copyright © 2007 reverse logistics association welcome reverse logistics association amsterdam...
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Copyright © 2007 Reverse Logistics Association
WelcomeReverse Logistics Association
Amsterdam SeminarJune 25, 2007
Copyright © 2007 Reverse Logistics Association
The Request for Information and Quote, Contracts
& The Statement of Work
Gailen Vick
President
Reverse Logistics Association
Copyright © 2007 Reverse Logistics Association
Welcome and introductions
OEM outsource decisions and building the RFQ
Exercise and break
3PSP responding to the RFQ
Outsourcing/Service best practices
Exercise and break
Contract requirements and RL components
Understanding the Statement of Work
Exercise
Close
Agenda
Copyright © 2007 Reverse Logistics Association
“Real knowledge is to know the extent of one's
ignorance.”
Confucius
Copyright © 2007 Reverse Logistics Association
Workshop Objective:• Offer both a client/service provider perspective
• Cover key points of success and failure
• Opportunity to share best practices
• Provide a reference point while building agreements
Copyright © 2007 Reverse Logistics Association
Supply Chain - After Market Services Product Life Cycle
FORWARD LOGISTICSSupply Chain
EN
D U
SE
R / C
ON
SU
ME
R
REVERSE LOGISTICSAftermarket Supply Chain
New ProductDevelopment
Material Management
Manufacturing & Distribution
Aftermarket Customer Services
•Design Development
•Technology Roadmaps
•ASIC Development
•Mechanical Design
•PCB Layout
•Prototyping
•New Product
Introduction
•Vendor Relations
•Planning
•Procurement
Inventory Planning
•Component Fabrication
•PCB Assembly
•Box Assembly
•Volume Manufacturing
•Integration
•Configuration
•Final Testing
•Distribution to Customer
•Customer Fulfillment
•Transportation
•Customer Service
•Contact Centers (helpdesk, call
centers)
•Depot Repair
•Field Service
•End-of-life Manufacturing
•Fulfillment Services
•IT Process Management
•Recycling
•Refurbishment/ Screening
•Replacement Management
•Returns Authorization Management
•Spare Parts Management
•Transportation/Warehousing
•Warranty Management
"In other words, anytime money is taken from a company's Warranty Reserve or Service Logistics budgets, that is a Reverse Logistics operation" - Gailen Vick, President RLA
•Customer Service•Contact Centers (helpdesk)•Depot Repair•Service Logistics
–Field Service–Transportation/Warehousing–Spare Parts Management–RMA Management–Replacement Management
•End-of-life Manufacturing•Fulfillment Services•IT Process Management•Recycling•Refurbishment/ Screening•Warranty Support
Copyright © 2007 Reverse Logistics Association
Winning at Reverse Logistics
Good relationships equal success• Management participation at all levels• Clear measurable objectives• Agreement on business requirements • Commitment to mutually solve problems• Metrics performance vs. expectations• Continuous communication/Improvement• Trusting, open and honest relationship
Copyright © 2007 Reverse Logistics Association
Course Contents, Expected Results
• Developing the Outsourcing Model• Internal vs outsource true cost relationships• What the 3rd Party Service Provider Needs in the
RFQ• RFP the key components, What the 3PSP needs to
know• RFP selecting the 3PSP• RFP the 3PSP response• Best Practices in building a long term relationship• Unique components of a reverse logistics contract• Components of the SOW
Copyright © 2007 Reverse Logistics Association
Relationship Partnership
Outsourcing Documents
RFI RFQ Contract SOW
RFI - Request for Information
RFQ Request for Quote
Statement of
Work
Copyright © 2007 Reverse Logistics Association
Facilities
Executive
Cross-departmental outsourcing investigation team
Finance Manager
Purchasing HR
Logistics LaborAcct. Legal
Operations Manager
Development
Prod ITProd
• Sponsorship
• Understand business objectives
• Quantify scope/schedule/resources of investigation
• Establish a decision process
The Outsource Decision
Copyright © 2007 Reverse Logistics Association
The Outsource Decision
Department Item Business Fund. Functional Issues WeightCost TrackingInvoicingProblem ResolutionProcess ControlReportingReal Time DataRepair TrackingTransaction CapabilityReturns Mgt.PurchasingInventory ControlImport/ExportScrap ControlProcess Doc ControlEngineering Repair ExpertiseTest ExpertiseESD Control OrganizationPracticesMeterologyDocument ControlTraining/DocumentationWarehouseEnvironmentPower StabilityExpansionSenior Mgt.Operations Mgt.Operations FlexibilityCost Reduction EffortsProduction Flexibility
Quality
Facilities
Management
Accounting
IT
Materials
Process Eng.
