White paper on a reverse logistics program

1. December 2011
Reverse Logistics
Parts Recovery Center
NorthGate provides complete reverse-logistics services.
This Report chronicles our solution for a large client with
complex Returns Management needs.
OVERVIEW
The multi channel market leaders have changed the landscape for accepting returned goods.
They have allowed customers the flexibility of returning goods with a ―no – hassle‖ guarantee in
order to get a competitive selling advantage. As a result, return rates have increased in the past
7 to 12 years and it is our belief the rate will continue climbing upwards.
“…market segments often experience returns of 10 to 15 percent. The costs and the
loss of value of returned goods, often amounting to more than 20% in terms of profit
impairment for online traders…” *
The trend is increasing as more shoppers rely on the internet to purchase, while suppliers find
easier ways to make the return process user friendly for the customer. It has been estimated a
manufacturer spends on average 9% to 14% on sales returns. One out of six parts shipped
ends up being returned.
Here is a summary of the main reasons a customer will return the parts they ordered;
The product was not needed, ordered the wrong item or more than they needed
Catalog error
The installation was more significant than the ―do it yourself installer‖ anticipated
Defective in material or workmanship
*http://e-commercefacts.com/background/2011/08/10-tipps-to-reduce-return/

2. Do you as a manufacturer or retailer know how much returns are costing your
bottom line?
Why outsource reverse logistics?
- Disruption of the regularly schedule flow of goods and services
- Expansion or space limitations
- Manpower constraints, including compensation and/or benefit expenses
- Your receiving department is already stretched thin and backlogged
- Customers’ complaints regarding the length of time it takes you to process the credit
- The high cost to process a return
- Don’t forget to include re-work and re-packaging time, materials and labor expenses
to recover the cost of the goods being sent back
- Scrapping the return parts is easier than the time and hassle to try and recover some
of the losses
- We sell new goods - the recovered return parts will hurt our brand image or infringe
upon our new sales initiative
What would be the benefit to using a third party logistics company to centralize the returns
process?
- Develop a customer friendly return process to improve brand loyalty and customer
satisfaction
- Improve business controls through tailored operations
- Get better recovery rates and investigate proposed alternative solutions
- Reduced cycle times
- Add measurable Quality Control and process improvement metrics
- Damage research
- Root cause analysis to find saving potential
- Consistency and improved image
- Improve cash flow
- Case studies and actual data to support sales and marketing efforts
- Quick to respond and to adapt improvement and cost saving changes
A return management system provides visibility and report capabilities in order to maximize the
value of the returned goods and ultimately improve the cash flow of the business.
NORTHGATE SOLUTION
NorthGate manages a customer’s Parts Recovery Center for after-sales service parts. The
returns originate from 4,300 dealer locations, managing 50,000 SKU’s and 150,000 individual
parts.
TYPES OF RETURNS
NorthGate receives a wide range of products from our customer, including automotive
accessories, small and large parts, chemicals, nickel-metal hydride (NiMH) batteries, packaged
and bulk unpackaged parts, packaged and unpackaged sheet metal parts, headlights, bumpers,
engines, axles, and small items such as switches, and fasteners.
An additional service we handle is Parts Distribution Center (PDC) recovery work. The PDC’s
occasionally have product damaged from natural causes, weather conditions, and building
and/or equipment failures. NorthGate is tasked with the re-work and asset recovery for the
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3. product which allows the PDC to continue functioning without disruption to servicing the normal
daily flow of orders.
HOW THE PROCESS WORKS
Returned parts occur for many reasons, and managing them is often a complex, business
function. Speed, efficiency, and cost-control are critical to satisfying customer demands.
The dealer requests a return from the OE manufacturer. The OE grants the return and issues
return goods authorization for the location and the specific part number item being returned.
The OE sends NorthGate an electronic Material Return (MR) applications detailed report that
lists all of the approved return authorizations.
The parts are returned to NorthGate.
