Reverse Logistics Strategy. Implementing Change. Professor John Cullen, University of Sheffield Chris Hall, Halfords 18 June, 2007
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1 Reverse Logistics Strategy Implementing Change Professor John Cullen, University of Sheffield Chris Hall, Halfords 18 June, 2007
2 Project Sponsors: Project Partners:
3 Purchasing policies Liberal returns policy Forecast accuracy & demand variability Product range & safety stock policy High on-shelf availability etc Factors causing reverse logistics flows Promotional activity Legislative factors Cash flow management Trading terms NPD & product Life cycles Logistics trade off s Customer no fault found
4 Managing reverse logistics Taking a whole product life cycle view Start here? Recycle Concept Design Return Use Manufacture
5 The way forward Network infrastructure Asset management Supply chain strategy Specialist service providers Outbound / inbound Integrate Reduce Collaborate Shared services Re-use Recycle Process management Competitors Technology Evaluate Enabled Sustainability Performance measures Cost
6 Initial investigation Efficiency of reverse logistics completed April 2004: Value of returns 5.75bn Up to 30% returns by volume Indication of poor returns management processes Impact on sustainable distribution
7 Chris Hall Head of Quality & Cost Reduction, Halfords
8 Background UK Based To deliver travel and leisure solutions to people on the move through market leading knowledge, choice and service FTSE 250 Mkt Cap ~ 894m Auto, Leisure and Cycling markets Sales 744m (+6.0% LFL) FY 07 Gross Profit c.51%, Operating Profit c.13% Multi-site Retailer (426 stores)- UK, INTERNATIONAL 3 Central DC s 90% Delivered from DC s 20% Far East Sourcing
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11 Key drivers for change High percentage of no fault found Higher value products being sold Little idea of the cost of the liberal customer returns policy The structure of stores stock write-off and the impact on behaviour Lack of visibility and management reporting Returns avoidance strategies not fully leveraged ~ 100k/mth write-off lost in transit Lack of accountability for faulty goods costs management in the organisation
12 New Returns Process Implementation Timeline Part 1 1st Halfords Reverse Logistics Working Group First CILT Reverse Logistics Forum Best Practise Presentation to Exec In Car Technology Returns Process Pilot End of landfill operations and start of Jamboree Boxes Disposal costs reduced to ZERO and yield generated First Rev Share trials Improved yields against previous jobber yields Increased controls on ICT as part of "Hammering Dow n Erosions", introducing secure storage, numbered returns seals, separate speedflow s, full documentation. Launch < 15 initiative in stores. Launch non-compliance chargebacks on ICT 77,000 less units through the DC. Store non-compliance reduced from 15% to 2% Appointment of Returns Manager in a Commercial role Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06
13 New Returns Process Implementation Timeline Part 2 High returns product range Corrective Action Plans agreed 1st Period Returns Process Report issued to Exec and Senior Managers Electric ride-on toys pilot Spares Helpline launched 70% reduction in returns over busiest trading period Improved "jamboree" box disposal agreement Daily collections, significantly improved yield Five top cost savings opportunities agreed. > 1m 06/07 Supplier Returns Terms & Conditions agreed w ith Trading Team Returns started to be integrated into usual business review s-ongoing Progress presentation to Exec Review of Customer Returns/Refund Policy Greater clarity and visibility of policies for customers and staff Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07
14 Presentation to the Executive Team Reverse Logistics: A Vision for Best-Practice Returns Process Costing and performance indicators were used as part of the justification for a new approach Improvements to Financial KPIs and the bottom line Received project approval Approval to recruit Returns Manager in a Commercial role