Risks
Outsourcing Decision MatrixCost
Copyright © 2007 Reverse Logistics Association
Single vs. Multiple Suppliers
OEM/Retailer
3rd PartyProgram Mgt.
OEM/Retailer
3rd Party 3rd Party 3rd Party3rd Party3rd Party
3rd PartyLocation
3rd PartyLocation
3rd PartyLocation
3rd PartyLocation
The Outsource Decision
Copyright © 2007 Reverse Logistics Association
Building the RFI/RFQ
• Business objective statement
• Contract & Statement of Work definition
• Operations history and forecasts
• Process flowchart and process times
• IT Requirements and reporting
• Material handling requirements
• Product specifications/BOM if pertinent
Copyright © 2007 Reverse Logistics Association
Building the RFI/RFQ
• Create a 3PSP selection team
• Outline the selection/RFQ process
• Understand the 3PSP RFQ requirements
• Develop a ranking matrix
• Same information is available to all 3PSP candidates
• Outline and offer due diligence to sensitive information
• Ensure the RFQ process is published to 3PSPs
Copyright © 2007 Reverse Logistics Association
Beginning OEM RFQ Process
Selecting a Service Provider
Who are the service providers?
Where are they located?
Can they meet our immediate needs?
Are they reliable?
Can they grow and stay competitive?
Copyright © 2007 Reverse Logistics Association
Beginning OEM RFQ Process
Create Detailed RFP/I/Q
Register as an RLA User
RL Quote dramatically simplifies access for Reverse Logistics Services
RL Quote is a powerful sourcing tool for access to the Reverse Logistics world
RFI Emailed to 3PSPs
Receive Quotes from 3PSPs
Feedback to 3PSPs
Sourcing service providers with RL Quote is free for OEMs
Simple; just complete the
quick registration process
Global exposure, feedback for 3PSPs
Copyright © 2007 Reverse Logistics Association
• RFIs are Released by OEMs & Retailers
• OEMs & Retailers Find 3PSP for Free
• 3PSPs Receive the RFIs
www.RLTinc.com
Beginning OEM RFQ Process
Copyright © 2007 Reverse Logistics Association
Outsourcing Matrix
Department Item Business Objective Critical Issues Risks
Cost TrackingInvoicingProblem Resolution
Process ControlReportingReal Time DataRepair TrackingTransaction CapabilityReturns Mgt.PurchasingInventory ControlImport/ExportScrap ControlProcess Doc ControlEngineering Repair ExpertiseTest ExpertiseESD Control OrganizationPracticesMeterologyDocument ControlTraining/DocumentationWarehouseEnvironmentPower StabilityExpansionSenior Mgt.Operations Mgt.Operations FlexibilityCost Reduction EffortsProduction Flexibility
Quality
Facilities
Management
Accounting
IT
Materials
Process Eng.
Corporate business strategies and objectives
Copyright © 2007 Reverse Logistics Association
3PSP
Ranking
Matrix
3.84100%Total Points
0.3753.7510%Management
0.4410%Facilities
0.54753.6515%Quality
0.793.9520%Process Eng.
0.59253.9515%Materials
0.793.9520%IT
0.3450.34510%Accounting
100%
3.75100%10%Category WeightingTotal
0.210%2Production Flexibility
0.620%3Cost Reduction Efforts
0.820%4Operations FlexibilityManagem
ent
1.3530%4.5Operations Mgt.
0.820%4Senior Mgt.
4100%10%Category WeightingTotal
1.530%5Expansion
0.510%5Power StabilityFacilities
0.820%4Environment
1.240%3Warehouse
3.65100%15%Category WeightingTotal
0.920%4.5Training/Documentation
0.410%4Document Cont.
0.420%2MeteorologyQuality
0.3510%3.5Practices
1.640%4Organization
3.95100%20%Category WeightingTotal
0.720%3.5ESD Control
120%5Test Expertise
0.820%4Repair Expertise
Process Eng
.
1.230%4Engineering
0.2510%2.5Process Doc Control
3.95100%15%Category WeightingTotal
0.310%3Scrap Control
0.310%3Import/Export
1.3530%4.5Inventory ControlMaterials
125%4Purchasing
125%4Returns Mgt.
3.95100%20%Category WeightingTotal
0.310%3Transaction Capability
120%5Repair Tracking
1.7550%3.5Real Time DataIT
0.410%4Preporting
0.510%5Process Control
3.45100%10%Category WeightingTotal
1.0530%4Problem Resolution
1.240%3InvoicingAccounti
ng
1.230%4Cost Tracking
OverallWeightingRatingItemDepartme
nt
3.84100%Total Points
0.3753.7510%Management
0.4410%Facilities
0.54753.6515%Quality
0.793.9520%Process Eng.
