Transforming Logistics across the Value Chain

1. CHAPTER 11
TELECOM LOGISTICS
INTRODUCTION
Supply Chain measurements or metrics such as Inventory Turns, Cycle Time, DPMO and Fill Rate are used to
track Supply Chain performance. Commonly used by Supply Chain Management, metrics can help you to
understand how your company is operating over a given period of time. Supply Chain Measurements can cover
many areas including Procurement, Production, Distribution, Warehousing, Inventory, Transportation, and
Customer Service - any area of logistics.
» Backorder Reporting
» Balanced Scorecard
» Cycle-Time
» DPMO
» Fill Rate
» Inventory Accuracy
» Inventory ABC Classification
» Inventory Finance
» Inventory Turns
» On-Time Shipping/Delivery
» Perfect Order Measure
» Performance to Promise
» Transportation
TRANSFORMING
TELECOM LOGISTICS
ACROSS
VALUE CHAIN

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Page 1
SUPPLY CHAIN REMINDER
1. Tracking your Metrics allows you to view your performance over time and guides you on how to optimize
your Supply Chain. It allows management to identify problem areas. It also allows for comparison to other
companies through like industry benchmarking. 2. Certain metrics, such as Inventory Turns, have a widely
accepted definition. Other metrics, such as Backorders, may need to be customized for your particular industry
or logistics business model. 3. Measurements alone are not the solution to your weak areas! The solution lies in
the corrective actions that you take to improve the measure. The solution comes from process and/ or system
improvements. 4. Measurements should have owners....people or departments that are responsible for
achieving an agreed upon target on the metric. Supply Chain Management needs to encourage and support the
process changes to achieve the desired targets.
SUPPLY CHAIN METRICS TO IMPROVE LOGISTICS OPERATION
1. The first step is to identify the metrics that you want to use. Do not use every metric available. Rather, focus
on the vital measurements that mean the most to your business. These can be considered your KPI's (key
performance indicators). You should have 3-5 KPI's per functional area. If you decide to include numerous
measurements, you may encounter "analysis paralysis".
2. Next, you need to understand the meaning of these metrics. It is not enough for management to simply view
these measurements; they must also understand the meaning behind them.
3. The next step is to learn the mechanics behind the measurements. What drives them...positive & negative.
Try to understand the various factors that influence your results.
4. using this information, identify weakness or areas of improvement in your current processes.
5. Set goals based on these improvement areas. The goals should be aggressive, but yet obtainable. Goals can be
based on benchmarking against like companies or goals can be set to reflect a specific percentage improvement
over past performance.
6. Put corrective action in place to improve your processes. Make sure that these corrective actions do not
negatively affect other areas. Also, check that all affected areas have a clear understanding of the changes.
7. Monitor your results. Did your corrective actions yield your desired results? If so, what is your next area for
improvement? If you did not get the desired results, what went wrong? Try to identify the root cause of your
undesired results.
VARIOUS SUPPLY CHAIN METRICS:
Inventory Months of Supply:
Inventory On Hand / Avg. Monthly Usage
(the Avg. Monthly Usage is typically the yearly forecast divided by12)
Inventory Rationalization:
An analysis that categorizes your inventory by various categories. Examples-
- Current Inventory levels of A,B,C products
- Inventory turns of A,B,C
- Value of Slow Moving product (those products you may have more than "x" number of weeks’ worth)
Material Value Add:
- Sell price minus material cost divided by material cost.
Upside Flexibility:
The ability of a manufacturer to meet additional demand requirements. This is usually compared as a
percentage over the original order. This is protection for the buyer. It allows for the actual demand to be higher
than the forecasted quantity.

