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Using Reverse Logistics to Enhance Customer Service and Competitive Performance

by William K. Pollock, Strategies For Growth

Reverse Logistics Magazine, Nov/Dec 2007

Reverse Logistics is crucial to virtually every business—but it is not an end unto itself. The most successful organizations are those that can leverage their reverse logistics capabilities to provide customers with exactly what they want, and expect, while also creating and maintaining a competitive advantage wherever possible. However, this requires a good understanding of how to use both the real and the perceived benefits of reverse logistics to enhance the organization's customer service capabilities, as well as its overall competitive market position. By promoting the most compelling message to the marketplace, your organization can gain additional competitive stature in an otherwise commodity-like market.

The secret to success is basically to position reverse logistics in your organization as a tool for both improving customer satisfaction and competitive advantage by:

What is Reverse Logistics?

The Reverse Logistics Association (RLA) defines reverse logistics as "all activity associated with a product/service after the point of sale, the ultimate goal to optimize or make more efficient aftermarket activity, thus saving money and environmental resources". According to the RLA, terms such as "aftermarket logistics," "retrogistics, and "aftermarket supply chain," are all synonymous with reverse logistics.

However, the marketplace defines reverse logistics in any number of ways, ranging from as simple as the "processing of returns" (MultiChannel Merchant magazine); to as complex as "the logistics process of removing new or used products from their initial point in a supply chain, such as returns from consumers, over stocked inventory, or outdated merchandise and redistributing them using disposition management rules that will result in maximized value at the end of the items' original useful life" (Wikipedia).

In its 2006 Benchmark Report, "Revisiting Reverse Logistics in the Customer-Centric Service Chain," the Aberdeen Group described reverse logistics as "rapidly emerging as a core driver of competitive advantage and financial performance among leading manufacturers" placing annual reverse logistics costs at roughly $100 billion in the United States alone. However, the report emphasized that merely containing costs was not foremost on the customer's mind—that, in fact, "recognizing the inherent opportunities to improve overall service performance" was the key motivation for most businesses to get their reverse logistics acts together. And, by doing so, they could eventually reap the benefits of "improved customer loyalty and retention, increased revenues, reduced operating costs and improvements in product uptime and quality."

Ultimately, many of those who actively participate in the industry probably feel that Lambert and Stock got it just right when they described it in 1981 as "going the wrong way on a one-way street because the great majority of product shipments flow in one direction." However, regardless of how your organization defines reverse logistics, two things are for certain: (1) virtually all business organizations use it, and (2) depending on how you perform, it will have an impact on how your customers measure and evaluate your customer service and competitive performance.

Using Reverse Logistics as a Tool for Improving Customer Satisfaction

Satisfaction occurs when an organization's products or services meet or exceed customer expectations. In fact, all things being equal, customers typically care more about having their product, service and support requirements met, and much less about how their vendors do it. What customers really want is to have their voices heard - and then, have their suppliers actually do something about it (i.e., they want to see results). Many companies use their logistics and reverse logistics capabilities as market differentiators. The intent is to keep customers so satisfied with their products and services—before, during, and following the original delivery—that they remain loyal to their suppliers, repurchasing their products and/or services again, and again, and again.

However, customer satisfaction may be viewed in two very different ways: either as event-specific, or cumulative: In the former, the emphasis is on the customer's evaluation of a specific product/service event (i.e., product sale, service call, part order, RMA, etc.). However, in the latter, the evaluation is based on the customer's total pre- and post-purchase experience with the company's products, services and support over time (i.e., the "total customer experience"). Firms that integrate new technologies, such as UPC bar codes, RFIDs, etc., into their logistics services are generally more likely to establish and maintain strong customer relationships over the long haul as a result of their technology-enhanced capabilities.

We believe the main characteristics that ultimately differentiate one logistics organization (and its reverse logistics processes) from another may be categorized essentially as follows:

According to the Aberdeen Group, "very few companies are more than marginally satisfied with their current reverse logistics approach, with nearly 60% reporting that they are somewhat or not satisfied." This does not suggest a satisfied marketplace. Our own research has shown that the most commonly cited causes of market dissatisfaction are generally attributed to process-, time- and measurement-related factors.