0.59253.9515%Materials
0.793.9520%IT
0.3450.34510%Accounting
100%
3.75100%10%Category WeightingTotal
0.210%2Production Flexibility
0.620%3Cost Reduction Efforts
0.820%4Operations FlexibilityManagem
ent
1.3530%4.5Operations Mgt.
0.820%4Senior Mgt.
4100%10%Category WeightingTotal
1.530%5Expansion
0.510%5Power StabilityFacilities
0.820%4Environment
1.240%3Warehouse
3.65100%15%Category WeightingTotal
0.920%4.5Training/Documentation
0.410%4Document Cont.
0.420%2MeteorologyQuality
0.3510%3.5Practices
1.640%4Organization
3.95100%20%Category WeightingTotal
0.720%3.5ESD Control
120%5Test Expertise
0.820%4Repair Expertise
Process Eng
.
1.230%4Engineering
0.2510%2.5Process Doc Control
3.95100%15%Category WeightingTotal
0.310%3Scrap Control
0.310%3Import/Export
1.3530%4.5Inventory ControlMaterials
125%4Purchasing
125%4Returns Mgt.
3.95100%20%Category WeightingTotal
0.310%3Transaction Capability
120%5Repair Tracking
1.7550%3.5Real Time DataIT
0.410%4Preporting
0.510%5Process Control
3.45100%10%Category WeightingTotal
1.0530%4Problem Resolution
1.240%3InvoicingAccounti
ng
1.230%4Cost Tracking
OverallWeightingRatingItemDepartme
nt
Copyright © 2007 Reverse Logistics Association
OEM Outsourcing Expectation Adjustments• Managing the Service Provider takes a different set of
management skills• Lines of Communication are different & more difficult • Understanding and measuring the performance of the
Service Provider• Extra expense due to startup/transfer costs and
follow-up costs • 3PSP “has its own priorities,” perceptions, business
objectives• Market allegiance, security, strategic direction
Building the RFQ
Copyright © 2007 Reverse Logistics Association
Building the RFQ Response
Service Provider RFQ Response
• Know the critical issues behind the RFQ
• Know the product/service roadmap: History & Future
• Eliminate boilerplate/sales jargon in the presentation
• Prepare a project plan to describe the startup plan
• Provide a statement on security operations
Copyright © 2007 Reverse Logistics Association
OEM Expectations
• 3PSP understands the business
• Understanding of the price components and assumptions
• Creative solutions
• Cost reduction possibilities
• IT integration & reporting capability
• Program management and headcount
• Commitment to Continuous Improvement
Copyright © 2007 Reverse Logistics Association
The 3PSP RFQ Response
• The first ten pages – what are they about
– Your Company, the Business, or the Client
• Executive Summary – 3 to 5 reasons why your service is
the best solution for the Client
• Don’t be passive: don’t say “We can do this” – be definitive
in your statements
• Let the Client know your process on the first page
• Don’t forget the things you don’t know
Copyright © 2007 Reverse Logistics Association
The 3PSP RFQ Response
The Service Provider must present he understand the business:
Experience in performing the service, or the talent to create the business
The financial capability to invest in the future, to grow and to build infrastructure
It has unique capabilities in technical knowledge or the expert knowledge to carry the project forward
There is the skilled personnel available and a formal training plan to grow & train the workforce to be flexible
Solid Reputation in the market, references from current clients. Active participation in the industry
Copyright © 2007 Reverse Logistics Association
Program Management Model
3rd PartyProgram Mgt.
3rd PartyLocation
3rd PartyLocation
3rd PartyLocation
3rd PartyLocation
3rd Party
Program Mgt.
Call Center
Fulfillment
Logistics
RepairLocation
OEM Repair
Vertical Relationships
Horizontal Relationships
Copyright © 2007 Reverse Logistics Association
The Importance of IT
OEMs agree – IT is a big deal• Prepare a 3-5 page overview of IT capabilities
and reporting• Describe in-depth all current IT operations• Describe the IT Strategy with a 2-3 year plan• Respond in detail with the IT options available to
the OEM• Provide sample reports
Copyright © 2007 Reverse Logistics Association
Continuous Improvement
• Continuous effort on Cost Reduction & Cost Control
• OEM Executives push their organization• Pro-Active 3rd Party actions are very positive• OEM expects vendor efficiency over time• Repair costs must be related to the retail sales
price
• How ? • Look to reduce Touch Time and indirect labor• Improve the process, improve quality, increase
yields• Reduce scrap, improve asset management• Meet or exceed future environmental regulations
Copyright © 2007 Reverse Logistics Association
Project Startup Best Practices
• Communicate often
• Metrics: Before, regularly, and final
• Acknowledge the difference between qualification units and high volume units
• Plan on follow up visits & audits – Self audits, Client audits, executive on-site
reviews.