3. Missing Bricks for Value Creation
Page 2
SETTING GOALS FOR YOUR SUPPLY CHAIN METRICS:
Once you have an understanding of basic Supply Chain Metrics, focus on a limited number of measurements
that add value. Choose those metrics that will track your company’s true performance. You don't want to get
into the trap of "analysis paralysis". Over-analysis leads to confusion and sometimes conflicting goals. I would
recommend picking 5 - 7 key measures per functional area. These measures are sometimes referred to as KPI's
(Key Performance Indicators).
Once you have identified these metrics, you can then set your goals. This will enable your
organization/department to track it's performance to expectations. But how do you set these goals? How do you
determine what to target? At what point have you achieved Supply Chain optimization?
Your overall company goals should be considered when setting your Supply Chain targets. You want to make
sure that your Supply Chain goals do not conflict with your company objective. Targets can reflect how
aggressive you want to be in pursuing change.
Some Guidelines.....
First, make sure you understand exactly what it is your measuring. What drives this measure? What causes
failure? Where do you need improvement? Once you can answer these questions, you're in a better position to
set your goals.
Some companies use a guideline of 10% improvement per year. But, this is a very general guideline.
Benchmarking: One way to set your goals is Benchmarking. There are various benchmarking services, which for
a fee, will compare your company to other "like" companies. You submit your answers to a set of questions.
Those answers are averaged in with other company’s submissions. Averages are calculated and World Class
levels are set.
As an example, if the average Fill Rate for your industry is 93% and your performing at a 80% level, then it's
obvious you need to set an aggressive goal. However, if the industry average is 93% and you're at 94%, you may
want to target a minimal gain. Your aggressive efforts should probably be focused in other areas. The caveat
here is defining "like" industries. Make sure the comparison your making is a fair one.
SMART GOALS:
Specific: Provide enough detail so that there is no question on what is being measured and no question how the
metric is calculated. You should be specific as to the measurement, goals and responsible people/department.
Measurable: Here is where you use your metric. Make sure you have a reliable system in place that will
accurately measure your performance
Attainable: Will the Supply Chain projects you have scheduled for the year produce results that will achieve your
goal? The person setting the goal and the person responsible for achieving the goal should agree with the target.
If results are un-attainable or unrealistic, they will have a de-motivating effect on your employees.
Realistic: Don't plan to do things if you are unlikely to follow through. Better to plan only a few things and be
successful rather than many things and be unsuccessful. Your Supply Chain goals should be challenging, but
realistic in relation to the improvement projects you have in place.
Time frame: Identify when you’re targeting to hit your goal.
Example: Your current Fill Rate is 87% and your Supply Chain projects should improve your measure to 93%. But
is the 93% goal for the final month of the year OR is it averaged out over a specific timeframe?
Customer Service Policy:
Additionally, make sure that your Supply Chain goals are aligned with your Customer Service Policy.
Example: Your agreement to your customer might be a 95% Fill Rate, with an Order Cycle Time of 10 days. Make

4. Missing Bricks for Value Creation
sure that your goals reflect these customer agreements. Supply Chain optimization is difficult to achieve. But
with the right metrics in place and proper goals set, it is possible to know where to focus improvement projects.
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SUPPLY CHAIN MISSION
Operator Logistics will create added value for the operator by assuring, with minimal costs and capital
employed, a maximal service for
- Planning
- Ordering
- Storage
- Delivery
- Return of materials
Logistics will therefore provide supply chain expertise
to customers to improve existing processes, implement
new concepts and systems and will train and support
their customers.
Logistics - (business definition) Logistics is defined as a business planning framework for the management of material,
service, information and capital flows. It includes the increasingly complex information, communication and control systems
required in today's business environment. -- (Logistix Partners Oy, Helsinki, FI, 1996)
Business Logistics - The science of planning, design, and support of business operations of procurement, purchasing,
inventory, warehousing, distribution, transportation, customer support, financial and human resources. -- (MDC, LogLink /
LogisticsWorld, 1997)
Operator Logistics - ...the process of planning, implementing, and controlling the efficient, effective flow and storage of
goods, services, and related information from point of origin to point of consumption for the purpose of conforming to
customer requirements." Note that this definition includes inbound, outbound, internal, and external movements, and
return of materials for environmental purposes. -- (Reference: Council of Logistics Management, http://www.clm1.org/mission.html, 12 Feb 98)

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DISTRIBUTION CENTERS
Mid-size Operator Logistics usually have two distribution centers for
telecom engineering material, spare parts and consumer products.
• Capacity +1.000.000 order lines / year
• e-fulfillment capacity 125.000 order lines / year
• 6300 trucks received / year
• Dock to stock time maximum 4 hours
• 99% of orders entered before 1 PM shipped next day at 6 AM
• Inventory accuracy of 99,9%
Distribution center
for all heavy materials
Cable cutting & distribution
...at the right time
...at the right place
...at the right specifications
• 2000 m² indoor; 16000m² outdoor storage
• Cable cutting for reels up to 3m diameter
• Cutting capacity big reels
(diameter > 1,2m)=5.000cuts/year
• Cutting capacity small reels
(diameter < 1,2m)=4.800cuts/year
Unit load handling up to 20 Ton/m

7. Missing Bricks for Value Creation
All trucks are well equipped and have
scanning equipment for parcel traceability
till final destination
Daily national transports from DC to
regional transhipment Hubs; transport
of goods from national suppliers
Page 6
DISTRIBUTION NETWORK
Best in Class Operator Logistics has an efficient own distribution operation for delivery and return of goods
Regional hubs with daily routes covering the country territory.

