The Importance of Reverse Logistics for Reusable Packaging and Pallet Management

Industry Panel Offers Reverse Logistics Insights for More Cost-Effective Reusable Packaging and Pallet Management

RPA’s reverse logistics panel session, featuring Tad Anderson (at left), Shawn Stockman, Mike Hachtman and Mike Wasson.

 

Reverse logistics is a critical component to the success of reusable packaging and pallet programs. At PACK EXPO 2017, a panel of industry insiders shared insights on how reverse logistics can be managed to help ensure reusable packaging success.

Panel members included Tad Anderson, Manager Reverse Logistics, CH Robinson, Shawn Stockman, Director of Business Solutions, ReturnCenter.com, Mike Hachtman, President & CEO, reLogistics and the panel moderator, Mike Wasson, Vice President Supply Chain & Operations, Tosca.

“Reverse logistics is like the art behind reusable packaging,” Wasson began.

Barriers to setting up a reverse logistics system

Hachtman emphasized the need to correctly calculate the size of the pool you will require, depending upon the cycle time. ” It is great that you have round-trip transportation from a component manufacturing plant in Mexico to an assembly site in Detroit, but if it takes three months to get your assets back, you need to consider that in your pool size,” he said.

Anderson stressed the importance of making sure all the right decision makers are in alignment with the move to reusable packaging. “That includes transportation, that includes purchasing,” he said. “It includes making sure you have visibility and control of the assets. Knowing where they are, and how you are going to get them back, are two large factors that frankly, sometimes get overlooked.” He also emphasized the importance of having a trusted partner who can walk you through that process.

“The biggest barrier is the lack of a system that is going to give you that visibility and control and to make the information you have actionable,” observed Stockman.

“Three months (cycle time) is not necessarily good nor bad,” Wasson added. “It depends on how you model the business. If you model for a month and it takes three months, that’s really bad. We have some models where we only turn the asset twice per year, so if you turn it in 3 months, that’s fantastic.

“If you don’t understand your customer’s supply chain, and if all of the people who touch the asset aren’t on board, then you have a barrier to reusable packaging and reverse logistics.”

Hachtman emphasized the importance of overall supply chain efficiency versus the best solution for one player or one organizational silo. “There very may well be a player whose cost goes up, whether it is in transportation, logistics, or purchasing. Whoever it is, their cost might go up, so you need to have that champion who is going to say, I get that your cost is going to go up X%, but we are going to save it over here. It is better for the system. It goes back to proving it out in the modeling.”

Hachtman stressed that it is important to understand early that most users of reusable packaging don’t care about the packaging per se, they care about what is in the packaging. It is essential to communicate the benefits of reusables such as product damage reduction and improved cube utilization.

Stockman pointed out the importance of aligning incentives for the users of reusable packaging. “You have to make sure they have an incentive for helping you to be successful,” he said.

“There is a lot of communication that goes into this process,” Stockman added. “Make sure you are not making any assumptions about the way customers are going to handle your product and make sure you talk through with them how it will impact their business.”

Reusables and Disruption

Reverse logistics does not work very well with hurricanes when collection sites or salvage sites are underwater,” Wasson posed to the group.  When bad weather changes priorities, the recovery of reusable assets tends to be a secondary concern.

Storms have caused major disruptions in transportation and capacity issues, noted Anderson of CH Robinson. It is essential to have visibility of products, so they can be rerouted in the case of a plant closure, as well as to understand which other locations have the needed additional capacity.

“We had a number of trucks en route to Texas we had to reroute to other facilities such as Atlanta,” Anderson said. “Having visibility of your assets and understanding the supply chain of where product is can allow you to be nimble when something unforeseen happens.”

Stockman encouraged the audience to think systematically about having alternatives planned in the case of business disruption, such as rerouting reusable packaging to a fallback facility. You should have a fallback location for every location in your loop, he said.

“Make sure there are business rules in place,” Stockman stressed. “Someone needs to know what to do if that (a disruption) happens so you can act on it immediately.”

“It speaks to the need for disaster planning,” Hachtman said. In Houston, reLogistics was prepared for a hurricane but then had to deal with a flood. When retailers prioritize the delivery of relief supplies, the retrieval of empty reusable packaging can get forgotten. “In reusable packaging, you think you have a plan and then bad things happen.  Your float size needs to be sufficient to deal with those contingencies.”

Visibility and Asset Tracking

An asset control program is critical to preventing asset loss. “The biggest key is understanding what you are sending out, what you are sending back, and where the product is at any step in the journey,” Stockman said. “It seems like a no-brainer but you would be surprised how often it gets overlooked.”

Asset tracking approaches vary from aggregate to discrete tracking, including barcode or RFID tracking. Stockman observed that the case for investing in tracking technology depends upon the value of the reusable asset or perhaps the merchandise it is carrying.

Returncenter.com has clients with expensive reusable assets such as wire reels worth $10,000 each and racks to hold glass worth over $300. For such items, he said, it is probably worthwhile to invest in some sort of IoT device. If a tray is worth $4, Stockman said, maybe it is not worth attaching a sensor, “but if the asset is worth $400, okay, maybe that changes the game a little bit.”

