Copyright © 2007 Reverse Logistics Association Welcome Reverse Logistics Association Amsterdam Seminar June 25, 2007

Copyright © 2007 Reverse Logistics Association

WelcomeReverse Logistics Association

Amsterdam SeminarJune 25, 2007


The Request for Information and Quote, Contracts

& The Statement of Work

Gailen Vick

President

Reverse Logistics Association


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

Agenda


“Real knowledge is to know the extent of one's

ignorance.”

Confucius


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


Supply Chain - After Market Services Product Life Cycle

FORWARD LOGISTICSSupply Chain

EN

D U

SE

R / C

ON

SU

ME

R

REVERSE LOGISTICSAftermarket Supply Chain

New ProductDevelopment

Material Management

Manufacturing & Distribution

Aftermarket Customer Services

•Design Development

•Technology Roadmaps

•ASIC Development

•Mechanical Design

•PCB Layout

•Prototyping

•New Product

Introduction

•Vendor Relations

•Planning

•Procurement

Inventory Planning

•Component Fabrication

•PCB Assembly

•Box Assembly

•Volume Manufacturing

•Integration

•Configuration

•Final Testing

•Distribution to Customer

•Customer Fulfillment

•Transportation

•Customer Service

•Contact Centers (helpdesk, call

centers)

•Depot Repair

•Field Service

•End-of-life Manufacturing

•Fulfillment Services

•IT Process Management

•Recycling

•Refurbishment/ Screening

•Replacement Management

•Returns Authorization Management

•Spare Parts Management

•Transportation/Warehousing

•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

•Customer Service•Contact Centers (helpdesk)•Depot Repair•Service Logistics

–Field Service–Transportation/Warehousing–Spare Parts Management–RMA Management–Replacement Management

•End-of-life Manufacturing•Fulfillment Services•IT Process Management•Recycling•Refurbishment/ Screening•Warranty Support


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


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


Relationship Partnership

Outsourcing Documents

RFI RFQ Contract SOW

RFI - Request for Information

RFQ Request for Quote

Statement of

Work


Facilities

Executive

Cross-departmental outsourcing investigation team

Finance Manager

Purchasing HR

Logistics LaborAcct. Legal

Operations Manager

Development

Prod ITProd

• Sponsorship

• Understand business objectives

• Quantify scope/schedule/resources of investigation

• Establish a decision process

The Outsource Decision



Department Item Business Fund. Functional Issues WeightCost TrackingInvoicingProblem ResolutionProcess ControlReportingReal Time DataRepair TrackingTransaction CapabilityReturns Mgt.PurchasingInventory ControlImport/ExportScrap ControlProcess Doc ControlEngineering Repair ExpertiseTest ExpertiseESD Control OrganizationPracticesMeterologyDocument ControlTraining/DocumentationWarehouseEnvironmentPower StabilityExpansionSenior Mgt.Operations Mgt.Operations FlexibilityCost Reduction EffortsProduction Flexibility

Quality

Facilities

Management

Accounting

IT

Materials

Process Eng.

Risks

Outsourcing Decision MatrixCost


Single vs. Multiple Suppliers

OEM/Retailer

3rd PartyProgram Mgt.

OEM/Retailer

3rd Party 3rd Party 3rd Party3rd Party3rd Party

3rd PartyLocation

3rd PartyLocation

3rd PartyLocation

3rd PartyLocation



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


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


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?



Create Detailed RFP/I/Q

Register as an RLA User

RL Quote dramatically simplifies access for Reverse Logistics Services

RL Quote is a powerful sourcing tool for access to the Reverse Logistics world

RFI Emailed to 3PSPs

Receive Quotes from 3PSPs

Feedback to 3PSPs

Sourcing service providers with RL Quote is free for OEMs

Simple; just complete the

quick registration process

Global exposure, feedback for 3PSPs


• RFIs are Released by OEMs & Retailers

• OEMs & Retailers Find 3PSP for Free

• 3PSPs Receive the RFIs

www.RLTinc.com



Outsourcing Matrix

Department Item Business Objective Critical Issues Risks

Cost TrackingInvoicingProblem Resolution

Process ControlReportingReal Time DataRepair TrackingTransaction CapabilityReturns Mgt.PurchasingInventory ControlImport/ExportScrap ControlProcess Doc ControlEngineering Repair ExpertiseTest ExpertiseESD Control OrganizationPracticesMeterologyDocument ControlTraining/DocumentationWarehouseEnvironmentPower StabilityExpansionSenior Mgt.Operations Mgt.Operations FlexibilityCost Reduction EffortsProduction Flexibility

Quality

Facilities

Management

Accounting

IT

Materials

Process Eng.

