This post was written by Matt Maudlin, Marketing Manager for ModusLink Corporation.
Often CFOs look at their company’s revenue losses from returned products as a cost of doing business. But what they fail to realize is that an efficient and effective returns process can truly minimize those losses – putting as much as five percent of your revenue right back to the bottom line. For companies looking to maximize their profits, a well-run returns program can bring incredible dividends.
Here are five questions every CFO should ask to make sure returns programs are streamlined and recouping as much revenue as possible for the organization:
1. Are we reselling as much returned product as possible?
You would be surprised at the number of companies that aren’t properly leveraging sales channels to resell their returned products. Even though these products typically cannot be sold as “new,” the products usually still have value and can (and should) be sold. Our experience shows that as much as 75 percent of returned products have no defect or problem whatsoever. Retailers specializing in selling refurbished goods are very eager to help sell your products. Even if they sell for a percentage less than the retail price, it’s still new found revenue instead of expense.
2. How fast is our turnaround time?
Products in the consumer electronic and technology categories often drop in retail value quickly. The longer it takes to process, repair, refurbish, and find the channel to sell your products, the less value they have when placed back out in the marketplace. If your returns process is truly streamlined, your product should be available for sale within five to seven days. How fast is your turnaround time? If your returns process is not returning products to the market fast enough, then changing that process will recoup more revenue.
3. Have we looked at the ROI on repairing damaged products?
Many times companies just discard damaged products when sometimes a small investment in repair can yield a greater return from damaged goods. Identify how your products are damaged, then analyze their value if repaired and costs associated to repair them. You may be surprised at the increase in revenue from reviewing your damaged returns repair processes.
4. Are we harvesting good parts from non-repairable products?
Sometimes, returned products are damaged beyond economical repair but can still provide revenue through parts reclamation. Most of these products still contain good parts that can be used to repair other damaged products, or sold outright to other repair shops. You should have a process in place to maximize the yield of all products.
5. Are we earning revenue by recycling?
Recycling consumer electronic devices can be expensive, but these costs can be turned into revenue when you partner with recycling vendors. Proper recycling can yield either an offset in recycling costs or provide a revenue stream by capturing the precious metals used to create these products. Partner with a company who has those relationships and you will gain incremental revenue wherever possible.
Want to learn more about how you can take advantage of this overlooked revenue stream that supplements product sales? Download this white paper: Carving Out a Path to Aftermarket Profitability Starts with the Basics.
Charles Darwin once said, "In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment." This concept of evolve or become extinct is something that has practical applications in business.
Imagine a world with no libraries or book stores. It might be easier to envision this now than it would have been 10 years ago. With advances in technology, things we never thought possible or only read about in science fiction are now becoming reality. Recent data from by Futuresource Consulting indicates that sales of e-books are quickly catching up to the physical counterpart. As you can see, the growth projection below is pretty impressive and also indicative of the prevalence of digital content. Publishers and book sellers have seen a need to adapt to this change in form factor to remain competitive and profitable.
In a digital content driven world, how do you manage and protect your intellectual property (IP)? By ensuring your customers are accessing only the content or services they have rights to, and offering them the option to purchase additional features and services as they choose, you can maximize the residual profits of your IP. The right technology and infrastructure are critical for any company that does not want to become “extinct.” E-books are just one example of a physical product that has been transformed into digital content. Music, movies, software, games and more are all experiencing a shift from physical to digital. What will be the next?
The following was written by Patrick Xiang, Sr. Manager Professional Services for ModusLink.
I am not going to bash on Dr. Li’s creativity, or the creativity of academia for that matter, but this is a list of Z acronyms a friend of mine came up with who also happens to be an economics professor when discussing Chinese economic geography:
SEZ, ETDZ, FTZ, EPZ, BLZ, HIDZ, BECZ, SDZ, USZ, THRDZ…
Now raise your hand if you know all of them …
I don’t. So I put on my 20/80 analytics lenses, Baidued and Googled for a good hour, and decided that I should take a closer look at FTZ and EPZ. The other Zs can wait.
1. FTZ: Free Trade Zone
FTZ is also known as “bonded area” or “bonded warehouse.” It is a sealed-off, tariff-free area dedicated to international trade, logistics and processing activities. The arrangement is what we call “inside the border but outside of the customs” (“Jing Nei Guan Wai” in Chinese) where tariffs are only incurred when secondary customs boundary lines are crossed.