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DECREASING INVENTORY LEVEL
• Manages processes and systems
needed for efficient inventory management
• Assures appropriate stock levels
• Reorders material from supplier
• Follow up of deliveries
• Challenges forecasting
• Responsible for material master data integrity
• Gives input for financial postings & reporting
• IT Systems used SAP or Oracle

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MAIN OPTIMIZATION PROJECTS
Demand Planning
Linking the materials requirements planning with the product and service forecast, will result in lower
inventory level, less obsolesces and more agility in the Supply Chain
RELOOP
Reverse Logistics Optimization simplifies the processes related to the return flows of network
infrastructure equipment and optimizes spare parts management.
Supply Chain Portal
Enables e-collaboration with suppliers: now for RELOOP, plans for delivery scheduling, forecast sharing,
VMI, Subcontracting….
Cable Mgmt System
New system for cable yard operations and cable supply management
Work-order BOM
Link material ordering to closing of work orders by technician.
Increase revenues and yield; reduce field stock.
SLA & KPI IMPROVEMENT

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PRODUCTION PLANNING AND FORECAST PROCESS
Current situation:
Monthly Build-to-Order production limits procurement,
production and delivery flexibility
Order lead-times are 6-8 weeks
Inventory levels throughout the Supply Chain is high
Late order confirmation from Sharp
Approach:
CASE STUDY
MANUFACTURER OPERATOR
OPTIMIZING SUPPLY CHAIN
INITIATIVE
Provide Sharp with Vodafone Spain’s Planning and Forecast Process of Vodafone
Provide Sharp with electronic demand planning process
Organize working session among logistics teams
- To identify topics to be addressed
- To agree sub-teams, responsibilities and deadlines
Results
Changing the production planning process from monthly to weekly will increase flexibility at Sharp and
therefore reduce the order lead-times. This will finally lower inventory levels throughout the Supply
Chain.
CUSTOMER CUSTOMIZATION PLANNING
Current situation:
Built-to-Order gives no customization flexibility
2nd customization can only be done at Vodafone, which e.g. limits the flexibility for marketing
campaigns.
Early customization increases risks of obsolete inventory
Delivery flexibility is also limited by current process
Approach:
DHL to provide Sharp with Business Case Model Template
Sharp to complete the template
Evaluation of the results in workshop
Results:
Sharp has proposed three customization schemes (in China or Europe) and identified that production
and customization in China is the most effective process. We will re-evaluate this analysis based on
figures to confirm Sharp’s result.
An optimization of the customization scheme should result in more flexibility for production, delivery,
marketing campaigns and therefore total cost reductions on both sides.

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MANUFACTURER LOGISTICS ORGANIZATION OVERVIEW
Page 11
Logistics
EVP

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Page 12
Group Logistics Manager
Contract
Manager
International
Transport
Managers
CONTRACT MANUFACTURING IMPLEMENTATION

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The purpose of demand planning is to enable just-in-time deliveries of the site equipment
and services. The capacity of the delivery chain is dimensioned based on the demand plan.
DEMAND PLANNING IS REQUIRED FOR A EFFICIENT WELL FUNCTIONING VALUE CHAIN
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DEMAND PLANNING IS REQUIRED FOR THE VALUE CHAIN EFFICIENCY
Demand Planningis needed for many purposes
DO Supply Planning:
material and capacity
Company Confidential
4 © 2005 Nokia V1-Filename.ppt / yyyy-mm-dd / Initials
Nokia Customer
DP LE
DPA metrics
Nokia/NET
Latest
Estimate SNM/DEM Sales Availability
Management
Logistics
Service
Providers
Subcontractors
DMS/PS
Resource planning
Nokia/NET
Management
NET
NET
NET
Management
Supplier Operator

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CUSTOM CLEARANCE
It is critical to plan in advance the custom clearance for international shipments to avoid painful delays and
additional fees affecting customer satisfaction and project execution.
Custom clearance can be an important activity for regional offices to manage the regional logistics center.
Many global manufacturers find it is worthwhile to establish regional hubs to centralize regional logistics
activities and making sure to be compliant to the local custom clearance rules and regulations.
Regulations may change in a regular basis and procurement organizations need to be updated at all time

