“Sustainability Transformation” Was Key Issue Addressed by Reverse Logistics Association

Finally, it appears that online retailers are coming to terms with the high return volume that comes with online shopping, while reducing the cost associated with those returns remains a top priority.

Zachary S. Rogers Ph.D., Assistant Professor of Supply Chain Management at Colorado State University was among the speakers at the recently-concluded Reverse Logistics Association (RLA) conference in Las Vegas where shippers heard from a variety of industry experts on how to monetize returned products through resale, recycling or disposal by managing inspections, refurbishment, repackaging, warranty processing and refunds.

He points to the proliferation of second-hand stores like Nordstrom Rack as “poster children” of the reverse logistics revolution.

“While there's a lot to talk about Toys R' Us going out business, there's a huge wave of new stores coming on line to fill that void,” he says.

Along with his father – Dr. Dale S. Rogers, ON Semiconductor professor of business at Arizona State University – he has produced an annual study on current trends in the reverse logistics sector.

“Drive through the western states or through the south in this country, and you see acres upon acres of stores like Marhall's and Goodwill. Even Salvation Army is getting into this business,” says Dale Rogers. “It's truly a movement driven by the ‘sustainability' values now widely held by many consumers.”

Harmonic convergence

XPO was among the key sponsors of RLA, and defined how
leading third-party logistics providers (3PLs) continue to move into reverse logistics in a big way, as they attempt to keep stride with e-commerce incursion in the nation's warehouse arena.

Erik Caldwell, XPO Logistics' chief operating officer of supply chain in the Americas and Asia, notes that while in-store shoppers return about 8% of purchased goods, online shoppers send back nearly 30%.

A recent consumer e-commerce behavior survey taken by XPO and conducted by independent research firm Goodmind also found that 86% of U.S. consumers believe an e-tailer's return policy is among the most important considerations when deciding where to shop.

“The survey confirmed what we had suspected all along,” says Caldwell. “By using predictive analytics to forecast future returns and control costs, we can also protect brand integrity.”

Given that Caldwell has more than 15 years of leadership experience with supply chain operations in the consumer and industrial sectors, he maintains that he understands the shipper perspective. He joined XPO from Hudson’s Bay Company, where he served as senior vice president, supply chain and digital operations. Earlier, he was senior vice president, global Rx operations for multinational manufacturer Luxottica.

“Having a shipper background helps us gain a better grasp of current needs and expectations,” Caldwell says. “This is especially important as we expect consumers to make online purchases of furniture, appliances or other big and bulky products in the next 12 months.”

Finishing first

Other prominent academics have echoed this sentiment, calling for more productive relationships between shippers and third-parties.

“E-commerce companies and omni-channel retailers are increasingly outsourcing reverse logistics as a way to build brand loyalty,” says Kate Vitasek, a graduate and executive education faculty member at the University of Tennessee, and author of several books on collaborative relationships.

In her RLA keynote presentation, Vitasek outlined why shippers should be “vested” with third parties to manage a seamless consumer experience, forecast future returns, and control costs. “While we have seen shippers collaborate more closely in areas such as real estate and facilities management in the past, we're now seeing more collaboration take place in the supply chain with 3PLs,” she says. “This is a natural progression, and one which should gain more traction as shippers realize that they must outsource beyond their core competencies to stay competitive in the reverse logistics marketplace.”

In a recent case study, Vitasek explained how one huge U.S. multinational fine-tuned their reverse logistics operations by becoming “vested” with leading 3PLs. FedEx Supply Chain and its relationship with Dell is one compelling example of how these relationships come together. “As customary in the fast-paced high-tech industry, Dell operated under a procurement strategy of ‘every dollar, every year,' meaning that it used frequent competitive bidding processes to drive down prices. By 2011, the honeymoon was over in the relationship,” she says.

At that time, Dell was driving for lowest cost, but FedEx Supply Chain believed Dell's short-term thinking was putting capabilities at risk. A major tension point was that Dell wanted FedEx Supply Chain to drive proactive innovations and assume the cost of investments. FedEx resisted because it had no guarantee of return on investment within the existing contract structure and constantly faced hard-driving cost reductions.

“It was clear that neither party was content with the current contract,” says Vitasek. “The existing contract structure and relationship dynamics placed a wedge in the trust level between the two companies, and they realized a better way was needed.”

After many internal discussions, and later talks with FedEx Supply Chain, the parties decided that the relationship was a good testing ground to try for a “Vested” methodology, recalls Vitasek. “The “Vested” model is one created to attain “win-win” outcomes for both parties based on agreed upon goals and objectives.

Dell and FedEx Supply Chain have since been successfully operating under a vested model since 2012 when their new agreement took effect. Fast forward six years, as the parties went through a “refresh” to update their agreement to address “lessons learned” and changing business environment.

Vitasek allows that many thought vesting would be a fad, or that the results would not be sustainable. But because the vested model is anchored in a flexible contracting framework, it can allow the parties to continually align their interests.

“The relationship has successfully navigated both Dell and FedEx Supply Chain through not only transforming how they work, but navigating the changes needed to drive transformation in their reverse logistics operations,” she says.

Coming full circle

Tony Sciarrotta, executive director of the RLA, says that the compression in the warehouse and industrial real estate sectors reflects the ongoing demands created by e-commerce. “And this trend will only become more intense,” he says. “That's why it is so vital for shippers to collaborate with a variety of third parties in circular economy.”

According to Sciarrotta, a new tsunami has been generated in the reverse logistics space as retailers come up to speed to match the strides already made by manufacturers.

“And it's especially gratifying to see that even Amazon and E-Bay have seized control of their destinies by satisfying consumer demand in the entire cycle,” adds Sciarrotta. “There's no one silver bullet solution for logistics managers today, but that's a good thing, too. It means they have more options than ever.”

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