“It doesn’t have to be complicated,” Hachtman added. “It is hard to put a $5 tag on a $5 reusable asset. And the truth is, I’m amazed at how many companies go out and spend millions of dollars on reusable assets and then just start shipping them (without managing them.) It can be as simple as asking ‘How many did you ship to Location A – I don’t know. How many did you get back from Location A – I don’t know. So it can be as simple as aggregate tracking. I shipped 25 and I got 25 back the next week. It’s not hard, but if you don’t build that into the system, it doesn’t take very long before they are all gone.”

“It is as simple as counting stuff and recording it, and doing it repetitively,” Hachtman continued. “Even if it is just a $4 item, if you keep on losing it, it doesn’t take long for it to turn into really big money.

“It might not make sense to put a tag on each $5 container, but maybe on a pallet full of $4 trays, so you know where the disappearing point is,” Wasson added. “From there you can create visibility into geographic pockets where things disappear.”

“When the cost gets down to a dime or 25 cents for a sensor, and it only costs a penny a month to track it, then people are going to want to track their $4 assets,” Stockman said. “Every indication is that the supply chain is going in that direction.”

“The way the technology is advancing, real-time tracking is going to become much more cost-effective,” Anderson agreed.

Why It Is So Hard to Build a Business Case for Reusable Packaging Management

One ReturnCenter.com customer thought it had 100,000 reusable racks. After barcoding them and going through an 18 month implementation period, they were surprised to discover that only 30,000 units were found. “How much every year are you spending on buying reusable packaging versus implementing some kind of track and trace device?” Stockman asked. “And at what point does the business case make sense?”

“The problem is that when you talk to companies, and we talk to a lot of them, probably only 20% of them can quantify what it costs them to replace lost assets,” Stockman said. “They buy new ones every year. But they don’t know whether they are growing the number or just replacing lost assets. That is a real challenge in starting the conversation.  Does it make sense to track these assets? I don’t know. What does it cost you now? I don’t know. How many do you have? I don’t really know.”

One response Stockman heard from a company was that it had somewhere between 5,000 and 20,000 assets. “Is that as close as you can get?” he asked. “The beginning challenge is understanding how big the problem is, and what it is costing, to build a business case around it and try to find out if it makes sense to do something about it.”

The panelists were mindful that valuable or sensitive cargo should enter into the cost justification formula for asset tracking. “We want to track the container,” Hachtman said, “but we forget about the stuff in the container. It might only be a $20 container, and I really don’t want to spend $5 to track my $20 container. But if you are putting $120,000 in it, and the desire to track the $120,000 becomes the compelling force to prove an ROI out, then if you lose one container, you lose a bunch of dough. You can lose a trailer full of assets, and it may not be equal in value to one container of product.”

Those Salespeople: Lost Reusables as a Deal Sweetener

In some industries, the human process gets in the way, Stockman noted. He said that deposit systems work very well, citing the beer industry and the cable reel industry as examples. The deposit is an effective incentive to prompt return of the asset. It also can lead salespeople to use the container imbalance as a deal sweetener. “It becomes a negotiating tool for the salespeople to say we know we shipped you this many, and we didn’t really get them back so we are going to have to charge you,” he said. “But I’ll wave that if you re-up with us, and pretty soon the sales team has taken over what was originally an inventory control process, and that’s when things start to go wonky.”

“You can have data pointing to where the asset is leaking, but then you have to hold a retailer or a supplier accountable, the value proposition gets a little murkier,” Wasson added.

Anderson emphasized the importance of proactive communications with the end user about the use of reusable packaging, how it will impact their operations and to make sure they are onboard. “We had a customer who transitioned to reusable racks which turned out to be perfect temporary storage for their end users,” he said. Because of their utility, users were reluctant to return them. To address the problem, CH Robinson put in some triggers concerning volume. When outbound shipments of reusable packaging meet a threshold quantity, then a return transportation event is triggered.

“Understand what the drivers are,” Anderson said. “Are you going to wait for the end user to contact you to return them, or are you going to be more proactive?”

Choosing the Best Reverse Logistics Partner

When selecting a reverse logistics partner, their ability to embrace technology is critical, according to Stockman. “Any partner, whether it is a warehouse company or a logistics provider, even a company that will be sanitizing the container, if they are not positioned to plug and play whatever technology you are bringing to the table, they will not be a good partner.”

“Do they have an IT department that can integrate with you?” he asked. “We run into huge companies that cannot send data, or that we cannot send data to them. Their IT department is so backed up that it will take a year to get a meeting.” That, he said, is an indication that they aren’t really ready to work.

“Make sure you are working with someone who is taking the time to understand what you need,” Anderson added. “There is not one single solution that is going to meet the needs of everyone.”

Hachtman cautioned that is not as simple as just deciding to manage the reverse logistics process internally versus outsourcing it. “Everyone has their independent motivation, their own P&L, their own processes and their own hot spots,” he said. “So understanding the motivations of the internal partners is as important as the motivations of external partners.”

“It is fairly easy to define the problem you face today,” Wasson said in summing things up. “It is less easy to define the problem you are going to face in 5 or 10 years.

“There are hundreds of reverse logistics providers for reusables. It doesn’t mean that any one of us is the best.  Each specializes in specific niches and best meet needs of particular customers. It is about finding the right partner who will understand your needs today, understand what your needs might be tomorrow, and who will work with you to develop a solution down the road.”