Physically receive the parts and match the returns to the customers Material Return
(MR), Return Goods Authorization (RGA) or Returned Material Authorization (RMA)
documentation. The metric is to unload and receive all trailers returned within 48
hours of receipt.
Inspect and determine the following
 Packaging damage – re-package and warehouse
 Concealed damage, repairable, scrap or return to vendor
 Unitized incorrectly, validate the claim and reconcile paperwork
 Identify ―lost‖ parts that were returned undeliverable
 Inspect the part for transportation damage
Every Problem Report and Resolution request gets the same 100% inspection.
Types of claims include damaged or defective material, shorted quantities, incorrect
part numbers, and non-compliant packaging
If there is a 100% match, NorthGate sends the confirmation to the OE as approval to
issue the credit for the return as it is matched and reconciled to the Advanced
Shipment Notification (ASN) files.
When a matching process discrepancy is identified a Dealers notification takes place
within 24 hours
Our customer service representatives work to resolve these discrepancies within a
48 hour time period.
Once the upfront dealer credit process is finished the second phase of the return process is
implemented. This is called the recovery portion.
CENTRALIZED PARTS RECOVERY
Centralizing this function reduces business risks, saves time, and preserves marginal revenue.
It also assists in determining potential improvement to the flow of goods thus minimizing the
returns ratios and improves the quality and margins upfront.
As part of our asset recovery program for the customer, we inspect claims and process requests
and look for improvements in part packaging, quality and labeling.
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4. The Centralized Parts Recovery Center provides the following services:
Manage a flexible, rule-based receiving and disposition system
o Dispose/Scrap
 Scrap parts upon receipt (under a certain $ value, or age of the part,
thus minimizing the handling and cost treatment for the return.
NorthGate evaluates parts to be scrapped to determine if any residual
value is available before releasing to the salvage yard.
o Return to a Vendor or specified source
o Set aside to re-work / re-package and return to stock for future sales
o Salvage parts with residual value such as cores
o Initiate ―Green/Recyclable‖ and precious metals recovery
Process all documentation and the physical handling/warehousing requirements for
Hazardous Materials in accordance with U.S. Department of Transportation
regulations
After the parts are sorted, they are routed according to their disposition coding. Parts are re-
labeled and returned to a designated PDC center for inventory and resale. Some of the parts
need minor re-work before being send back to a PDC location.
Process part number change requests by relabeling and updating inventory to allow
for resale
Re-package parts going back to a PDC location
o Our operation includes equipment for labeling, bar coding, heat sealing in
poly bags, adding paper dunning, stapling, stretch wrapping, and pallet
handling.
Occasionally, it is determined that a part needs to be re-packaged and warehoused for resale
purposes; however the sales volume is very low. In these cases, in order to preserve the cost,
NorthGate becomes a warehouse / fulfillment center for the OE. We place these items into
inventory in the re-work condition. If an order is received, we pull the part and perform the re-
work at the packaging /shipping stage. This saves time and money. A portion of the inventory is
scrapped every year and the OE therefore does not incur the re-work cost piece.
Additional services provided to the OE are;
Order fulfillment – pick, pack and ship parts to customers, suppliers, other
distribution centers and/or to other third party service providers
o We pull orders hourly from our customer’s order-writing system. Based on
the order, we pick, package for shipment, and communicate the order status
to the customer. Over 9 years we have handled over 830,000 multi-line
customer/dealer orders.
Packaging for shipment includes:
o Merchandise and/or Distribution packaging
o Palletizing and preparation of large orders
o Shipping container and container closure requirements
o Labeling products
o Bar coding
o Graphic and imprinting standards
o Environmental and rust-free ferrous part requirements
We bar code all outbound containers for efficient handling and tracking. We
coordinate logistics, transportation, and delivery of parts to customers.
Orders ship the same day via cross docks, LTL carriers, Fed-Ex or UPS
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5. When necessary, we affix ―country of origin‖ labels and ensure compliance with all
relevant U.S., Canadian, NAFTA, and international regulations.
