White paper. Understanding Reverse Logistics in Field Service Management

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1 White paper Understanding Reverse Logistics in Field Service Management

2 Content Reverse Logistics is Tricky... 1 Driving efficiency in repair processes... 3 Reverse logistics decision support... 4 Both direct and indirect techs... 4 Selecting Software... 5 The Bottom Line... 6 About IFS... 8

3 Understanding Reverse Logistics in Field Service Management By Larry Laux SENIOR VICE PRESIDENT IFS North America Few areas of business software are as poorly understood as reverse logistics for service operations. In this whitepaper, we will define reverse logistics, as it relates to aftermarket service, describe how it differs from forward logistics, and then discuss the difficulties inherent in selecting and using enterprise software to facilitate reverse logistics and repair processes. The easiest way to describe reverse logistics for service operations is to first think of the field service function, where, typically, a dispatcher sends people out to the device that needs repair or attention. That device may be a PET scanner or high tech medical equipment, or even a washing machine. But that dispatch is classic field service. Repair center, or reverse logistics, turns that upside down. In the case of reverse logistics, we are going to bring the product into the person who is going to do the work in a depot repair environment or repair center. Reverse logistics gets its name in relation to forward logistics. As a business sells products, they can have the products moved from a warehouse directly to the consumer or to distributors. Reverse logistics, as the name implies, is exactly the opposite. Part of the reverse logistics marketplace addresses the return of a sales item for credit. In this paper, we focus on aftermarket service. We are going to bring non-functioning units or units that show some sort of defect or error code and bring them back into a regional repair center or to a satellite repair facility where they will be looked at repaired on the bench by a qualified engineer. The reverse flow of these products or sub-components back to our organization is what we refer to as reverse logistics. Reverse Logistics is Tricky The problems of reverse logistics are many in that at first we may think it is just like forward logistics except upside down but this is in fact not the case. One major challenge is determining and tracking the value of the unit. So let s think of an easy example a PC or a laptop. Let s say a technician is dispatched to replace a defective motherboard on a customer machine. A brand new motherboard might have a value 1

4 of $700. In forward logistics, cost is a simple number. But what happens when the engineer in the field swaps out the good motherboard for the defective one? Now, he is supposed to send the defective one back so that it can be repaired. But the defective motherboard doesn t have full value. It is not worth $700, because it doesn t work. But it is not worth $0 either because the company might be able to change one little sub-component and make it a useful unit for the repair pool. Software that handles reverse logistics has to take into account the useable status of the item and track the unit on a basis that is valued at less than full cost but more than zero cost. And so that is just one small example of some of the interesting characteristics of a reverse logistics operation that really isn t the same as forward logistics. Things get even more complex when a reverse logistics value chain includes third party repair by an OEM or items under warranty. One of our customers, for instance, is a retail operation with thousands of stores in North America. They will bring units back in from the consumer and accept them at these retail locations. They will use reverse logistics software to help them not only log who brought the unit in, but to make an initial assessment of the problem. This particular customer has a multi-layered service operation so right at the store they will do an initial check to see if they can make a diagnosis. Maybe the spark plug is disconnected, or there is some other obvious solution to the problem. But if they are not able to resolve the problem at their retail location, they will send items into one of their four regional service facilities on a fleet of trucks that make these trips multiple times a day. Even at the regional repair facility, they still might not be able to resolve the problem, and would then need to send the item back to the original equipment manufacturer (OEM). Reverse logistics software has to keep track of that unit while in the service chain, as well as third party repair, and record that those units are out in someone else s hands. This is, after all, valuable property, property that could be the property of not us but the customer. Complexity increases further when there is a warranty offered by the retailer, the OEM or both. Sometimes the OEM might supply a warranty that is either in force for a longer or shorter period than the one offered by the retailer. Using our IFS Service Management system, we are able to track those secondary warranties back to the OEM and generate the appropriate claims for warranty service provided. Using the right software, a company involved in reverse logistics can claim millions of dollars in warranty reimbursements back from their supplier that they weren t able to track otherwise just by being able to say units that were acquired on a particular day are still within the two year warranty. Here is the evidence. Please make an adjustment in financial consideration. Complexity increases further when it extends beyond a company s own service organizations to third parties like contractors, subcontractors or distributors that 2

