Wabona Group

1. REVERSE LOGISTICS: IMPORTANT
OR IRRITANT?
Estimated $100 billion industry in 2006

2. “In an ideal world,
reverse logistics would not exist.”
Jim Whalen, “In Through the Out Door,”
Warehousing Management, March 2001

3. Reverse Logistics - What is it?
The Army’s Definition
The return of serviceable supplies that are
surplus to the needs of the unit or are
unserviceable and in need of rebuild or
remanufacturing to return the item to a
serviceable status

4. Reverse Logistics - What is it?
The Commercial Perspective
 Reverse Logistics is the process of moving
products from their typical final destination to
another point, for the purpose of capturing value
otherwise unavailable, or for the proper disposal
of the products.

5. Typical Reverse Logistics Activities
 Processing returned merchandise - damaged,
seasonal, restock, salvage, recall, or excess
inventory
 Recycling packaging materials/containers
 Reconditioning, refurbishing, remanufacturing
 Disposition of obsolete stuff
 Hazmat recovery

6. Why Reverse Logistics?
 Competitive advantage
 Customer service
- Very Important: 57%
- Important: 18%
- Somewhat/unimportant:23%
 Bottom line profits

7. Reverse Logistics - New Problem?
 Sherman
 Montgomery Ward’s - 1894
 Recycling/remanufacturing in 1940s
 World War II - 77,000,000 square feet of storage
across Europe with over $6.3 billion in excess
stuff
 Salvage and reuse of clothing and shoes in the
Pacific Theater World War II

8. Key Dates in Reverse Logistics
 World War II – the advent of refurbished
automobile parts due to shortages
 1984 - Tylenol Scare - Johnson and Johnson
 1991 - German ordinance that put teeth in
environmental reverse pipeline
 Summer 1996 – UK Packaging and Packaging
Waste Legislation
 1998 - first real study of reverse logistics in the
US - University of Nevada, Reno
 2001 – EU goal of 50-65% recovering or
recycling of packaging waste

9. REVERSE LOGISTICS
A US Army Perspective

10. Operation Iraqi Freedom
The US Army moved the equivalent of 150 Wal-
Mart Supercenters to Kuwait in a matter of a few
months

11. Military Operations and Excess
“In battle, troops get temperamental and ask
for things which they really do not need.
However, where humanly possible, their
requests, no matter how unreasonable, should
be answered.” George S. Patton, Jr.

12. Jane’s Defence Weekly
“Recent report (Aug 2003):
There is a 40 hectare (~100 acres)
area in Kuwait with items waiting
to be retrograded back to the US.”

13. Does this create a problem?
From GAO Audit Report

14. From GAO Audit Report

15. REVERSE LOGISTICS
The Commercial Perspective

16. Reverse Logistics
 Rate of returns?
 Cost to process a return?
 Time to get the item back on the shelf if
resaleable?

17. Costs - above the cost of the item
 Merchandise credits to the customers.
 The transportation costs of moving the items from the
retail stores to the central returns distribution center.
 The repackaging of the serviceable items for resale.
 The cost of warehousing the items awaiting
disposition.
 The cost of disposing of items that are unserviceable,
damaged, or obsolete.

18. Costs
 Process inbound shipment at a major
distribution center = 1.1 days
 Process inbound return shipment = 8.5
days
 Cost of lost sales
 Wal-Mart: Christmas 2003 - returns = 4
Days of Supply for all of Wal-Mart =
2000 Containers
 PalmOne - 25% return rate on PDAs

19. More Costs
 Hoover - $40 Million per year
 Cost of processing $85 per item
 Unnamed Distribution Company - $700K items on
reverse auction
 2001 - over $60 billion in returns; $52 billion
excess to systems; $40 billion to process

20. Is it a problem?
 Estimate of 2004 holiday returns: $13.2 billion
 % of estimated 2004/2005 holiday returns: 25%
 Wal-Mart: $6 Billion in annual returns = 17,000 truck
loads (>46 trucks a day)
 Electronics: $10 Billion annually in returns
 Personal Computers: $1.5 Billion annually =
approximately $95 per PC sold
 79% of returned PCs have no defects
 Home Depot ~ $10 million in returns in the stores alone
 Local Wal-Mart ~ $1 million a month in returns

21. Is it a Problem?
 European influence – spread to US - Green Laws
 Estee Lauder - $60 million a year into land fills
 FORTUNE 500 Company - $200 million over their $300
million budget for returns
 Same Provider - 40,000 products returned per month;
55% no faults noted
 K-Mart - $980 million in returns 1999
 Warranty vice paid repairs

22. More consequences
 Increased Customer Wait Times
 Loss of Confidence in the Supply System
 Multiple orders for the same items
 Excess supplies in the forward pipeline
 Increase in “stuff” in the reverse pipeline
 Constipated supply chain

23. Impact?
 Every re-saleable item that is in the reverse
supply chain results in a potential stock out or
“zero balance” at the next level of supply.
 Creates a “stockout” do-loop

24. Results?
 This potential for a stock out results in additional
parts on the shelves at each location to prevent a
stock out from occurring.
 More stocks = “larger logistics footprint” = the
need for larger distribution centers and returns
centers.