Typical outbound destinations include:
o US and Canada customers, distribution centers or vendors
o International customers
o Core remanufacturing facilities
o Recycling and scrap facilities
o Hazardous disposal facilities
Hazardous Materials - all NorthGate employees are trained for hazardous material
handling, and we abide by federal regulations that govern the shipping, packaging,
and storing of hazardous materials
Manage the inventory and provide inventory reports, audit cycle counts and an
annual physical inventory count
Receive inbound parts from suppliers, or other distribution centers for:
o De-unitizing, and repack work
o Provide disaster recovery re-work
Return to a Vendor processing to maximize asset recovery programs
WAREHOUSE MANAGEMENT SYSTEM
NorthGate provides a state-of-the-art Warehouse Management System (WMS), a combination
of physical facilities, software and other amenities, including dedicated professionals
responsible for assisting our customers in lowering the cost of handling returned products.
Our WMS software manages the complexity of parts returns.
WMS defines and assigns stocking locations by area, zone, and commodity code.
We define single and multiple-item locations and freeze stock in a location.
WMS uses rule-based processing to define picking paths and zones by order type,
size of order, bundled orders, and customer order groupings. It has flexibility and
detailed capabilities to define other rules suitable to meet the most stringent
demands of a customer. It adds up to increased speed, more efficient throughput,
compact use of space, and overall reduction in costs.
The NorthGate Warehouse Management System software interacts with the
customer’s systems to exchange data using industry standard file formats.
WMS receives dealer orders, update inventory, post order status, and the sending of
Advanced Shipment Notification (ASN).
WMS relies upon an extensive part-attribute file—nearly 1 million part numbers with
many attributes per part—used in combination with custom processing rules to sort
and process parts upon arrival at warehouse.
Radio frequency (RF) and bar code scanning provide complete processing and
location management throughout the warehouse.
We provide dedicated IT project management to optimize real-time system
operations and control.
Complete system redundancy and data backup to ensure 100% availability.
QUALITY ASSURANCE
We audit every process including trailer receiving, product receiving, scrap handling, shipping,
repackaging, MR quality claims and PRR processes, inventory cycle counts, and security. We
audit and conduct performance reviews and report monthly to ensure the processes and
documentation are accurate and efficient.
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6. Every program has target improvement metrics established. NorthGate consistently exceeds all
performance measurements for customer claims including incorrect part, incorrect quantity,
unitized incorrectly, and concealed damage. The chart below summarizes the total non-
conformance measurable metrics and yearly service improvements progression.
Metrics Limit Actual Performance Metric
4
3.5
3
2.5
Metrics
2
1.5
1
0.5
0
2007 2008 2009 2010
Total Non-conformances
In the last 3 years, we identified and introduced 9 additional cost saving initiatives. They were
created from our constant desire to improve our efficiencies and effectiveness as well as
performing root cause analysis after seeing patterns develop. In total, $415,000 of annual
saving was generated from these initiatives.
RACKING and STORAGE SYSTEMS
Certain commodities have specific storage requirements, and we provide storage for unique
items such as bumpers, doors, exhausts systems and piping, fenders, hoods, and other
specialized configurations.
We keep all parts in a separate stocking location in plastic bins, baskets, or containers. Our
storage bins and racks have ample capacity for the quantity of parts stored, which allows for
safe maximum bin density and compact use of warehouse space.
Our fenced trailer yard consists of 16 acres and stores up to 250 trailers.
CONCLUSION
NorthGate provides sophisticated, efficient, and cost-effective reverse logistics for large and
complex applications. Our employees, systems, facilities, and processes combine to create a
state-of-the-art Parts Recovery Center.
We achieve superior customer satisfaction using a combination of technology, facilities,
equipment, expertise, processes, and internal quality assurance practices. Our commitment to
the job ensures rapid processing, correct actions, cost-savings, and timely reporting every time.
Our goal is to provide brand protection while yielding the most productive saving for our
customers’ bottom line.
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