• Sponsor and publish success stories
Copyright © 2007 Reverse Logistics Association
On-Going Best Practices
• Maintain/Push the idea of Partnership
• Communication between all levels of the organization
• Single point of contact for business escalation process
• Insist on regular Communication (QBRs, Pricing
reviews, audits and weekly performance reports)
• Partner in Goals and Objectives in 1, 2, 3 years in the
future
• Be up front about problems / mistakes and be pro-
active in suggesting corrective action
Copyright © 2007 Reverse Logistics Association
On-Going Best Practices
• Defined 3 year Business Plan and Strategy• Defined program for Employee Training, skill
development and technical advancement• Continuous review of cost competitiveness when
measured against: Other client or provider internal programs Other regional vendors OEM new product cost Overall return costs (warranty mgt & logistics) Offshore / Worldwide Vendors
• Analyze the returns and suggest process changes or changes in product management rules
Copyright © 2007 Reverse Logistics Association
New Service - RL Forum
• RL Professionals can Ask a Question
• Other Professionals can help Answer
•www.reverselogisticstrends.com/forum/
Copyright © 2007 Reverse Logistics Association
Contract Management
Copyright © 2007 Reverse Logistics Association
Relationship Partnership
Outsourcing Documents
RFI RFQ Contract SOW
RFI - Request for Information
RFQ Request for Quote
Statement of
Work
Copyright © 2007 Reverse Logistics Association
The Services Contract
• Business services to be provided and the process of service(s)What is the definition, how will it be done and who is responsible?– Original Product Warranty determination – What will happen if there is a design issue?– On-going analysis of design improvements – Responsibility for Asset Management– Scrap decisions, when and how scrap is determined– What is the definition of BER (Beyond Economic Repair).– Record keeping and archiving.
Copyright © 2007 Reverse Logistics Association
The Services Contract
• Process changes – no changes without approval vs. ability to change
• Resolution of performance issues
• Material/Product/Equipment Ownership
• Special Material / Chemical requirements
• Document handling and security
• Invoicing, payment terms and problem invoice resolution
Copyright © 2007 Reverse Logistics Association
The Services Contract
• The Relationship– A definition of the business relationship
• Repair Warranty Statement– A statement of the warranty offered
• Cost Reductions – How to divide the “spoils” of cost reduction
• Property # 1– Define the use and 3rd Party responsibilities
• Property #2 (Test Equipment)– Define who is responsible for maintenance
• Inventory Loss– What happens when there is an inventory loss
Copyright © 2007 Reverse Logistics Association
The Services Contract
• Epidemic Failure– Dealing with Failures outside the expected failure profile
• EOL & Bufferstock Purchases by 3rd Party– Obligations related to the purchase of inventory
• Excess Materials (Scrap)– Method of disposal by required regulations
• Disengagement– Operational statement on handling products, equipment and materials
• Termination of the Agreement– Statement on termination for cause
Copyright © 2007 Reverse Logistics Association
The Statement of Work
• Should be a flexible document, not within the Contract
• Receiving, Order fulfillment, Shipping processes & accuracy
• Metrics and reporting methods• Transaction timing & accuracy• Repair Process & Equipment• Business coverage requirements• Security & Environmental Requirements
Copyright © 2007 Reverse Logistics Association
RL in Your Finance Calculations
Product
After tax ProfitsAre
They
Measured Right
ReturnsTake
AwayFrom Bottom Line
Profits
ProductProduction
Cost
ReverseLogistics
Management
Your CompanyManufacturers 1 Million Units Per Year
Revenue per Unit is $1 or $1,000,000
Profit per unit is 5% After Tax or $50,000
Return Rate Average is 10% or 100,000 units
Returns Represents $100,000 of Salesor $50,000 negative to bottom line
Reverse Logistics Recovers 80% of the Returnsor $80,000 to company bottom line
Company’s After Tax Profit is $30,000
So who is most important, the VP of Marketing/Salesthat took $50K from your Company
or the Reverse Logistics Professional that gave you$30K of After Tax Profit?
Copyright © 2007 Reverse Logistics Association
Thank You