Reverse Logistics

Friday, January 20, 2006

Microsoft in the ERP space?

A few years ago, Microsoft went on a $2 billion acquisition binge of companies that supply business management software to small and mid-size organizations; Axapta, Great Plains, Navision, and Solomon. These applications were then managed, within Microsoft, by the Business Solutions Group. In 2005, it became increasingly public that Microsoft were going to integrate these products into one product offering. 'Project Green' was the working title for this massive technical and marketing integration project.

The ambitious objective of Project Green is to architect a tightly integrated software stack from OS, through database, application and Office.

In September 2005, Microsoft rebranded the Business Solutions Group as Microsoft Dynamics ( The four assimilated business management packages are now called Microsoft Dynamics AX, Microsoft Dynamics GP, Microsoft Dynamics NAV, and Microsoft Dynamics SL. The Dynamics lineup also includes Microsoft's CRM offering, now rebranded as Microsoft Dynamics CRM.

Coupled with Microsoft's strength in database (SQL2005) and business integration (BizTalk) software, the Dynamics rebranding looks like Microsoft are positioning themselves as a serious player in the Financial/ERP/SCM software supplier market. It will however be 2008 before the real fruits of Project Green start to appear. Microsoft have committed to supporting existing products until 2013.

Microsoft's initial focus will be on small to mid-size companies. In this space they will compete with companies like Intuit and Sage/Best. However existing players in the ERP space such as SAP and Oracle are also starting to focus on smaller size customers, so competition in this sector will really heat up.

Saturday, January 14, 2006

They got it wrong!

The term 'reverse logistics' has been voted one of the most unnecessary phrases for 2005, by the American Dialect Association. (

Turn Around Time (TAT)

Turn Around Time (TAT) is probably the most important KPI in any Reverse Logistics operation involving a customer service aspect. In an earlier blog, I defined TAT as 'The time from customer service request to problem resolution'.

However there are lots of interpretations possible within this definition depending on your point of view. I know of one company in Consumer Electronics that tracks five different flavors of TAT. Here are some possible interpretations.

1) TAT from the perspective of a consumer returning goods at a store.
The consumer may get almost instantaneous problem resolution by the issuing of a credit note or exchange item, if the return is made to a store. Online and mailorder returns may require a longer TAT because of the transportation times involved. If the return is deemed repairable then the client may be waiting a significant time while the product is processed at a service facility and reunited with its owner.

2) TAT from the perspective of a retailer/dealer.
Once a return is at a retailer/dealer's premises the problem moves back the supply chain and a fresh TAT relating to the next leg of the chain needs to be calculated.

3) TAT from a 3PSP's perspective.
A Third Party Service Provider's (3PSP) definition of TAT will be limited to the time the returned product is under their control. For example, a repair company is likely to measure TAT from the point of arrival of the defective item to its shipment if it deems that other aspects of the process are outside its' control. A freight company may similarly measure the pickup to delivery time delta.

4) TAT may sometimes also be measured from point of customer complaint to disposition (scrap, recycle or resale) of of the returned item. Here the objective is to shorted the overall supply chain pipeline.

A point about the measurement units of TAT:
TAT is obviously measured in time units. Depending on the specifics of the industry sector the measurement unit could be in seconds, hours, days, weeks or months. According to Jose Garcia of Microsoft, who has responsibility for XBOX repair in North America, the appropriate measurement unit for XBOX service is 'weekends'. Microsoft, in analyzing complaints and commendations from customers after receiving service, noticed that customers whose XBOX was missing for no more than one weekend considered Microsoft service good regardless of the number of days it was away for repair.
Microsoft adjusted their logistics processes accordingly. Units requiring a two day shipment are usually dispatched on a Wednesday while units requiring a single days shipment are dispatched on a Thursday. Microsoft will expedite units that are in danger of exceeding the magic one weekend TAT and will pay extra for freight if necessary to achieve the magic goal. A one weekend TAT can of course be measured as varying from seven to twelve days so measuring TAT for Microsoft in days might not yield the insight they need.

