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How to Setup Your 3PL Operations to Provide Reverse Logistics Services – Part 2

How to Setup Your 3PL Operations to Provide Reverse Logistics Services – Part 2

by Paul Rupnow, Director, Reverse Logistics Systems, Andlor Logistics System, Reverse Logistics Association

Reverse Logistics Magazine, Edition 70

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In Part 1 of this article for 3PL Warehouse operation, we started by Understanding Your Reverse Logistics Customer’s Needs and Goals. We focused on understanding your 3PL client’s needs to effectively handle returns from their customers/retailers AND to help them recover the highest possible value for their returned goods. In this Part 2 article we will expand on the processing, triage, dispositioning, reporting, data exchange, software technology and warehouse setup and layout to operate a Reverse Logistics and returns processing operation at a 3PL Third Party warehouse

The heart of Reverse Logistics processing is receiving. Successful Reverse Logistics requires more than just basic receiving, it requires Smart Receiving. This involves a pre-arranged and item specific workflow of receiving, assessing, sorting, put away and possibly some refurbishing. Two of the main goals of these activities, especially for 3PL clients with mid to high volume consumer goods, is to reduce cost (touches) and to speed turn-around time. Faster turn-around time and refurbishment means faster conversion of the returned inventory to cash. For a 3PL, this organized Smart Receiving workflow translates into excellent value added services for your clients.

Reverse Logistics Processing Activities – Receive, ASSESS, Sort, Put Away, Refurbish
The main activities in Returns processing are typically consist of activities such as: identify, receive, validate, visual assessment, sort, put away and sometimes unbox/de-trash, disassemble, test. At a 3PL returns processing facility any detailed technical repair work is usually arranged and outsourced to a specialized partner provided or coordinated by your client.

RECEIVE and ASSESS– As stated earlier, the heart of Reverse Logistics processing is receiving. In forward logistics, this process is 2 steps: receive, put away. Some Reverse Logistics can be easy like that too but often Reverse Logistics receiving involves more, typically: receive, ASSESS, put away. The added assessment step is needed because the main goal when processing returns is usually to recover value. But since we do not know if these goods are in perfect condition, we must assess or inspect them. In addition to the assessment step, you may wish to combine other processing activities or data gathering steps to avoid touching or handling the product again later. We want to use the assessment knowledge and data gathered to determine best next steps for a workflow that will recover the highest value for that item.

Data gathered at the time of the Receive steps is also passed to your client and utilized for the issuance of a Credit, exchange or repair, so care is required to ensure the item and condition are acceptable, that the returns is valid for RMA credit or warranty replacement, or if a credit discount needs to be applied or the receipt credit rejected.

SORT and PUT AWAY – based on the data gathered in the Receive and Assess steps, the next step is to direct the item to the best next activity based on the condition and the data known or gathered. From the data gathered and planned workflow for the item you determine a Disposition – this is the put away location, but is also often the first step in a stream or workflow that is the best place to store the unit on the route to recapture the highest value. This location/step maybe work in process (WIP) step or it may be a “finished goods” location since no further activities are required or possible for these items to achieve a higher value. These “finished goods” locations/steps may be referred to as: “as is”, Beyond Economic Repair (BER) or they may be scrap.

REFURBISH – sometimes the workflow will also include activities to convert the item to a better state - minor changes to increase value – such as: repackage, test, clean. Many of these activities can be easily provided by the 3PL as value added services and often these small activities can mean significant gains in recapture or re-sell value of the products.

Warehouse Layout
It is helpful to have a separate Receiving dock or area for inbound Reverse Logistics goods. It is also helpful to keep the unprocessed and partly processed returns separate from your regular WMS finished goods. There are two layout considerations when setting up for processing returns. Physical layout to keep items separated on the warehouse floor and logical to keep a separate virtual warehouse in your systems for Revere Logistics processing. Once the units have been processed through Receive, Assess, Sort and Put Away, then the “finished goods” can be moved to your traditional WMS warehouse since the WMS is best suited for Finished Goods processing.

Reverse Logistics Software Systems
It is very helpful to utilize software to help you effectively and efficiently process returns to fill the gaps that most WMS systems do not handle effectively. Some key areas of consideration are:

SMART RECEIVE – utilizing software to help you Receive, Assess, sort, put away and refurbish help you manage your processing, labor and activities. Software with the ability to create item special workflows, and to track and monitor those activities can be extremely helpful. You want to “Smart Receive” – to enhance your ability and direct your users to quickly and accurately follow a special pre-determined workflow for each item to receive, assess, sort, put away and refurbish activities based on the different conditions you will be receiving the items. The software should allow a business user to easy and quickly monitor and change the workflows, rules or activity setup to minimize Warehouse user decisions. For mid to high volume environments you will want easy software that utilized handheld devices and is easy for the warehouse staff to learn and use.

Visibility - Real time visibility and reports of the location of each item and also the stage of production of each item in the warehouse as well as the warehouse age of the inventory. A history of the activities performed on each unit is also essential to monitor and manage optimal workflow, productivity and production time and cost.

Reporting – in addition to the real time visibility, reports that follow a unit through entire process, receipts, activity, dispositions help keep your team and your clients up to date with your processing balances and activity.

Data Exchange – As with your WMS, you need the ability to share and exchange incoming and outgoing data with other systems such as your WMS, your client’s ERP and CRM in multiple formats such as EDI, flat files, XML or web services.

Reverse Logistics Services – a 3PL value added Opportunity
Part 1 and 2 of this article should give you a deeper understand of the set up required for a 3PL to offer Reverse Logistics services for their clients. Many 3PLs have avoided processing returns in the past, but these articles should have provided you with a better understanding of what it takes to set up your 3PL warehouse for this new value added opportunity.
Paul Rupnow - Director, Reverse Logistics Systems, Andlor Logistics Systems Inc.
Editor - Reverse Logistics Professional Report Business Insights and Strategies for Managing Product Returns
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