For example, if the organization does not have the proper reverse logistics processes in place, either because they are not the most effective processes, or they do not exist within the organization at all, then it will be virtually incapable of providing the service and support its customers require. Similarly, regardless of how appropriate and well-designed the processes may be, if they do not move the customers' products out and back quickly enough, customer satisfaction will once again rear its ugly head. Finally, if the organization is unable to measure either its own reverse logistics performance—or its customers' evaluations of its performance, then it will never know exactly where it stands in the minds of its customers—or how to improve its performance over time.

The Reverse Logistics/Customer Satisfaction Connection

Market research has shown that customers believe the following attributes to be of the greatest importance for both forward and reverse logistics (Figure 1):

However, for there to truly be a "bond," or "partnership," between the reverse logistics services provider and its customers, there must also be the following shared attributes:

Overall, regardless of market segment or size of the organization, the most widely acknowledged benefits derived from the use of reverse logistics services may generally be categorized in the following areas:

These are the primary factors used by the marketplace to evaluate the benefits of the reverse logistics services, and providers, they use to manage this portion of their respective businesses.

Using Reverse Logistics to Build Competitive Performance

Using your organization's reverse logistics capabilities as leverage for building competitive performance (in addition to improving customer satisfaction and retention) also typically requires that it (Figure 2):

While some of the processes that are required to yield these key benefits can typically be developed internally, others may require the strategic use of supply chain partners, as necessary. However, regardless of what is developed internally vs. outsourced, one thing must remain entirely clear—the basic, or "core" reverse logistics functionalities are nothing more than a "gimmee" to the marketplace. In other words, if you don't already offer a full complement of basic reverse logistics support services, you're not even in the game! Only the inclusion of the right mix of "value-added" logistics functionalities to your basic offerings can provide your organization with what it will ultimately take to stake out a true competitive advantage.

It is also important to remember that most "bells and whistles" generally never work (or, at least, not for very long); and that if the market believes you are offering something of value—something that your competitors are not, then they will find reason to come to you (and stay with you). As a result, you must strive to be the leader among the value-added reverse logistics providers, because merely being a follower will not help you win over (or "steal") many new accounts.

Product and price differentiation have always been important to customers—but so is customer service. Accordingly, you cannot sacrifice one side of the equation for the sake of the other. Don't simply offer faster, easier reverse logistics functionality; you will make a much bigger mark by offering logistics solutions that are designed to meet the "total" needs of the customer. While deficient logistics capabilities can severely impact customer service and satisfaction, superior logistics capabilities will only bear fruit if the customer (and the market) knows what you've got and what you can do for them; but, you are going to have to tell them about it.

Logistics does not work in a vacuum—it is truly a "give and take" between vendors and customers—and you will have to learn how to deal effectively with all of the negotiations, compromises, trade-offs, and settlements that may be involved in the overall process. But, at the end of the day, the more you know about your customers and their needs, requirements, preferences and expectations, the more responsive you can be to their total logistics needs and requirements. Being a true partner with your customers will allow you to be the kind of responsive and interactive logistics provider that they are seeking—and one upon which they feel they can ultimately rely on for "total customer support."

William K. Pollock is president of Strategies For GrowthSM (SFGSM), the Westtown, Pennsylvania-based services consulting firm specializing in strategic business planning, services marketing, CRM consulting, market/survey research, and customer satisfaction measurement and tracking programs. During the past 25-plus years, Bill has conducted more than 250 strategic planning, customer survey and market research studies for clients all over the world. He is a frequent speaker at trade conferences, and has published more than 120 articles covering a wide range of services-related topics. He may be reached at 610-399-9717 or via e-mail at wkp@s4growth.com. SFGSM's website is accessible at www.s4growth.com.

Reverse Logistics Magazine, Nov/Dec 2007


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