computers and monitors. A growing array of products have chips and electronics in them, and are or may be covered by these “end-of-life” and recycling requirements. Expect lots more. The EU is also getting very tough on chemicals.
  • “Green Supply Chain” efforts: We identified the Green Supply Chain movement as our number one supply chain trend of 2006 (see Top 10 Supply Chain Trends). Better management of reverse logistics will be at the core of many of those efforts.

Part of what triggered this week’s column was a Videocast we did this week on “Building an ROI for Reverse Logistics.” It contained some good insight from Clear Orbit on building a business case for reverse logistics improvements, as well an overview from expert Jade Lee of SSI on the global regulatory environment. The broadcast is now available on-demand.


The issue is complex. It’s wrapped up in the issue of Returns policies, which many manufacturers and retailers have been getting tougher on (See Philips Electronics Finds The Best Way To Tackle Reverse Logistics Is To Focus On Root Cause, Enforce Policies, from the SCDigest archives.) Best Buy is trying to identify “serial returners” and prevent them from buying goods in the first place.


So in this column I am not doing much more than to raise the issue, and suggest that after years of many logistics people realizing the costs and challenges, but unable to get much support for improvement, that the combination of factors I cited above (and maybe some more I missed) are moving reverse logistics costs, opportunities, requirements, processes and technology support up a bit on the priority list – finally.


Do you agree reverse logistics is starting to get more attention? Why – or why not? What do you think the key issues are? Do you have any interesting or amusing reverse logistics anecdotes? Let us know your thoughts at the link below.

Let us know your thoughts.


Dan Gilmore


Supply Chain 

Videocast Series

On-Demand Videocasts

Building an ROI for Reverse Logistics

The focus on "reverse logistics" has been building for several years.

In this excellent Videocast presentation, you'll learn how improving reverse logistics process can provide a high ROI, while enabling your company to meet regulations and contribute to sustainability strategies.

View this excellent broadcast on your schedule




A relatively quiet week for our supply chain and logistics stocks, before the wild action we are seeing this week in the markets. Biggest winners last week were Logility, Zebra, Expeditors International and JB Hunt.

See stock report.


This Week’s Supply Chain News Bites – Only from SCDigest

Mar. 01 , 2007

Supply Chain Strategy: Home Depot says it’s Ready for Supply Chain Transformation

Feb. 28, 2007

U.S. House Expected to Pass Pro-Union Measure; Fate in Senate is less Clear

Feb. 28, 2007

RFID News: Investment Company RW Baird Says WSJ Article on RFID Slowdown at Wal-Mart Part Right, Part Wrong

Feb. 28, 2007

Procurement News: Procurement and Sourcing Software Spending to Stay Strong, Forrester Says


Mar. 1, 2007

From RetailWire: Does RFID Have Issues?

Wall Street Journal story on RFID continues to generate comments on all sides of the issue

Mar. 1, 2007

Survey Finds Continued Improvement in Trucking Capacity, Rate Pressure, for Shippers

Quarterly Bear Sterns shippers survey finds expectations for truckload rate increases lowest since 2002; rail service improves, but there are upward rate pressures

Feb. 28, 2007

Does Wal-Mart Exec Promotion Mean Some Big Changes for

What’s the impact on suppliers?  Is “direct shipping” in the future?


Q. What is the name of largest professional society in the world for professionals in the field of operations research?

A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're still behind - be patient if your letter has not yet been published

We received a nice group of letters on our First Thoughts piece a few weeks ago on Modeling Logistics Flows, a technique SCDigest editor Dan Gilmore has used in the past to get a handle not only on the physical flows within a supply chain, which most companies are familiar with, but also the information "dialogs" required as well the supply chain competencies needed at each node.

The feedback was very positive. That includes our Feedback of the Week on this topic from Erick Ochoa of Sony, who says it is a "spectacular approach." Thank you.

You'll find his letter as well as a few more below.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On Modeling Logistics Flows

Its an spectacular approach!

At the moment I'm mapping processes for logistics here in SONY Tijuana Mexico, the objective is to have a strong understanding of our processes and its particularities, so as get a air view of opportunity areas to attack each of them on a should and must criteria, to start we are doing the TRAFICC lay out (inbound/outbound) today we where saying this is a great opportunity to fix many issues on operations, in this order please give us a guide to get appropriate literature or any other source you might have on this matter.


Thanks a lot for your valuable guidance!


Erick Ochoa

Logistics and Business Engineering Sr Coordinator


Baja California


More on Modeling Logistics Flows:

Modeling material flows and information flows is precisely the way things are headed. As workflow technology continues to emerge in the marketplace it will allow companies to better model and 'marry' material and information flows into comprehensive 'dialogues'. Additionally, worfklow engines will allow companies to build these comprehensive dialogues, map critical junctions/risk points as well as identify major cost areas along the dialogue giving everyone in the organization a more accurate business view of supply chain.

"Dialogues" can cover many layers of the supply chain as you indicate - physical flow, information flow, labor, carrying costs, transportation costs, etc. that will hopefully improve overall quality and service levels in the long run. These comprehensive dialogues will help companies test/simulate changes to the flows much better than traditional techologies. Good insight into flow analysis. Thanks.

Steve Simmerman
VP Marketing & Business Development


I enjoyed your topical editorial on “Modeling Logistics Flows.”  As supply chain complexity increases through an ever expanding number of “fulfillment chains,” it becomes increasingly important for companies to get a firm handle on their logistics flows.  As your editorial grew out of a discussion regarding whether or not the same WMS/logistics software suites should handle different businesses, I thought it appropriate to comment on that aspect of the editorial.

The goal of a best of breed supply chain execution (SCE) suite is to increase responsiveness, reduce costs, and provide real-time visibility while increasing predictability across the supply chain.  This can best be accomplished through standardized processes for the “physical touch points” in the network.  Whether the process is tendering a load or receiving inbound shipments in a DC, the physical procedures should be concise, consistent and repeatable.  Consistency breeds competence as well as quality and thus delivers the expected supply chain benefits described above.

So how does a best of breed SCE system enable this across varying “fulfillment chains?  First, it leverages the “information dialogs” described in your editorial to manage the differences in the fulfillment chains.  The preferred information flow is system-to-system so as to detach the information flow (and with it the decision process) from the physical activities performed by the staff.  As a result, a more consistent and straightforward physical process can be achieved.

Second, the system-to-system information dialogs serve another purpose.  That is to integrate with other business systems for execution and tracking of activities outside of the competency of the SCE system.   As you highlighted, documenting the key supply chain “competencies” is a key part of the modeling process and enabling these competencies through information dialogs is a core component of a SCE system implementation.

I am currently working with a top retailer on this very process as we prepare to roll out our Supply Chain Execution Suite across its supply chain network.  As we create the logistics flows, it has been very enlightening to the customer team (a group that is accustomed to relying on varying physical processes to accommodate disparate systems) to see a world where the physical processes can be largely consistent and the significant benefits that will result across their supply chain.


David P. Mott


Q.  What is the name of largest professional society in the world for professionals in the field of operations research?

A. As many readers know, that group is called INFORMS ( Institute for Operations Research and the Management Sciences). Its members tackle, among other things, a wide range of supply chain problems.

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