Saturday, January 07, 2006

Reverse Logistics KPIs

What are the Key Performance Indicators (KPIs) in Reverse Logistics? All KPIs in Reverse and Service Logistics fall into two categories.

1) Those that reflect customer service levels

2) Those that reflect cost

KPIs that reflect customer service levels:
Turn Around Time (TAT)
The time from customer service request to problem resolution.
Call-centre Resolution Rate (CRR)
The percentage of trouble-tickets dealt with by the call centre that do not result in RMA issue.
Boomerang Return Return Rate (BRR)
The percentage of product already returned that is returned a second time. This KPI is important where returned products are repaired as it measures the quality of the repair process.

KPIs that reflect cost:
Net Asset Recovery (NAR)
The percentage of the value of returned products that is recovered through the reverse logistics process.
Return Rate (RR)
The percentage of product sold that is returned.
Scrap Rate (SR)
The percentage of product returned that is scrapped or recycled as distinct from resold.

I will update this particular blog with further KPIs and their definitions in the future. Please leave a comment if you feel a particular KPI should be added to the list.

Sunday, January 01, 2006

What is Reverse Logistics?

An ideal question to address, on the first day of a new year, in a Reverse Logistics blog is: What is Reverse Logistics? The following post contains all the aspects of RL that I could think of. Please let me know if I forgot something or if you agree or disagree with what I say.

Reverse Logistics is defined by the Reverse Logistics Executive Council ( as:
‘The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal’.

Reasons for Return (RfR) are manifold and include shipping damage, faulty goods, product recall, buyers’ remorse and excess stock adjustments.

Frequently, reverse logistics involves the processing of goods using disposition rules designed to maximise the Net Asset Recovery (NAR) from the disposal of goods being processed. Possible dispositions include; resale as new, resale as ‘B’ stock, use as exchange, recycling and disposal. The management and handling of hazardous materials may be a factor in recycling and disposal. The term ‘reverse logistics’ is also used to cover the process or returning reusable containers for reuse and of transporting packaging to recycling facilities.

In some cases a customer may receive credit or an exchange item without the need to return the original item where the return freight costs exceed the recoverable value of the item after return.

Repair, remanufacturing, and refurbishment are sometimes stages in the reverse supply chain. These stages add value to the returned product to maximise NAR or to satisfy a customer need for an exchange item or to enable the re-return of the actual item to its owner after service. Customer chargeable services for both in and out of warranty items can also be considered as part of reverse logistics.

There are some aspects of forward logistics that are closely related to reverse logistics.
a) Spare Parts distribution is required to support repair, remanufacturing, and refurbishment.
b) The design of products and packaging to facilitate reliability, recycling and disposal can reduce after sale costs.
c) Reverse Logistics can be a source of valuable failure analysis and market intelligence data to assist product design and manufacture.
d) Warranty registration data collected in the forward supply chain may be used to control warranty costs in the reverse supply chain.

Reverse Logistics involves the return by a customer (or in some cases the customer of a customer) of product to a supplier. The customer making the return can be a business or an end consumer. As well as the operational issues outlined above, two factors important to the relationship with the customer making the return must be dealt with as part of the reverse supply chain.
1) In many cases the customer is returning goods that are defective, or are perceived by the customer as defective. Therefore, the return can often be viewed as a customer complaint. The processes and procedures in place at the customer boundary are therefore important in determining customer satisfaction.
2) The customer has to get credit, their product repaired, or an exchange product to close the issue. Turn Around Time (TAT) is defined as the time it takes to close a returns issue.

NAR is probably the principle financial KPI, and TAT is probably the principal customer service KPI, in a Reverse Logistics Supply Chain.

The Reverse Logistics Association offers a financial perspective on the topic.
"In other words, anytime money is taken from a company's Warranty Reserve or Service Logistics budget, that is a Reverse Logistics operation" - Gailen Vick, President RLA