Corporate business strategies and objectives


3PSP

Ranking

Matrix

3.84100%Total Points

0.3753.7510%Management

0.4410%Facilities

0.54753.6515%Quality

0.793.9520%Process Eng.

0.59253.9515%Materials

0.793.9520%IT

0.3450.34510%Accounting

100%

3.75100%10%Category WeightingTotal

0.210%2Production Flexibility

0.620%3Cost Reduction Efforts

0.820%4Operations FlexibilityManagem

ent

1.3530%4.5Operations Mgt.

0.820%4Senior Mgt.

4100%10%Category WeightingTotal

1.530%5Expansion

0.510%5Power StabilityFacilities

0.820%4Environment

1.240%3Warehouse


0.920%4.5Training/Documentation

0.410%4Document Cont.

0.420%2MeteorologyQuality

0.3510%3.5Practices

1.640%4Organization


0.720%3.5ESD Control

120%5Test Expertise

0.820%4Repair Expertise

Process Eng

.

1.230%4Engineering

0.2510%2.5Process Doc Control


0.310%3Scrap Control

0.310%3Import/Export

1.3530%4.5Inventory ControlMaterials

125%4Purchasing

125%4Returns Mgt.


0.310%3Transaction Capability

120%5Repair Tracking

1.7550%3.5Real Time DataIT

0.410%4Preporting

0.510%5Process Control


1.0530%4Problem Resolution

1.240%3InvoicingAccounti

ng

1.230%4Cost Tracking

OverallWeightingRatingItemDepartme

nt

3.84100%Total Points

0.3753.7510%Management

0.4410%Facilities

0.54753.6515%Quality

0.793.9520%Process Eng.

0.59253.9515%Materials

0.793.9520%IT

0.3450.34510%Accounting

100%


0.210%2Production Flexibility

0.620%3Cost Reduction Efforts

0.820%4Operations FlexibilityManagem

ent

1.3530%4.5Operations Mgt.

0.820%4Senior Mgt.

4100%10%Category WeightingTotal

1.530%5Expansion

0.510%5Power StabilityFacilities

0.820%4Environment

1.240%3Warehouse


0.920%4.5Training/Documentation

0.410%4Document Cont.

0.420%2MeteorologyQuality

0.3510%3.5Practices

1.640%4Organization


0.720%3.5ESD Control

120%5Test Expertise

0.820%4Repair Expertise

Process Eng

.

1.230%4Engineering

0.2510%2.5Process Doc Control


0.310%3Scrap Control

0.310%3Import/Export

1.3530%4.5Inventory ControlMaterials

125%4Purchasing

125%4Returns Mgt.


0.310%3Transaction Capability

120%5Repair Tracking

1.7550%3.5Real Time DataIT

0.410%4Preporting

0.510%5Process Control


1.0530%4Problem Resolution

1.240%3InvoicingAccounti

ng

1.230%4Cost Tracking

OverallWeightingRatingItemDepartme

nt


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

Building the RFQ


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


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


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


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


Program Management Model

3rd PartyProgram Mgt.

3rd PartyLocation

3rd PartyLocation

3rd PartyLocation

3rd PartyLocation

3rd Party

Program Mgt.

Call Center

Fulfillment

Logistics

RepairLocation

OEM Repair

Vertical Relationships

Horizontal Relationships


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


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


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


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


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


New Service - RL Forum

• RL Professionals can Ask a Question

• Other Professionals can help Answer

•www.reverselogisticstrends.com/forum/


Contract Management


Relationship Partnership

Outsourcing Documents

RFI RFQ Contract SOW

RFI - Request for Information

RFQ Request for Quote

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.



• 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



• 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



• 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


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


RL in Your Finance Calculations

Product

After tax ProfitsAre

They

Measured Right

ReturnsTake

AwayFrom Bottom Line

Profits

ProductProduction

Cost

ReverseLogistics

Management

Your CompanyManufacturers 1 Million Units Per Year

Revenue per Unit is $1 or $1,000,000

Profit per unit is 5% After Tax or $50,000

Return Rate Average is 10% or 100,000 units

Returns Represents $100,000 of Salesor $50,000 negative to bottom line

Reverse Logistics Recovers 80% of the Returnsor $80,000 to company bottom line

Company’s After Tax Profit is $30,000

So who is most important, the VP of Marketing/Salesthat took $50K from your Company

or the Reverse Logistics Professional that gave you$30K of After Tax Profit?


Thank You