Waste Not, Want Not (Part III)

Gary Cullen, chief operating officer of 4PRL LLC, a growing trend of being “cheaper and nearer” seems to fit well within the cost sensitive and “eco conscious” reverse logistics chain of events. 4PRL LLC is the reverse logistics arm of The Georgetowne Group – a supply chain management consultancy.

Cullen says 3PSPs are typically targeted to be near-shore to the originator of equipment being returned, reused or recycled, and that this new model has many additional benefits.

“A closer country allows for use of cheaper modes of transportation as well as less overall time and movement,” he said. “The goal for near-sourced reverse logistics operations is to reduce movement and handling, and being able to find service providers in the country with the lowest wage and processing costs. Combine this with the improving of your environmental image and you have a ‘win-win’ for your clients, consumers and shareholders.

Cullen argues that in a near-shore model language barriers are usually a “non-issue” and cross border relationships are typically improved between countries. And he agrees with industry analysts who say risk mitigation is a compelling reason for adopting a “near-sourcing” model.

“Neighboring countries have a good feel for what’s happening around them politically, legally, economically, financially and socially,” he says. “By understanding these factors before conducting business, one can limit organizational exposure and build a stronger cross-border business-to-business relationship.”

Furthermore, says Cullen, third party service providers can protect shippers from “volume unpredictability” and an idle and unproductive labor force.

“These near-shore service providers receive their workload from several clients and the total volume received is typically what dictates the amount of labor and facility space required,” he says. “This seems to be a best-cost solution for managing and moving low-revenue and no- revenue used, surplus, and obsolete goods.”

Cullen tells shippers there are two reasons for signing a contract with a 3PL when outsourcing reverse logistics. The first reason is so there are clear terms and conditions for running the operation and billing. The second reason is to have a framework to dismantle the operations if it fails.

Finally, if all else fails, no when to call it quits, says Curtis Greve, Principal at Greve Davis, a reverse logistics consultancy.

“Many companies that outsource don’t seem to think about the details and what they are going to do if they have to fire the service provider,” he says. “Make no mistake, terminating a contact with or without cause can cost millions.”

Davis advises shippers to think about what happens to the inventory, the capital equipment, the building, ongoing worker comp issues, shut down and closing costs and what they are going to do after the 3PL is gone.

“Once they have decided to end the relationship, they could save a lot of money if the contract addresses the shut down process correctly. There are many valid reasons to outsource reverse logistics to a 3PL,” he says. “The key is to have a good contract that will protect everyone’s interest, achieve the original goals that drove the decision to outsource, and ensure a win/win relationships between the parties.”

Closing the Global Supply Chain Loop: Part I

Closing the Global Supply Chain Loop: Part II

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