The first Chinese FTZ was designated in 1990 (Waigaoqiao in Shanghai ). Currently there are 15 FTZs in China. ModusLink has facilities in two of them: Futian in the south and Waigaoqiao in the east. These facilities are ideal for reexport as they enable us to take advantage of the FTZs’ preferential tax treatments and their proximity to low-cost labor and suppliers, without the hassle of clearing customs.
By the way, BLZ (bonded logistics zone) is a type of FTZ that’s geared toward logistics only.
2. EPZ: Export Processing Zone
In many ways, Export Processing Zones (EPZs) are just FTZs (can we call it bonded processing zone, or BPZ, Professor?). EPZs are set up mainly for export processing. The first Chinese EPZ was established in Kunshan in 2000 and the number of EPZs had ballooned to 58 by the end of 2010.
ModusLink has facilities in 5 EPZs: Shenzhen, Caohejing (Shanghai), Songjiang (Shanghai), Kunshan and Chongqing.
Here is a map of the FTZs and EPZs in China:
While both FTZs and EPZs provide significant supply chain management cost savings and operational flexibilities, there are a few noteworthy differences. The following table is from Yusen Logistics:
Suitable business lines
Manufacturing company, trade, warehousing, logistics, and consulting
Export processing-based manufacturing companies and those forwarders and warehousing companies who provide them with services only
Sales of the products outside the zone
Domestic transport of the products is 100% permitted without obligation of minimum export quantity
Selling more than 30% of the products outside the zone is not allowed because more than 70% of the products are required for export
Customs duty/value added tax imposed when selling outside the zone
Sell the entire quantity of products manufactured outside the zone
-> Tax imposition
Those cases other than the above where the quantity, description, and price of imported raw materials contained in the products can be identified
-> Impose taxes on raw materials
Impose taxes on the products
Processing in the zone of raw materials from outside the zone
VAT can't be refunded when cargo enter free trade zone unless cargo departed from China
Value added tax shall be refunded when the raw materials are carried in the zone
Commission of processing to outside the zone
Possible if the approval of the customs house is obtained
Export of the products through the zone
Possible to carry the cargoes outside the zone and into the zone and then export them as is
Transport of the products in the zone
A transportation company who has acquired a license in the free-trade zone and registered with customs undertakes the consignment
An expert transportation company who has acquired a license from customs and is established in the zone undertakes the consignment
Storage limitation of bonded cargo
Semi-annual notification to the customs house is required
Bonded cargo control
Bonded warehouse receiving register (EDI with the customs house)
Export processing zone border crossing cargo record statement (EDI with the customs house)
The point is, going from one zone to the next zone can be like going into the twilight zone. When doing business in China it is critical to work with a partner who not only understands the rules but also has sufficient presence in those zones to support your diverse market needs.
Have you been to the twilight zone lately? I would love to hear your thoughts.
BTW, if you know what THRDZ means please drop me a line as well.
In yesterday's Value Chain Exchange webinar, Kate Vitasek, author, educator and business consultant, spoke about vested outsourcing and how you can create value and mutual advantage in an outsourcing deal. Kate started out the event by explaining the inherent flaws in a traditional outsourcing relationship. These include high risk for the company outsourcing the activity and low risk for the service provider. This is mostly due to service level agreements that are not aligned with business objectives. Often, service providers are tasked with completing activities such as on-time shipments rather than achieving business outcomes.
So, is there a better way to outsource? Yes. There needs to be a paradigm shift from transaction-based outsourcing agreements to outcome-based agreements. Outsourcing agreements need to be more strategic and focus on intended results, not just activities. There needs to be an inherent incentive to be more efficient and effective. In essence, both parties need to adopt the motto of share the value, share the wealth, as Kate blogged earlier this month. Suppliers need to be motivated to increase innovation and decrease cost.
So, why do traditional outsourcing agreements fail? The top five reasons are:
- Unclear expectations
- Misaligned interest over time
- Poor governance
- Poor communication
- Not mutually beneficial
The way you structure an outsourcing agreement will dictate the success of the partnership. It is critical that the parties involved work together to create value. In the second portion of this webinar event, Kate focused on presenting the five rules of vested outsourcing that are common to the world’s most successful outsourcing agreements. The five rules include:
- Outcome-based vs. transaction-based models
- Focus on the what not the how
- Clearly defined and measureable desired outcomes
- Pricing model incentives optimized for cost/service tradeoffs
- Insight vs. oversight governance structure
A recording of this event will be ready shortly and I will update this post once the link becomes available. If you have any questions on this topic or an outsourcing story to share, please do so in the comments section below.