25. Reverse Logistics
 According to the Reverse Logistics Executive Council, the
percent increase in costs for processing a return, as
compared to a forward sale, is an astounding 200-300%.
 “In the U.S. alone, the cost is an annual $100 billion.”
Forbes, March 2005
 Typically, as many as 8-12 more steps per item in the
reverse pipeline than items in the forward pipeline

26. “The truth is, for one reason or another,
materials do come back and it is up to
those involved in the warehouse to
effectively recover as much of the cost for
these items as possible.”
- Whalen, “In Through the Out Door”

27. RFID and Returns
 Visibility Tracking
 Component tracking
 Data Warehouse on what, why, when
 Altered products
 Not for every product

28. Impacts of Reverse Logistics
 Forecasting
 Carrying costs
 Processing costs
 Warehousing
 Distribution
 Transportation
 Personnel
 Marketing

29. CHAPTER 4
Quality
Management
Quality is a measure of goodness that is
inherent to a product or service.
Bottom line: perspective has to be from the
Customer – fitness for use

30. Out of the Crisis
 “Failure of management to plan for the future
and to foresee problems has brought about
waste of manpower, of materials, and of
machine-time, all of which raise the
manufacturer’s cost and price that the
purchaser must pay.

31. More Deming
 The consumer is not always willing to subsidize
this waste. The inevitable result is loss of market.
Loss of market begets unemployment.
Performance of management should be
measured by potential to stay in business, to
protect investment, to ensure future dividends
and jobs through improvement of product and
service for the future, not by the quarterly
dividend….

32. Deming’s solution
 The basic cause of sickness in American industry
and resulting unemployment is failure to top
management to manage. He that sells not can
buy not.”
 The job of management is inseparable from the
welfare of the company.

33. What Is Quality?
 “The degree of excellence of a thing”
(Webster’s Dictionary)
 “The totality of features and characteristics
that satisfy needs” (ASQ)
 Fitness for use
 Quality of design

34. Quality
 Quality Management – not owned by any
functional area – cross functional
 Measure of goodness that is inherent to a product
or service

35. FedEx and Quality
 Digitally Assisted Dispatch System –
communicate with 30K couriers
 1-10-100 rule
 1 – if caught and fixed as soon as it
occurs, it costs a certain amount of time and
money to fix
 10 – if caught later in different department
or location = as much as 10X cost
 100 – if
mistake is caught by the customer = as much as
100X to fix

36. Product Quality Dimensions
 Product Based – found in the product attributes
 User Based – if customer satisfied
 Manufacturing Based – conform to specs
 Value Based – perceived as providing good value
for the price

37. Dimensions of Quality (Garvin)
1. Performance
 Basic operating characteristics
2. Features
 “Extra” items added to basic features
3. Reliability
 Probability product will operate over time

38. Dimensions of Quality (Garvin)
4. Conformance
 Meeting pre-established standards
5. Durability
 Life span before replacement
6. Serviceability
 Ease of getting repairs, speed & competence of repairs

39. Dimensions of Quality (Garvin)
7. Aesthetics
 Look, feel, sound, smell or taste
8. Safety
 Freedom from injury or harm
9. Other perceptions
 Subjective perceptions based on brand name, advertising, etc

40. Service Quality
1. Time & Timeliness
 Customer waiting time, completed on time
2. Completeness
 Customer gets all they asked for
3. Courtesy
 Treatment by employees

41. Service Quality
4. Consistency
 Same level of service for all customers
5. Accessibility & Convenience
 Ease of obtaining service
6. Accuracy
 Performed right every time
7. Responsiveness
 Reactions to unusual situations

42. Quality of Conformance
 Ensuring product or service
produced according to design
 Depends on
 Design of production process
 Performance of machinery
 Materials
 Training

43. Deming’s 14 Points
1. Create constancy of purpose
2. Adopt philosophy of prevention
3. Cease mass inspection
4. Select a few suppliers based on
quality
5. Constantly improve system and
workers
6. Institute worker training