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INCOTERMS
The International Chamber of Commerce (ICC ) published the 8th and current version of its International
Commercial Terms, also known as INCOTERMS® on January 1, 2011.
The revised rules, originally designated INCOTERMS 2010, contain a series of changes, such as a reduction in
the number of terms to 11 from 13. The DAF, DES, DEQ, and DDU designations have been eliminated, while two
new terms, Delivered at Terminal (DAT) and Delivered at Place (DAP), have been added. INCOTERMS 2010 also
attempt to better take into account the roles cargo security and electronic data interchange now play in
international trade.
WHAT INCOTERMS ARE - INCOTERMS are a set of three-letter standard trade terms most commonly used in
international contracts for the sale of goods. First published in 1936, INCOTERMS provide internationally
accepted definitions and rules of interpretation for most common commercial terms. In the US, INCOTERMS are
increasingly
WHAT INCOTERMS DO - INCOTERMS inform the sales contract by defining the respective obligations, costs
and risks involved in the delivery of goods from the Seller to the Buyer.

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WHAT INCOTERMS DO NOT DO - INCOTERMS BY THEMSELVES DO NOT:
- Constitute a contract;
- Supersede the law governing the contract;
- Define where title transfers; nor,
- Address the price payable, currency or credit terms.
- These items are defined by the express terms in the sales contract and by the governing law.
INCOTERMS ARE GROUPED INTO TWO CLASSES:
1. TERMS FOR ANY TRANSPORT MODE
EXW - EX WORKS (... named place of delivery)
The Seller's only responsibility is to make the goods available at the Seller's premises. The Buyer bears full costs
and risks of moving the goods from there to destination.
FCA - FREE OPERATOR (... named place of delivery)
The Seller delivers the goods, cleared for export, to the operator selected by the Buyer. The Seller loads the
goods if the operator pickup is at the Seller's premises. From that point, the Buyer bears the costs and risks of
moving the goods to destination.
CPT - CARRIAGE PAID TO (... named place of destination)
The Seller pays for moving the goods to destination. From the time the goods are transferred to the first
operator, the Buyer bears the risks of loss or damage.
CIP - CARRIAGE AND INSURANCE PAID TO (... named place of destination)
The Seller pays for moving the goods to destination. From the time the goods are transferred to the first
operator, the Buyer bears the risks of loss or damage. The Seller, however, purchases the cargo insurance.
DAT - DELIVERED AT TERMINAL (... named terminal at port or place of destination)
The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the
Buyer's disposal at a named terminal at the named port or place of destination. Terminal includes any place,
whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The Seller
bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place
of destination.
DAP - DELIVERED AT PLACE (... named place of destination)
The Seller delivers when the goods are placed at the Buyer's disposal on the arriving means of transport ready
for unloading at the names place of destination. The Seller bears all risks involved in bringing the goods to the
named place.

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DDP - DELIVERED DUTY PAID (... named place)
The Seller delivers the goods -cleared for import - to the Buyer at destination. The Seller bears all costs and risks
of moving the goods to destination, including the payment of Customs duties and taxes.
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2. MARITIME-ONLY TERMS
FAS - FREE ALONGSIDE SHIP (... named port of shipment)
The Seller delivers the goods to the origin port. From that point, the Buyer bears all costs and risks of loss or
damage.
FOB - FREE ON BOARD (... named port of shipment)
The Seller delivers the goods on board the ship and clears the goods for export. From that point, the Buyer bears
all costs and risks of loss or damage.
CFR - COST AND FREIGHT (... named port of destination)
The Seller clears the goods for export and pays the costs of moving the goods to destination. The Buyer bears all
risks of loss or damage.
CIF - COST INSURANCE AND FREIGHT (... named port of destination)
The Seller clears the goods for export and pays the costs of moving the goods to the port of destination. The
Buyer bears all risks of loss or damage. The Seller, however, purchases the cargo insurance.
PRACTICE POINTS
BE SPECIFIC:
If you use INCOTERMS in the Sales Contract or Purchase Order, you should identify the appropriate INCOTERM
Rule [e.g. FCA, CPT, etc.], state INCOTERMS 2010 and specify the place or port as precisely as possible.
RECOGNIZE WHERE THE RISK OF LOSS TRANSFERS:
A common misconception when the Seller pays the freight is that the Seller has the risk of loss until the goods
are delivered to the place or port specified on the bill of lading or airway bill. Actually, when using INCOTERMS
CPT, CIP, CFR or CIF, risk transfers to the Buyer when the Seller hands the goods over to the operator at origin,
not when the goods reach the place or port of destination.
Understand that under CIP and CIF, the Seller is only obliged to obtain insuranceon minimum cover.
UNDERSTAND WHO HAS RESPONSIBILITY FOR LOADING AND UNLOADING CHARGES. FOR EXAMPLE:
DAT obliges the Seller to place the goods at the Buyer's disposal after unloading at the named terminal at port or
place of destination.
DAP and DDP oblige the Seller to place the goods at the Buyer's disposal on the delivering operator ready for
unloading at the named place of destination.
CPT, CIP, CFR or CIF on the other hand, require the parties to identify as precisely as possible the point at the
agreed port of destination because the costs up to that point are for the account of the Seller.
Under FCA terms, the seller satisfies his obligation to deliver when he has handed over the goods, cleared for
export, into the charge of the operator named by the buyer at the named place or point. The buyer is
responsible for inland freight, unloading at port of embarkation and loading on ocean operator/airline.