Watch the webcast recording
In this recent interview, Lora Cecere, Partner with Altimeter Group and the author of enterprise software blog Supply Chain Shaman, shares her insight on supply chain management trends.
1. What one trend in supply chain management are you most closely following?
Today’s supply chain has a very low IQ. In intelligence quotient definitions, the supply chain would rate as a slow learner. In fact, most just respond, and never learn. I am excited about the evolution of technologies that allow us to listen, and then drive an intelligent response. I am also studying technologies that allow us to do in vitro testing in the channel and learn. These processes are being designed from the outside-in whereas, traditional supply chain processes were designed from the inside-out. In my series – Big Data Supply Chains - I talk about the technological solutions to address these issues.
2. What do you think the most prevalent supply chain management trends will be in 2012?
Three trends are prevalent:
- Building of Strong Horizontal Processes. We can see this in the redesign of S&OP to cross over the functions of the supply chain to connect planners from the customer’s customer to the supplier’s supplier.
- Demand Orchestration. With the rising commodity prices, companies are interested in technologies to enable demand orchestration: the translation of demand from buy-side to sell-side markets. This data will be used bi-directionally to set go-to-market pricing, define promotions, establish the most economic formulation, alternative sourcing, and network strategies. The ability to accurately translate demand and decrease the latency of demand data will define winners.
- Big Data Supply Chains. It abounds. It takes different forms: social data, sensor data, channel data, customer service data. While companies have adapted to the increased velocity of structured data, not so for unstructured text. As data increases in volume, type and velocity, companies will turn to new analytical tools and techniques,
3. What are the top 3 things you believe companies need to have in order to execute successful supply chain strategies?
- Clarity of supply chain strategy and a clear definition of supply chain excellence. Both need the buy-in and support of upper management. If the executives are not convinced of the need for change, there is no technology in the world that can help.
- Truly understanding how many supply chains and processes you have.
- Have a feasible plan that takes into account time horizons, constraints and allows for variability.
4. How do you think globalization and online retail has or will further impact the supply chain industry?
We have run the first half of the marathon to be global. The scramble to become global is now replaced with the need to be reliable and adaptable. As relative costs change, the strategic opportunity changes. The only thing constant about the change is change itself.
5. What are your thoughts on outsourcing supply chain processes vs. keeping them in-house?
There are many types of outsourcing in the supply chain. It is hard to generalize. Let’s look at them one by one.
Low-Cost Country Sourcing. The accepted belief was that outsourcing would ultimately cut costs. In the scramble to be global, some companies made mistakes by basing the decision to outsource in a global economy to reduced transactional costs. Unfortunately, the decisions were not made on total costs nor was there an analysis of the change in rhythm and cycle on the extended supply chain. Today, companies get it to a greater degree. The good news is that network design techniques and processes have matured to help companies get more holistic answers. The most advanced work on low-cost country sourcing is happening in apparel, consumer durables, high tech and electronics and heavy equipment.
Common Use of Assets. In the chemical and semi-conductor value networks, companies have successfully consolidated value chain assets. For the chemical industry, this is termed SWAP PLANS and in the semi-conductor industry, it gave rise to the “fabless” manufacturing network. I see other asset-intensive industries considering similar strategies like commodity food products and specialty chemicals. The redefinition of relationships to share assets is a fascinating piece of research.
Outsourced Distribution. Third-party distribution is here to stay. It makes sense when the company does not have the scale to be a direct shipper, or when the third party has an advantage through established carrier and channel relationships.
All of these forms of outsourcing will continue to be redefined through 2012. We have evolved from internally focused supply chains to value networks.
6. How has sustainability affected the design and execution of supply chains today? Will we continue to see this movement impact the supply chain of the future?
Sustainability has made companies more aware of the lifecycle of their products and services. The sad fact of the matter is that we are entering an era where supplies will not only be constrained, they will not be available. Water is a critical supply chain issue. Likewise, the rising costs of commodities help sustainability initiatives. It is now more cost efficient to recycle, reduce and reuse.
It is also key in go-to-market strategies. Green and recycled products are now prominently advertised. There is a market.
In 2012, I expect to see significant progress on the evolution of sustainability standards.
About Lora Cecere
Lora Cecere is a Partner with Altimeter Group and the author of enterprise software blog “Supply Chain Shaman.” The blog focuses on the use of enterprise applications to drive supply chain excellence.