44. Deming’s 14 Points
7. Instill leadership among supervisors
8. Eliminate fear among employees
9. Eliminate barriers between
departments
10. Eliminate slogans
11. Remove numerical quotas

45. Deming’s 14 Points
12. Enhance worker pride
13. Institute vigorous training and
education programs
14. Develop a commitment from top
management to implement these 13
points

46. The Deming Wheel
(or PDCA Cycle)
4. Act 1. Plan
Institutionalize Identify the
improvement; problem and
continue the cycle. develop the plan
for improvement.
3. Study/Check 2. Do
Assess the plan; is it Implement the
working? plan on a test basis.
Also known as the Shewart Cycle

47. Six Sigma
 Quality management program that measures and
improves the operational performance of a
company by identifying and correcting defects in
the company’s processes and products

48. Six Sigma
Started By Motorola
 Define
 Measure
Made Famous by
 Analyze General Electric
40% of GE executives’
 Improve bonuses tied to 6 sigma
implementation
 Control

49. Malcolm Baldrige National Quality
Award
 Category 3 – determine requirements,
expectations, preferences of customers and
markets
 Category 4 – what is important to the customer
and the company; how does company improve

50. Cost of Quality
Cost of achieving good quality
Prevention
 Planning, Product design, Process, Training, Information
Appraisal
 Inspection and testing,
Test equipment,
Operator

51. Cost of Quality
Cost of poor quality
Internal failure costs
 Scrap, Rework, Process failure, Process downtime, Price-
downgrading
External failure costs
 Customer complaints,
Product return,
Warranty, Product
liability, Lost sales

52. Employees and Quality
Improvement
 Employee involvement
 Quality circles
 Process improvement teams
 Employee suggestions

53. Cause-and-Effect Diagram
Measurement Human Machines
Faulty
testing equipment Poor supervision Out of adjustment
Incorrect specifications Lack of concentration Tooling problems
Improper methods Inadequate training Old / worn
Quality
Inaccurate Problem
temperature
control Defective from vendor Poor process design
Ineffective quality
Not to specifications management
Dust and Dirt Material- Deficiencies
handling problems in product design
Environment Materials Process
Also known as Ishikawa Diagram or Fish Bone

54. Hot House Quality
Lots of Hoopla and no follow
through

55. ISO 9000:2000
 Customer focus
 Leadership
 Involvement of the people
 Process approach
 Systems approach to management
 Continual process improvement – GAO
 Factual approach to decision making
 Mutually beneficial supplier relationships

56. Implications Of ISO 9000
 Truly international in scope
 Certification required by many foreign firms
 U.S. firms export more than
$150 billion annually to Europe
 Adopted by U.S. Navy,
DuPont, 3M, AT&T, and others

57. ISO Accreditation
 European registration
 3rd party registrar assesses quality program
 European Conformity (CE) mark authorized
 United States 3rd party registrars
 American National Standards Institute (ANSI)
 American Society for Quality (ASQ)
 Registrar Accreditation Board (RAB)

58. Wabona Logistics
Contact Details
Chris Magagula - Group Chairman
Wabona Offices
Head Office
Johannesburg Branch:
Durban Office:
44-48 Fountain Road2nd Floor Adoni's Centre,
Suite 811 Salmon Grove Chambers
Fordsburg, Johannesburg, 2092, Business Development Executives
407 Anton Lembede Street Durban 4001 South Africa
P.O. Box 1901 Durban, 4000 South Africa South Africa Carl Lupke
Tel/Fax: +27(31) 301 9489
Email: jhb@wabonagroup.com
Operations Cell : +27(82) 464 8139
Chris (Group Chairman) Cape Town Branch: Email: carl@wabonagroup.com
chris@wabonalogistics.co.za Business Unit 28B Dashen
chris@wabonagroup.com Foreshore, Lowershore, Tel: +27(31) 301 9489
ops@wabonalogistics.co.za Cape Town, 8001, Cell No: +27(71) 873 3878
Tel: +27(31) 301 9489 Email: dashen@wabonagroup.com
Fax : +27(86)512 8520
South Africa
Cell: +27(72) 578 7638 Email: cape@wabonagroup.com
Port Elizabeth Branch: Benoni Branch:
27 Goedehoop Street Suite 21c, 2nd Floor
Windsor Port Elizabeth, 6200, 71 Woburn Avenue,
South Africa Benoni, 1500,
Email: pe@wabonagroup.com South Africa
Email: jhb@wabonagroup.com