Multi-Channel, Reverse Supply Chain

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There is a story we tell in the South, I have a suspicion that it actually exists in some colloquial form in other active story-telling cultures as well. In this yarn Billy Bob is telling Harlan that their friend Scooter has been training for a marathon by running five miles a day. Harlan asks “how long has Scooter been training?” Billy Bob replies “not rightly certain, but I would cipher that ‘bout five days makes sense.” “Why would you say that?” Harlan further inquired. “Well…” starts Billy Bob “… Scooter has been runnin’ five miles a day, and he is 25 five miles from home so far… That comes out to five days.”

Such is the approach we take when we only strategically manage the forward supply chain and leave the reverse supply chain to random, as-required, reactive activities. We run our supply chain in one direction and don’t seem to get back home effectively. This ‘one-way’ service provision also leaves a tremendous amount of value on the table in the process. Multi-channel, reverse supply chain optimization strategy is a great value-added “outside-in” approach to review as healthcare delivery network supply chain organizations haven’t come into their full maturity in reference to true end-to-end supply chain planning and management. Let’s take a rudimentary look at this high-impact service and how it can augment the value proposition of healthcare supply chain.

To translate reverse supply chain activity into economic utility or practical revenue we are essentially managing the disposition of assets in discrete ‘waste-to-salvage value’ channels.

Channel 1: Repair / Refurbish / Re-manufacture.

The selling repaired, refurbished, or re-manufactured products and equipment into the open market is one avenue of direct revenue, but also consider the value utility of uninstalled parts and materials that are salvaged and used within the original enterprise.

Channel 2: Auction.

Auction sites pass through proceeds after taking a proportional “discount” from the sale.

Channel 3: Scrap and salvage.

Third-party scrap dealers, and recycling plants pay a nominal rate for acquiring scrap.

Channel 4: Redistribution.

Items that are discontinued, over filled, or over-acquired due to minimum order quantities or generally slow utilization can be redirected to other areas where they will be consumed rather that wasted. Items can be redistributed with a discounted market rate, or at a net-book value of the asset. When some items attract greater disposal cost than their acquisition cost they can be a good candidate for redistribution back through the forward supply chain. Good examples of these items are pallets, delivery containers, and CSR wrap. There is often new forward supply chain cost introduced when an organization redistrubtes goods and must be part of the equation when analyzing the utility of redistribution.

Channel 5: Reusable and reposable items.

When reusable devices are considered the preference to disposable items, they require a reverse supply chain and an internal redistribution system that often comes with considerable direct expense, but the savings opportunity is often more substantial than the cost of operations. Reposable items are items that can be reprocessed a certain number of times then must be discarded as waste, often reclaimed by the using facility and sent to a third-party reprocesser.

Channel 6: Donation.

The revenue stream for donation is tax deduction.

Channel 7: Energy.

Reverse supply chain from energy generation can come from waste or from over production (co-generation).  Organic waste can be converted into renewable energy and is a good way to dispose of returned, or expired food products. The value proposition is the monetary equivalent of the energy generated or the utility cost that can be offset compared with the transportation and handling expense. There will be waste-to-energy activity cost to consider but it is often diminimus compared to the return and the net is well worth considering.  Cogeneration for topline plant power station or in the case of micro turbines requires in depth financial and regulatory analysis, but given the correct conditions the upfront and operating investments can often benefit from a truncated ROI. Co-gen and harvesting the waste-to-energy stream are often not considered in the strict purview of reverse supply chain planning but the concept of taking a spent forward inventory (of electricity, steam, or food stuff) and returning it through the value chain as new inventory is governed by the same economic principles. Supply Chain can still play a helpful sponsoring role of an effective energy management campaign.

Channel 8: Returns and tax value loss.

A protracted return-for-credit cycle or a fully unclaimed return will often not effectively be able to assess the trade-related taxes paid against acquired goods. This is more devastating in a scenario where there are import tax issues, and some health systems are actively endeavoring to disintermediate offshore distribution, but even for traditional procurement there is a related issue where a little unclaimed tax return here and there builds up over time, and easily escapes the radar. Solid strategies around returns, zero-return policies (where credit is given with pre-negotiated salvage guidelines attached to the contract terms in lieu of product return), and instant credits should be developed and part of the formal relationship with suppliers.

Channel 9: Disposal.

Landfill disposal is a bona fide option, but should be considered the last resort.

Management of the multi-channel reverse supply chain:

In the managing of the reverse supply chain time is not our friend. The value proposition we are building on is based on an industry assumption that +/- 45% of an assets value erodes with ineffective reverse supply chain management… Most of that is simply lost to the ravages of time. Asset depreciated value, general condition, short dated inventory, unrecoverable tax value, and lost or unrecoverable product. Effective practitioners of reverse supply chain can stem the tide of that loss by planning for effective salvage ahead of time, reducing planning errors that create over supply, and where assets are legitimately under-utilized they are effectively converted to value with readily accessible programs

Besides the skillful, timely exercise of reversing the logistic flow, careful focus needs to be applied to the development and exploitation of secondary markets, as well as an organizational emphasis on the physical/fiscal analysis of what stasis asset is available, what the cost is for salvage/recovery of the item(s) and the processing and/or redistributing, with distinct review of how sophisticated the reverse logistics architecture will need to be to recover value from each channel.

These are all deliberate and competent considerations that deserve to be approached with the same rigor and purpose that the forward supply chain enjoys.

So before Scooter gets too far from home, consider the value of directed effort at some or all of the channels of reverse supply chain. And until next time… I appreciate all that you do to fill the hands heal!

TH

Also, see the N=5 Blog… “Stop Doing Stupid Stuff!”

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