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REVERSE LOGISTICS
RECONDITIONING – when a product is cleaned and repaired to return it to a “like new” state
REFURBISHING – similar to reconditioning, except with more work involved in repairing the product.
REMANUFACTURING – similar to refurbishing, but requiring more extensive work; often requires completely
disassembling the product
RESELL – when a returned product may be sold again as new
RECYCLE – when a product is reduced to its basic elements, which are reused
CASH IS HIDDEN IN RETURNS
Some common objective for reverse logistics initiatives:
• Improved customer satisfaction and loyalty
• Reduced repair / replacement unit costs
• Reduced replacement turnaround times
• Feedback on hardware design and ease of use
• Feedback on OEM quality
• Feedback on end consumer education and first level customer support
• Improve understanding of real reasons for hardware returns
• Reduce overall level of returns
• Standardize returns processes across enterprise where possible/desired
• Utilize common systems across enterprise and automate the returns process to the extent possible/desired
• Handle increased volumes of returns due to new products, programs, business partners
• Enable demand driven supply chain concepts for returned products
• Differentiate company services from the competition

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REVERSE LOGISTICS AND THE SUPPLY CHAIN MATURITY MODEL
Improving the reverse logistics process starts with making selections from the list of objectives a firm wants to
accomplish with its attention to this generally neglected area of supply chain. Our list includes the following
common intentions:
• Improved customer satisfaction and loyalty – don’t lose customers because of a bad experience
• Reduced repair, replacement or re-shipment costs – handle the process in an effective manner
• Gain feedback from the process to eliminate root causes – demonstrate to the customer that the firm
studies its problems and makes them go away
• Improve understanding of the reasons for returns – get to the bottom of why the system did not
function in a fail-safe manner
• Utilize common systems and automate the returns process to the extent possible – Find the way to turn
a problem into an opportunity for better customer satisfaction and a source of revenue
• Differentiate the firm’s services from those of the competition – Use the experience to gain customer
confidence and build new sales
With such a list in hand, the next step is to determine what is currently taking place to meet the objectives
versus what must be done to assure they are fully met. The procedure must follow some basic principles,
including:
• Move credit/flag product receipt point for returned product as close to the customer as possible
• Minimize shipping costs
• Minimize refurbishment/repair costs
• Minimize hand-offs between organizations, facilities, systems, etc. in order to reduce costs and overall
cycle time
The results were impressive:
• Re-designed business processes, new reverse logistics application capability and outsourcing of non-core
functions allowed them to expand and improve level of service to customers, increase sales
revenue stream by adding new customers, and increase overall profit margins
• The new reverse logistics solution enabled the following typical improvements for their business
customers (before versus after):
– Reconcile warranty credit – from 30+ days to 8 days
– Average cost recovered per returned unit – from $0 to $90
– Time to process return – from 45+ days to 10 days
– Average cost of replacement unit – from $150 to $100
– Enhanced diagnostic reporting and status visibility for business partners and end
consumers
In conclusion, reverse logistics should be taken out of the supply chain twilight and brought into the open, so it
can become an area of opportunity, as opposed to being a necessary evil. Companies should select one area of
the business, where they can test the concept and develop a model for using what takes place as a source of
knowledge for better satisfying customers and turning an area of cost into an area of profit.
MATURITY GRID – REVERSE LOGISTICS