5 participate in aftermarket support. A company using IFS Metrix Service Management may have a dealer network, and as the dealer buys a particular subassembly, they might build it into their own product assembly, or they might sell it directly to their customers. They might send boxes of ten of these repairable components back to the manufacturer s repair facility. Software for reverse logistics needs to take into account the nature and quality of that business relationship. When there is a good business relationship with that outside entity, we can set up business rules in the software to advance replacement parts to them when they simply notify us that they are sending the repairable units through a return material authorization. When the replacement parts are advanced to the dealer or contractor, the system still needs to keep track of whether they did in fact send their 10 defective units back. So it is equally important to create another business rule that specifies that the distributor gets, for instance, up to 10 days to send the defective subassemblies back. And then when that date is at risk of passing, send a notification to the right individuals to ensure the parts come back into inventory. Keeping track of this level of reverse logistics interaction between trading parties on a manual basis or even in some computerized systems not specifically designed for the task is impossible. The ability to avoid losing track of products in a reverse logistics value chain, even when they are out at a third party, is a very important financial consideration and must be a consideration in selecting software to handle these functions. Driving efficiency in repair processes Software used for reverse logistics can also streamline work in the depot repair environment through the use of visualization videos or drawings that demonstrate to the repair technician how the work is to be performed. In a field service repair situation, it is not always convenient for the engineer to be able to look at a video or work on a product. He might not have access to all of the different types of mechanical drawings or step-by-step instructions, and it may not be desirable to allow a customer on site to see the technician relying on instructional information while they work on their equipment. However, in a reverse logistics situation, we are in a better position to provide a short video or tutorial to the engineer on the bench. We can illustrate how a given component is disassembled, how you would do a preventive maintenance cleaning, or make a required adjustment. So we are able to take someone who is perhaps not as skilled on a product and let them, through the use of these visualization tools, get a quick tutorial so that they can actually work on products even as they are getting over their learning curve. When software accommodates the reverse logistics process to this extent, a company can get much more productivity out of their engineers then they could before. 3

6 Reverse logistics software can include video tutorials for bench techs, compressing the learning curve for specific repair processes. Reverse logistics decision support Advanced reverse logistics software may also account for the economic cost of repair, which allows better decision-making about repair processes. Software used for reverse logistics ought to allow a company to establish a cost, oftentimes in order to generate a quote to the customer. But once enough data has built up in the system, we can establish economic costs based on historical work. Once we have reached this point of economic costs, we can determine if the part is economically worth repairing. At some point, it might be better and more cost effective just to send a new unit to the customer. But to make that decision, we need the software to track what we have used in parts and in labor. If the cost gets to a certain tipping point, the system can throw up a red flag asking that we stop and not work on the repair without swapping the defective unit or getting approval from the customer for additional repair work. Both direct and indirect techs The concept of reverse logistics actually applies to our own service organization, having personnel that are doing service work in the field as well as our distributors or third parties who do the work and send us multiple defective units on a periodic basis. Things can be simpler if we rely only on our own service organization. Using the reverse logistics software, we will automatically create an authorization and an indication that we now have a defective unit in the field. This is done through flags 4

7 on the part master record making clear that the part is a repairable part. That means we can t just field scrap the defective unit because we need to return it to inventory and work on it. So without additional intervention, the system creates a return event saying the unit needs to come back to the repair facility. In fact, we can even help the engineer by saying which repair facility that specific part needs to go to maybe it is the Denver facility, the Memphis facility or the Atlanta facility or wherever the appropriate facility for that subcomponent is. For our own directly-employed technicians, reverse logistics software must record that a component was taken from inventory in the truck, and it was installed in the customer s product. But the software also needs to track that defective component from the technician to our repair facility for additional work. The system needs to allow for rules regarding this process. So, for instance, if 30 days go by and we don t have it back, we can send out or IM reminders to the technician to let them know they still owe us the component for repair. We need to have similar functionality for our distributors and dealers. But they will build up a certain number of nonfunctional units and have control over when they are going to send them back. In that case, it is more of a classic return material authorization (RMA). They will send us a notice through the software to the effect that we will be getting 25 components back, and here is the return material authorization number. But in other cases, a company may have a class of dealers they are not very close to. They will let them send the units back, but are only going to send replacements once the repairable components arrive in the repair depot. This elongates the repair cycle, but it is the only way to do business with these entities without the exposure that would result when we advance the dealer the components. So reverse logistics software needs to be able to recognize that the repairable components have come back into inventory and trigger the shipment of the replacement units. Reverse logistics software obviously must adapt to various relationships and arrangements with a spectrum of third party service partners and distributors. Selecting Software Selecting reverse logistics software can be a challenge because it is not a broad product category that analysts and the IT media pay much attention to. It is difficult to get a side-by-side comparison of the actual functionality offered in the market. What does become apparent after some due diligence is that aftermarket service is a more demanding reverse logistics environment. A company may have difficulty finding a single application to meet all of their needs without going through extensive modifications to the source code or a custom development project. 5