15 Implementation approach: Eating an elephant!
16 New Returns Process Implementation Timeline Part 1 1st Halfords Reverse Logistics Working Group First CILT Reverse Logistics Forum Best Practise Presentation to Exec In Car Technology Returns Process Pilot End of landfill operations and start of Jamboree Boxes Disposal costs reduced to ZERO and yield generated First Rev Share trials Improved yields against previous jobber yields Increased controls on ICT as part of "Hammering Dow n Erosions", introducing secure storage, numbered returns seals, separate speedflow s, full documentation. Launch < 15 initiative in stores. Launch non-compliance chargebacks on ICT 77,000 less units through the DC. Store non-compliance reduced from 15% to 2% Appointment of Returns Manager in a Commercial role Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06
17 New Returns Process Implementation Timeline Part 2 High returns product range Corrective Action Plans agreed 1st Period Returns Process Report issued to Exec and Senior Managers Electric ride-on toys pilot Spares Helpline launched 70% reduction in returns over busiest trading period Improved "jamboree" box disposal agreement Daily collections, significantly improved yield Five top cost savings opportunities agreed. > 1m 06/07 Supplier Returns Terms & Conditions agreed w ith Trading Team Returns started to be integrated into usual business review s-ongoing Progress presentation to Exec Review of Customer Returns/Refund Policy Greater clarity and visibility of policies for customers and staff Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07
18 Questions to be answered Use of quality costing ideas prevention, appraisal and failure costs? In the returns process what are the failure costs? In the returns process what are the appropriate KPI s related to the failure costs? In the returns process what are the prevention costs? In the returns process what are the appropriate KPI s related to the prevention costs? What about opportunity costs?
19 New Monthly/Period Returns Process Report - Contents Contents :- Page 1. Contents Page Page 2 to 4 Comments on Tables and Graphs included in P1 Returns Report Page 5. FAGO Returned to DC volume graph YTD Page 6. < 15 FAGO written off or marked down in store Page 7. Top 40 < 15 FAGO written off in store Page 8 < 15 FAGO written off in store by supplier Page 9. Total FAGO 2006 verses 2005 Page10. Suppliers Top 40 FAGO by Value Page 10. Travel Solutions Top 10 Suppliers with FAGO ranked by value Page 12. Travel Solutions Top 40 FAGO Articles ranked by value Page 13. Cycling Suppliers Top 10 with FAGO ranked by value Page 14. Cycling Top 40 FAGO Articles ranked by value Page 15. Car Enhancement Top 10 Suppliers with FAGO ranked by value Page 16. Car Enhancement Top 40 FAGO Articles ranked by value Page 17. Car Maintenance Top 10 Suppliers with FAGO ranked by value Page 18. Car Maintenance Top 40 FAGO Articles ranked by value Page 19. Store Returns Compliance in ICT P5 to P1 Page 20. Stores Reasons for ICT Chargebacks Page 21. Stores Chargeback on In Car Technology Ranking as % of Car Enhancement Sales Page 22. Stores Top 20 Chargeback Locations by Value Page 23. Stores Top 20 Stock Lost in Transit by Value Page 24 Jobber & Remarketer Yields Page 25. Repairs Turn Around Times by AEL (AEL carry out our audio warranty repairs and refurbishment processes) Page 26. In Car Technology warranty repairs analysis by Supplier Page 27. YTD AEL No Fault Found analysis by Store Page 28. AEL Warranty Carriage Charges Absorbed by Halfords *Good Stock Recall Process currently being revised with Supply Team, Distribution and Store Ops, and a report will be issued once the process is in operation *New Battery supplier and collection process is immanent, and a tracking report will be issued once the process is in operation
