Developing Reverse Logistics - What 3PLs Must Know
While outsourcing supply chain management continues to grow, competition between third party logistics providers (3PLs) is increasing as well. Many who have outsourced for years are now seeing the power of competition and use two 3PLs where they use to use one for their entire networks. Executives tasked with responsibility for managing 3PL relationships are getting smarter and negotiating tougher terms.
3PLs find themselves in the unenviable position of having to bid on business they have had for years, knowing that their best case scenario is to retain the business at a lower margin. Many retailers and manufacturers require an RFP process that often doesn’t recognize any value for past performance or loyalty on the part of the incumbent. With the proliferation of systems across the spectrum of supply chain functions, more and more providers find their services and delivered value commoditized. Most 3PL executives see requirements getting tighter, competition getting tougher, and margins getting squeezed.
Today, every 3PL is looking for ways to increase margins and increase the cost of change for their customers. They want to figure out ways for their customers to be as loyal to them as they are to their customers. One way is to develop additional services and many consider developing reverse logistics capability.
If you are a 3PL executive who is considering this, there are a few things you need to keep in mind. First, the priorities in returns are completely different than normal forward logistics. Timing is not as critical but having the ability to profile each individual SKU as it comes in is much more critical. Every item can be handled one of six ways and you must know how to determine the disposition and what characteristics drive that disposition.
Returns processing could require a basic understanding of repair techniques, parts management, liquidation, and recycling. The degree of each required depends on your customer and the category of product you will handle.
Finally, your WMS system will not work in reverse. Your WMS provider may tell you it can but you will need Reverse Logistic Software to help manage the product flow and disposition.
It is possible to put together a virtual reverse logistics solution for your customers but your customers will expect a certain amount of expertise. Time has shown that companies that simply offer to be the 4PL manager without any real value additive services are quickly by passed by the “real” service providers.
Does the development of reverse logistics capabilities make financial sense for most 3PL’s? It depends on the 3PL. For the most part, fees in the reverse world can be twenty to forty percent hire than traditional distribution and transportation. It really comes down to the needs of your customer base, internal capacity to take on developing new services and your appetite for investing in a development process that may not see any real profits for eighteen to twenty-four months.
Written by Curtis Greve (Metreks)