As an enterprise strategist, Lora focuses on the changing face of enterprise technologies. Her research is designed for the early adopter seeking first mover advantage. Current research topics include the digital consumer, supply chain sensing, demand shaping and revenue management, demand-driven value networks, accelerating innovation through open design networks, the evolution of predictive analytics, emerging business intelligence solutions, and technologies to improve safe and secure product delivery.
Kate Vitasek is a faculty member at the University of Tennessee’s Center for Executive Education and is author of the popular books Vested Outsourcing: Five Rules That Will Transform Outsourcing and The Vested Outsourcing Manual.
Shared value relationships are gaining traction in the outsourcing community as companies and their suppliers increasingly realize they can prosper by working together to create a bigger piece of the pie.
Employing shared value concepts is necessary for collaboration and trust to really take hold in a way that benefits everyone. It’s a much different approach from the traditional “me-first,” “I-win-you-lose” approach to doing business.
Shared value thinking involves entities working together to bring innovations that benefit the parties and the enterprise—with a conscious effort that the parties gain (or share) in the rewards. Two major shared value advocates are Harvard Business School’s Michael Porter and Mark Kramer, who profiled their “big idea” in the January–February 2011 Harvard Business Review Magazine. Porter and Kramer say that shared value creation will drive the next wave of innovation and productivity growth in the global economy. Porter is renowned for his “Five Forces” model of competitive advantage.
University of Tennessee (UT) researchers think of shared value as moving from WWIFMe (what is in it for me) thinking to WIIFWe thinking. It is this highly collaborative win-win spirit that forms the basis for the University’s research and field work on some of the world’s most successful outsourcing deals. The UT worked on the development and implementation of Vested Outsourcing, a collaborative, outcome-based hybrid business model that utilizes shared value principles.
The Vested Outsourcing approach provides companies with the fluidity, give-and-take, and collective behavior that has the power to deliver transformational results.
Vested Outsourcing leverages components of an outcome-based model with the concepts of behavioral economics and the principles of shared value. Behavioral economics is the study of the quantified impact of individual behavior or of the decision-makers within an organization. The study of behavioral economics is evolving into the concept of relational economics, which proposes that economic value can be expanded through positive relationships (win-win) thinking rather than adversarial relationships (win-lose or lose-lose). Using this concept, entities can work together to expand their reward horizon.
When improvements and cooperation occur, the trust that exists between the parties enables them to unlock far more innovation and value than outdated power-based transactional approaches. But Vested Outsourcing takes outcome-based approaches a significant step further than performance-based agreements: it’s a fundamental shift away from the old transaction-based outsource models.
A Vested Outsourcing agreement is based on specific targeted goals, or desired outcomes, which form the basis of the agreement. A desired outcome is a measurable business objective that focuses on what will be accomplished as a result of the work performed. It is not a task-oriented service-level agreement (SLA) that often is mentioned in a conventional statement of work or performance-based agreements. Rather it is a mutually agreed upon, objective, and measurable deliverable for which the service provider will be rewarded. A desired outcome is generally categorized as an improvement to cost, schedule, market share, revenue, customer service levels, or performance.
The Vested Outsourcing business model is best used when a company wants to move beyond having a service provider perform a set of directed tasks and wants to develop a solution based on mutual advantage to achieve the company’s desired outcomes.
Vested Outsourcing is perfect for progressive companies seeking the benefit of an investment-based model, but without the actual investments. They can leverage the Vested hybrid business model that enables success in an outsourcing environment while still allowing a company to remain a separate entity. These companies achieve mutual advantage and gain by working in a completely integrated and mutually beneficial manner where the parties have a vested interest in each other’s success.
The path to collaboration and shared value is based on five tenets, which I call the Five Rules of Vested Outsourcing. These five key rules provide the foundation for a successful, long-term Vested Agreement.
The Five Rules are:
- Focus on outcomes, not transactions.
- Focus on the what, not the how.
- Agree on clearly defined and measureable outcomes.
- Pricing model and incentives optimizing for cost/service trade-offs.
- Governance structure that provides insight, not merely oversight.
Although these rules originally were developed by the University of Tennessee for outsourcing deals, they are applicable to any business agreement where the parties want to forge a shared value relationship that jointly leverages capabilities to innovate, lower costs, and improve service.
To learn more about the Five Rules, be sure to register for the October 18 Value Chain Exchange Webcast, sponsored by ModusLink Global Solutions.