20 Top 40 < 15 Customer Returned Products Written Off in Store, by Volume P1 Article Description Qnty Qnty Rolling Annual No P1 YTD Average % HAL 180CM RESET COMBI HAL 90CM COMBI LOCK HAL METAL BARREL FOOTPUMP & GAUGE HAL TWIN BARREL FOOTPUMP & GAUGE Halfords Basic Shackle Lock " HAND PUMP WINNIE THE POOH ROLLER SUNBLIND X HAL SUCTION MIRROR HRV HAL PRO STAR BIT SKT TX40 3/8" DR HAL BULB HBU477 55W H NPT DIGIT STD EACH 50MM HAL PRO STAR BIT SKT TX30 3/8" DR HALFORDS METAL BARREL FOOTPUMP Halfords SH Tube 26"x 1.5 to HAL PRO STAR BIT SKT TX55 3/8" DR PAMPERED TAX DISC HOLDER HALFORDS PLUG WRENCH 10MM UJ Pink Diamante Tax Disc Holder HAL PRO STAR BIT SKT TX45 3/8" DR Bike Hut Rear Compact LED Article Description Qnty Qnty Rolling Annual No P1 YTD Average % 5397 BH SH Sealant Tube 26" x 1.5 to HAL BULB HBU380 21/5W X HAL PRO RATCHET 1/4" DRIVE Halfords Shackle Lock WINNIE THE POOH SIDE SUNBLINDS X HAL BULB HBU382 21W X HAL PRO EXT BAR SET 2PC 3/8" DR HAL PRO RATCHET SPANNER 10MM HAL PRO STAR BIT SKT TX50 3/8" DR LITTLE MISS NAUGHTY TAX DISC HOLDER hal PRO RATCHET SPANNER 13MM HAL BUCKET 10L CAPACITY NEW ASHTRAY Halfords Hi Volume Pump V TRIPLE MULTI SOCKET EXSPIDER DIGITAL CLOCK STUFF N SCUFF HAL BULB HBU472 60/55W HAL PRO STAR BIT SKT TX20 3/8" DR HAL PRO HEX BIT SKT 6MM 3/8" DR Total 5967 < 15 units written off as FAGO in store during P1
21 Store In Car Technology Compliance on Returns P5 06/07 to P1 07/08 ICT Store Compliance P5 to P Volume of ICT FAGO % FAGO Charged Back to Stores Total ICT FAGO % of ICT Charged Back to Store 0 P5 P6 P7 P8 P9 P10 P11 P12 P1 0 Period Trend :- P1 shows an increase in non compliance from stores for the first time in seven months to 3.7% of all ICT FAGO returns. Stores and Area Managers are vigilant in this area and this Period is expected to be an anomaly. Target for Chargeback for non-compliance less than 2%
22 Some Costs of Failure and Prevention Failure costs: Stock write-offs Staff time involved Transport Warehouse space utilised Triple-handling Customer dissatisfaction Prevention costs: Clearer instructions to both stores and customers Training store staff to prevent customer returns Monitoring and reporting
23 Some potential KPI s Cycle time returns from stores / money back from supplier Cycle time returns from stores / products sent back to supplier % space taken up in warehouse by returned products Failed debit notes / Successful debit note Returns by stores relative to trained employees Store training cost relative to benchmarked cost % No fault found Reduced transport miles through collaboration with others Benchmarked figures
24 Key Performance Indicators Changing behaviour Use of league tables (stores, suppliers, products, product managers, ) Use of non financial and financial measures of performance (Balanced Scorecard) Use of sustainability measures?
25 Integrate, Collaborate, Evaluate Network infrastructure Asset management Supply chain strategy Specialist service providers Outbound / inbound Integrate Reduce Collaborate Shared services Re-use Recycle Process management Competitors Technology Evaluate Enabled Sustainability Performance measures Cost
26 Halfords participation in the Dept for Transport Reverse Logistics project The DfT reverse logistics project had a major influence on the introduction of new reverse logistics processes within Halfords. It helped increase awareness of the issues and the large potential for improvement to both bottom line performance and customer service, through introduction of improved processes. The identification of new tools and the support provided by discussions at the workshops played a vital part in the implementation of change at Halfords
27 Implementing Change: Halfords learning Engage Finance Director early! Gain full commitment from Senior Management, regular progress reports to Senior Management Get VISIBILITY of issues Seek out quick-wins Approach: eating an elephant - bite-size chunks Seek support to keep your motivation/energy Benchmark approaches Dedicated resource (self-funding)
28 Questions
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