Welcome
Reverse Logistics Association
Amsterdam Seminar
June 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
Agenda
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
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 LOGISTICS
Supply Chain
New Product
Development
Material
Management
REVERSE LOGISTICS
Aftermarket Supply Chain
Manufacturing &
Distribution
•Vendor Relations
•PCB Assembly
•Technology Roadmaps
•Planning
•Box Assembly
•ASIC Development
•Procurement
•Volume Manufacturing
•Mechanical Design
Inventory Planning
•Integration
•PCB Layout
•Component Fabrication
•Configuration
•Prototyping
•Final Testing
•New Product
•Distribution to Customer
Introduction
•Customer Fulfillment
•Transportation
END USER / CONSUMER
•Design Development
Aftermarket Customer
Services
•Customer Service
•Customer
Service
•Contact
Centers
(helpdesk, call
•Contact
centers)
Centers (helpdesk)
•Depot Repair
•Depot Repair
•Service Logistics
•Field Service
–Field Service
•End-of-life Manufacturing
–Transportation/Warehousing
•Fulfillment Services
–Spare Parts Management
•IT Process
Management
–RMA
Management
•Recycling
–Replacement Management
•Refurbishment/
Screening
•End-of-life Manufacturing
•Replacement
•FulfillmentManagement
Services
•IT
Process
Management
•Returns Authorization Management
•Recycling
•Spare
Parts Management
•Refurbishment/ Screening
•Transportation/Warehousing
•Warranty
Support
•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
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
Outsourcing Documents
RFI - Request for Information
RFQ Request for Quote
RFI
Relationship
RFQ
Contract
Partnership
Copyright © 2007 Reverse Logistics Association
SOW
Statement
of
Work
The Outsource Decision
Executive
Finance Manager
Operations Manager
Development
Prod
Prod
Facilities
IT
Purchasing
Logistics
Acct.
HR
Legal
Labor
Cross-departmental outsourcing investigation team
• Sponsorship
• Understand business objectives
• Quantify scope/schedule/resources of investigation
• Establish a decision process
Copyright © 2007 Reverse Logistics Association
The Outsource Decision
Outsourcing Decision Matrix
Department
Accounting
IT
Materials
Process Eng.
Quality
Facilities
Management
Item
Business Fund. Functional Issues
Cost Tracking
Invoicing
Problem Resolution
Process Control
Reporting
Real Time Data
Repair Tracking
Transaction Capability
Returns Mgt.
Purchasing
Inventory Control
Import/Expor
tScrap Control
Process Doc Control
Engineering
Repair Expertise
Test Expertise
ESD Control
Organization
Practices
Meterology
Document Control
Training/Documentation
Warehouse
Environment
Power Stability
Expansion
Senior Mgt.
Operations Mgt.
Operations Flexibility
Cost Reduction Efforts
Production Flexibility
Copyright © 2007 Reverse Logistics Association
Risks
Cost
Weight
The Outsource Decision
Single vs. Multiple Suppliers
OEM/Retailer
3rd Party
Program Mgt.
3rd Party
Location
3rd Party
Location
3rd Party
Location
3rd Party
Location
OEM/Retailer
3rd Party
3rd Party
3rd Party
3rd Party
Copyright © 2007 Reverse Logistics Association
3rd Party
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
RL Quote dramatically simplifies
access for Reverse Logistics Services
Register
as an
RLA
User
RL Quote is a powerful sourcing tool for access
to the Reverse Logistics world
RFI
Emailed
to
3PSPs
Simple; just complete the
quick registration process
Sourcing service providers with
RL Quote is free for OEMs
Receive
Quotes
from
3PSPs
Global exposure,
feedback for 3PSPs
Copyright © 2007 Reverse Logistics Association
Feedback
to
3PSPs
Beginning OEM RFQ Process
• RFIs are Released by OEMs & Retailers
• OEMs & Retailers Find 3PSP for Free
• 3PSPs Receive the RFIs
Copyright © 2007 Reverse Logistics Association
www.RLTinc.com
Outsourcing Matrix
Department
Item
Business Objective
Critical Issues
Corporate business strategies and objectives
Accounting
IT
Materials
Process Eng.