Yesterday, Apple CEO Tim Cook hosted an event where he unveiled the iPhone 4S, the latest new product from a company that routinely makes headlines with its new products. During the event, it was announced that the phone will be available in U.S. stores beginning October 14. Making that kind of an announcement – especially considering this is the first new product launch since Cook took the reins as CEO – takes a great deal of confidence in the supply chain and in the level of preparation by the teams responsible for this launch. This announcement – as well as the many others that we generally see from hi-tech companies this time of year – led me to think about what makes a new product launch successful.
- A comprehensive view of the launch plan that is regularly reviewed cross-functionally. Launching a new product involves a large number of internal functions (product marketing, engineering, procurement, quality, manufacturing, supply chain, sales, demand planning, order management, etc.) as well as a number of external suppliers and partners (component suppliers, contract manufacturers, postponement and configuration partners, freight providers, etc.), each with their own operating procedures and metrics. Without a single plan that clearly illustrates how each of these groups impacts the others and contributes to a successful launch, it is difficult to evaluate progress and/or potential risks.
- An empowered, knowledgeable person who has accountability for all aspects of the launch regardless of function. Very closely related to the first item, it is critical that a single individual has ownership and accountability for the successful launch of the product. The person must be empowered to work across functions and across companies to identify and remove barriers to success. The person should be sufficiently knowledgeable about the company, the supply chain, and all stages of production to anticipate and resolve potential problems. This work cannot be done effectively by committee; clear ownership is key.
- Collaboration among internal functions and among companies involved in the supply chain. The person who is tasked with successfully launching new products should be effective at getting functions and companies to collaborate with one another. Publishing a project plan that clearly shows deliverables from one contributor as predecessors to subsequent tasks is valuable but doesn’t go nearly far enough. Getting the various groups involved in product launch to actively and openly engage with one another is a key to making the process smooth and successful.
- A close eye and many minds involved in predicting consumer demand. Forecasting consumer demand is much more difficult with a soon-to-be launched product than with an existing one. In addition, for many companies, forecast demand is a greater contributor to the build/buy plan for new products than for existing ones. For these reasons, it is important to keep an active eye (or, better, several sets of active eyes) on the product forecasts. If a formal collaborative planning, forecasting and replenishment (CPFR) relationship exists, this is where it can really pay dividends. If no formal collaborative forecasting process is in place, there are still plenty of opportunities for collaboration and discussion with regard to consumer demand.
- Partnership decisions based on the right considerations. Without a doubt, cost, quality, delivery performance, and lead time are always important factors. This is just as true with new products as it is with existing ones. That said, there are other considerations that can be particularly important during the unpredictable period of time leading up to a product launch. Flexibility, strength of executive-level relationships, willingness to collaborate with other companies, and IP protection, for example, take on a heightened importance when dealing with new products.
I would love to hear from others on this topic. Please share your thoughts in the comments section below.
For the last two decades when I thought of manufacturing in China some of the following thoughts came to my mind: cheap, inexpensive and low quality. What’s funny is how wrong I was. China produces some of the highest-quality products. While it’s true that at one time it was extremely inexpensive to produce products in China, that trend is also changing. I looked up some information on the Internet, and to no one’s surprise discovered that the labor rate in China is increasing.
I couldn’t find anything more recent, but I think the trend is obvious. However, the problem with taking statistics for the entire country is the fact that historically most manufacturing and development has been performed near the major ports. Because of this, wages are inflated in these areas, so the increases are actually exacerbated. This is part of the reason that companies are now moving work to the interior of the country to fight against these inflationary impacts. Most developed countries experience inflation at a rate of 3-4%. The problem with China is that it is developing so quickly that its inflation rate is >6% (See the chart below):
As you can see by the chart, outside of the global economic meltdown that took place in 2009, the amount of inflation that started spiraling to the clouds in 2007 has really seen no slow down.
So what does this all mean? It means that companies that do business in China have to be careful that they have the right supply chains and choose the right partners. Performing all manufacturing in China is not always the right answer anymore. It also means that flexibility has become more important than ever. Many of the companies that historically solved problems by throwing people at them, have to figure out how to be leaner. Automation and other critical investments will be required to keep costs down. As mentioned above, we are also seeing a massive push into mainland China. The wages there are significantly lower than in the developed port cities like Shenzhen and Shanghai. That said, the logistics of getting products to the ports for export can be a challenge. ModusLink has facilities in each of these areas that provide BPO services and there are of course pros and cons to both. Regardless, the days of manual processes are near the end.
While I don’t see China dominating manufacturing like it once did, I still see it as a critical geographical point of interest in many supply chains. The interesting thing will be to see how companies that do business in China change their strategies as the global super star grows up. I for one am watching closely and would be curious to get your predictions for the future.