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I
Process Optimization
Divisional
II
Internal Excellence
Intra-enterprise
III
Network Formation
Inter-enterprise
IV
Value Delivery
System
External
V
Value Delivery
Network
Total business
system
- Paper
intensive/Informal
returns process
-Reverse logistics
processes. Policies
and procedures vary
across sites/division.
-minimal fault/reason
for return analysis and
metrics/minimal
tracking of hazardous
waste
-no end-of-life returns
process
-Inefficient
unauthorized and
blind returns
processing
-Return authorizations
(RMA) not linked to
original sales order
- Manual warranty
and return credit
processes
- significant post-return
data clean-up
and reconciliation
-Return centers that
enable a single
reverse logistics
process that spans
sites/divisions
-Electronic
transactions simplify
warranty and credit
processes
-Gated process that
separates simple and
Complex returns
-Tracking of metrics
for fault analysis is fed
into product design
process
- Single information
repository for returns
tracking
-Reverse logistics
process is linked to
key
costumer/supplier
processes
- Preventative
diagnostic
capabilities present
at return point to
minimize “no fault
found” returns
- return metrics
linked across key
value chain partners
- Efficient multi-leg
repair, refurbish and
exchange programs
- Increased velocity of
receipt to refund
process
- BPO of select
reverse logistics
operations
- Hazardous are
tracked and disposed
across the value
chain
- web-based tools
and RFID enable
product
identification at
return point
- Distribution of
returned spare-parts
and
refurbished product
through value chain
members
- Returns metrics
used to improve
product design
across the value
chain
- System wide asset
tracking drives
inventories and
returns capacity
- Synchronized
demand planning
across the value
chain limits excess
channel inventories
and returns
- Costumer self-service
for returns,
repair and warranty
inquiry and tracking
-New business
formation of
multi-costumer 4th
party logistics for
recovery,
refurbishment,
and repair
- Returns process
used to drive sales
though new
channels
- Integrated return
centers that
enable advanced
exchange,
recovery and up-sell/
cross-sell
opportunities
across the entire
value chain
reverse logistics can include a multiplicity of actions, from returning goods from a consumer to the retailer or
provider, receiving customer service or having field service take place to repair or fix the item in question, or
having the product sent to a third party for repair or replacement. The fact is that reverse logistics includes
virtually all of these services, and we counsel a broad perspective should be taken to not let this area be a
burden to the business.
Most companies tend to place the involved operations in the hands of a subsidiary part of an existing logistics
function and pay little attention to the effect it can have on the company’s brand, financial performance or
supply chain efficiency. A better view is to take a harder look at this area of the supply chain and find ways to
turn what is typically a nuisance into something of value to the business.
To make sense out of what we’re considering, let’s remember that reverse logistics includes all of the activity
related to the final disposition of products that must be removed from the supply chain system. Such activity
involves the processes related to removing products from a supply chain that do not have value for the

22. Missing Bricks for Value Creation
customer or end consumer. These products may be the result of poor workmanship, over-stocked inventory,
outdated or obsolete design, damages, or general dissatisfaction with product performance. For whatever
reason, someone at the end of the downstream side of the supply chain says “I don’t want it” and the smart
supplier will make it easy to return the goods.
The goal is to make certain the least damage is done to the firm’s brand and reputation, and to handle the
process so it results in a positive rather than a negative impression. A system of disposition management is
required to handle such situations in an effective and rewarding manner, with the understanding that reverse
logistics is far different than forward logistics.
In the return situation, there must be a convenient point of collection for receiving the goods or to remove
these goods from the supply chain. This process step can require inspection, re-packaging, storage, and salvage
of any residual value that might exist; and the development of a transportation mode that is compatible with
the existing forward system of supply. The range includes credits for unwanted goods that are returned to
inventory, payment for damage that may or may not be a fault of the supplier, replacement of obsolete product,
and simply accepting the return of goods that have no apparent problem. Much of the goods in the last
category are re-conditioned or re-packaged to go back into the system or to an alternate buyer. There are many
examples of firms using this type of system to turn what used to be an out-of-pocket loss into a profit by re-selling
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the returned goods to a satisfied customer.
Reverse Logistics Model – Small Logistics Partner
In the model depicted above, the partner receives the returned goods and makes a test to determine if the need
is for disposal, there is a major defect and the unit must be repaired, or there is a cosmetic defect and the unit
can be refurbished. In either of the latter cases, the unit is repaired and placed in stock for subsequent used
stock order fulfillment.
In a broader situation, as shown in exhibit 3, the process becomes more involved. Now we see the unit is
returned based on the “return from” location and goes to a designated center. The same type of processing
takes place, but may also include factory direct repair if authorized by the OEM. This model is more appropriate
where large volumes of product are to be processed.