Quality
Facilities
Management
Cost Tracking
Invoicing
Problem Resolution
Process Control
Reporting
Real Time Data
Repair Tracking
Transaction Capability
Returns Mgt.
Purchasing
Inventory Control
Import/Expo
Scrap Control
rt
Process Doc Control
Engineering
Repair Expertise
Test Expertise
ESD Control
Organization
Practices
Meterology
Document Control
Training/Documentation
Warehouse
Environment
Power Stability
Expansion
Senior Mgt.
Operations Mgt.
Operations Flexibility
Cost Reduction Efforts
Production Flexibility
Copyright © 2007 Reverse Logistics Association
Risks
Departme
nt
Accounti
ng
Item
Rating
Weighting
Cost Tracking
4
30%
Invoicing
3
40%
1.2
Problem Resolution
4
30%
1.05
3.45
Total
IT
3PSP
Ranking
Matrix
Category Weighting
10%
100%
5
10%
Preporting
4
10%
0.4
3.5
50%
1.75
Repair Tracking
5
20%
1
Transaction Capability
3
10%
0.3
Real Time Data
Category Weighting
20%
100%
4
25%
Purchasing
4
25%
1
4.5
30%
1.35
Import/Export
3
10%
0.3
Scrap Control
3
10%
15%
100%
3.95
Inventory Control
Category Weighting
Process Doc Control
10%
0.25
30%
1.2
Repair Expertise
4
20%
0.8
Test Expertise
5
20%
1
3.5
20%
0.7
20%
100%
4
40%
1.6
3.5
10%
0.35
Meteorology
2
20%
0.4
Document Cont.
4
10%
0.4
4.5
20%
15%
100%
Warehouse
3
40%
1.2
Environment
4
20%
0.8
Power Stability
5
10%
0.5
Expansion
5
30%
1.5
10%
100%
4
20%
0.8
4.5
30%
1.35
Operations Flexibility
4
20%
0.8
Cost Reduction Efforts
3
20%
0.6
Production Flexibility
2
10%
10%
100%
3.75
0.345
Category Weighting
Practices
Training/Documentation
Total
Category Weighting
Total
Category Weighting
Senior Mgt.
Operations Mgt.
Total
0.3
4
Organization
Managem
ent
1
2.5
Total
Facilities
3.95
Engineering
ESD Control
Quality
0.5
Returns Mgt.
Total
Process
Eng
.
1.2
Process Control
Total
Materials
Overall
Category Weighting
3.95
0.9
3.65
4
0.2
100%
Accounting
10%
0.345
IT
20%
3.95
0.79
Materials
15%
3.95
0.5925
Process Eng.
20%
3.95
0.79
Quality
15%
3.65
0.5475
Facilities
10%
4
Management
10%
3.75
Total Points
Copyright © 2007 Reverse Logistics Association
100%
0.4
0.375
3.84
Building the RFQ
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
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
Call
Center
3rd Party
Program Mgt.
3rd Party
Location
3rd Party
Location
Logistics
3rd Party
Location
3rd
Party
Program
Mgt.
Repair
Location
OEM
Repair
3rd Party
Location
Horizontal
Relationships
Fulfillment
Vertical
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
Outsourcing Documents
RFI - Request for Information
RFQ Request for Quote
RFI
Relationship
RFQ
Contract
Partnership
Copyright © 2007 Reverse Logistics Association
SOW
Statement
of
Work
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
Your Company
Manufacturers 1 Million Units Per Year
Revenue per Unit is $1 or $1,000,000
Profit per unit is 5% After Tax or $50,000
Product
Production
Cost
Reverse Logistics Recovers 80% of the Returns
or $80,000 to company bottom line
Company’s After Tax Profit is $30,000
Measured
Right
Return Rate Average is 10% or 100,000 units
Returns Represents $100,000 of Sales
or $50,000 negative to bottom line
After tax Profits
Are
They
Returns
Take
Away
From Bottom Line
Profits
So who is most important, the VP of Marketing/Sales
that took $50K from your Company
or the Reverse Logistics Professional that gave you
$30K of After Tax Profit?
Copyright © 2007 Reverse Logistics Association
Reverse
Logistics
Management
Thank You
Copyright © 2007 Reverse Logistics Association