8 Advanced reverse logistics software can include advanced repair analytics functionality. What this means is that proactively asking questions regarding your specific functional needs is critically important. It is also important to keep the vendor on a scripted demonstration so you can actually see the software facilitating the business processes that are important to you. Don t accept a simple overview in PowerPoint. Software vendors have been known to misrepresent what the software, in its current state, can do. In the case of reverse logistics software, seeing really is believing. Pretend you are from Missouri, the Show Me State, and you will be well served. It is also important to enter the selection process with a good understanding of what your pain points are, what you are trying to accomplish. It is then contingent upon the software vendor to supply references that are using the software to meet needs similar to yours. The Bottom Line One of the things that we have always said internally at IFS is that we exist so our customers can make more money. In the reverse logistics area, one way we achieve that return on investment (ROI) is through effective inventory and spare parts management. Some of our customers realize ROI by using reverse logistics to simply keep repairable units on the shelf until they are actually needed. Once a need arises, they pull the units off the shelf and repair them. They save money by avoiding repair on units that might not be used. They also may take parts into inventory that, due to the advancement of technology, are obsolete. The right reverse logistics software allows a company to be very efficient in the use of their time and inventory. But this requires software that is agile enough to keep their defective inventory in the ready 6

9 state until there is enough system demand to cause them to be pulled from inventory and worked on. Another obvious ROI factor is the calendar time implementation. If you can implement our software in four months, as some of our customers have, you will achieve faster and greater ROI than if implementation had taken a year, 18 months or longer. Business requirements for reverse logistics are complex, and can change as relationships with customers, distributors and contractors shift over time. Coming to a full understanding of the impact of reverse logistics on the business will allow you to think clearly about how key business processes can be streamlined and automated, how you can gain visibility and control over repairable inventory and how you can serve your customers better. Larry Laux is Executive Vice President at IFS North America, where he is responsible for growing the company s footprint in the field service management software industry. He came to IFS as the CEO of Metrix, the leading field service management software vendor IFS acquired in He holds an MBA from the University of Wisconsin-Milwaukee and a B.A. in Physics and Mathematics from Ripon College. 7

10 About IFS IFS is a public company (OMX STO: IFS) founded in 1983 that develops, supplies, and implements IFS Applications, a component-based extended ERP suite built on SOA technology. IFS focuses on agile businesses where any of four core processes are strategic: service & asset management, manufacturing, supply chain and projects. The company has more than 2,000 customers and is represented in some 60 countries with 2,800 employees in total. More details can be found at For further information, to Americas Argentina, Brazil, Canada, mexico, United States Asia Pacific Australia, Indonesia, Japan, Malaysia, new zealand, Philippines, PR China, Singapore, Thailand Europe east and central asia BALkans, Czech republic, GEorgia, Hungary, Israel, kazakhstan, Poland, russia and cis, slovakia, Turkey, ukraine Europe Central austria, Belgium, GErmany, italy, netherlands, SWitzERLand Europe West France, Ireland, Portugal, spain, United Kingdom Middle East and africa India, South africa, Sri Lanka, United Arab Emirates Nordic Denmark, Norway, sweden Finland and the Baltic area Estonia, Finland, Latvia, Lithuania This document may contain statements of possible future functionality for IFS software products and technology. Such statements of future functionality are for information purposes only and should not BE interpreted as any commitment or representation. IFS and all IFS product names are trademarks of IFS. The names of actual companies and products mentioned herein may BE the trademarks of their respective owners. IFS AB 2013 En Production: IFS Corporate Marketing, March 2013.

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