Cisco+Reverse+Logistics++Case+B,+Sept.+27,+2009 - STANFORD...

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Unformatted text preview: STANFORD SCHOOL OF ENGINEERING Department of Management Science and Engineering MS&E-002-2009 September 27, 2009 Turning End of Life Product Reprocessing into a Profit Center at Cisco Systems, Inc. (B) In December 2008, three years after the World Wide Reverse Logistics (WWRL) program was started at Cisco, the company won the coveted Supply Chain Innovation Award. Cisco faced tough competition from other finalists like Lockheed Martin, the U.S. Air Force, GENCO Supply Chain Solutions to name a few. The annual Supply Chain Innovation Award was established by CSCMP’s (Council of Supply Chain Management Professionals) Research Strategies Committee (RSC) and the GLSCS (Global Logistics & Supply Chain Strategies) magazine to recognize the best and most innovative solutions and ideas in the supply chain profession. Supply Chain Brain reported on their website that Cisco Systems earned the top spot by transforming its reverse logistics operation from a non‐value‐adding, $8 million cost center to a profit generating program that enhances the satisfaction of both internal and external customers. In early 2005, what started as a study to identify areas of process improvement within Cisco, over a three year period went from the Discovery Stage of identifying Reverse Logistics function as a potential area to focus, to Planning Stage where the “100‐Day” plan was put in place, to a successful Pilot Stage where the Idea was proved. The Pilot Stage was phase III of the WWRL program1. The WWRL team, after its Pilot Stage success, faced the challenge of developing a strategy to expand the program globally and scale operations to reach the estimated potential of $100 Million in net profit contribution. Today the WWRL team has been rechristened as Supply Chain Field Operations (SCFO). Reverse Logistics Program Business Objectives In 2005 there was a growing concern within Cisco that many of its equipments might be ending up in the grey market. Inadequate systems and processes along with a lack of control prevented gaining much needed visibility to estimate the severity of the grey market problem (see Exhibit 1 for a comparison of challenges in implementing closed loop supply chains across industries). But with the success of the pilot stage of WWRL program, Dan Gilbert, Vice President of WWRL and his team were promising Cisco an effective solution to this problem by recovering products from customers and distributors. The RL team came up with three main business objectives for the WWRL program: 1. Transforming the reverse logistics function from a cost center into a thriving business generating $100 million in profits and net contribution to the company within 3 years by: 1 Part A of this case details Phase I (Discovery Stage), Phase II (Planning Stage) and Phase III (Pilot Stage) of the WWRL Program at Cisco. Graduate student Sundaresan Chandrasekaran prepared this case under the guidance of Professor Dariush Rafinejad in collaboration with the Reverse Logistics team at Cisco and Professor Dwight Collins of Presidio School of Management. Professor Robert Carlson and Assistant Professor Feryal Erhun reviewed this case. Stanford Engineering cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. a. Driving top line growth b. Simultaneously reducing the operating costs of the reverse logistics function. 2. Reducing Cisco’s environmental Impact in line with the board mandate to become a “green” company. 3. Brand Protection by preventing products from hitting the grey market. Creating the new systems and processes would guarantee better control and visibility to Cisco and thereby help alleviate the customer pain points with respect to the returns process. In the fourth quarter of 2005, the RL team received consent from Cisco’s management to proceed with worldwide implementation but with partial funding. Still, with careful project management and scope prioritization, the budget allowed the RL team to complete a full global rollout. When asked about the key to this success, Christine Fisher, Director of Process and Policies unit remarked “I do not know if the project would have been funded if it was just another buck to be made. The combination of financial and strategic value in creating a great program for the environment while improving customer satisfaction was something that created the magic”. Background – Selecting World Class Suppliers Around the same time that the pilot stage was completed, the Reverse Logistics (RL) team embarked on a rigorous strategic sourcing and vendor qualification process2, first for Recycling and then for Receiving and Operations. Suppliers were selected based on their capabilities, the services they offered, and their ability to meet Cisco’s Service Levels as well as environmental and regulatory compliance requirements. The cost competitiveness of every supplier’s proposal was also considered and the pricing was negotiated through an online reverse auction. For Recycling, four world class vendors were selected. (See Exhibit 2 for the various stakeholders involved in the Reverse Logistics Program and refer to Exhibit 6 for returns material flow between the different groups). Two of the recyclers, one located in Fremont, California and the other located at Roseville, California manage Cisco’s recycling function in the US. In EMEA (Europe, Middle East and Africa), it is managed by a company located in the Netherlands and for APAC (Asia Pacific) region, the fourth partner located in Singapore, manages recycling for Cisco. On the Product Receiving and Operations side, TPL Logistics Inc. was selected as the preferred supplier from among 41 suppliers that were invited for the selection process. TPL Logistics provides global end‐to‐end process and system for inbound logistics3, receiving and disposition4, and fulfillment5 (see “Operations” section in Exhibit 2). Through three of its collection warehouses, one in Lincoln in California, a second in Zoetermeer in the Netherlands and the third in Hong Kong, TPL Logistics manages product returns for Cisco in America, EMEA and APAC regions respectively. Originally, Cisco had its collection warehouse located in Ohio, so the new contract offered not only better price and service but also greater global coverage. (Exhibit 3 shows which stages in a product’s end‐of‐life (EOL) are handled by Cisco after the Reverse Logistics program was implemented). Above all, Cisco developed clear requirements for its suppliers thereby gained clearer visibility, tighter controls and traceability. Moreover the whole process is replicable, scalable and sustainable. 2 3 This was part of another project called “Eclipse” Inbound Logistics involves Carrier Management, Coordination tracking and support, Customer pickup etc. 4 Receiving and Disposition involves receiving into dock, receiving on inventory, de‐configuration and then disposition 5 Fulfillment involves Order Management, Picking and Pack out and outbound logistics coordination 2 Phase IV – Operational Transformation6 With the selection of world class suppliers, the WWRL team now focused on determining the activities that returned highest value. Driving product returns and achieving increased utilization of the returned gear became a priority. The team was also quick in realizing the importance of incorporating best practices of other internal organizations into its own processes. Product return streams The World Wide Reverse logistics program receives its products primarily from three different sources (see “Asset Recovery” section in Exhibit 2). Cisco’s customers in the telecommunications industry, the various global service providers, and the IT industry form the first source. By means of its Customer Trade‐in Program, Cisco offers to take back used products from its customers and in return provide them discounts on new equipment purchases. These products are tagged as Defective Goods Inventory (DGI). The next stream of product inflow was from missed shipments and refused shipments. These returned products were typically unopened and had the original Cisco packaging. They were tagged as Finished Goods Inventory (FGI). The third source of goods for the reverse logistics program was the Excess and Obsolete (E&O) gear coming from Cisco’s manufacturing partners. This again was happening because it was near impossible for them to forecast demand accurately. Product re‐use The WWRL team had already identified the set of customers that would have the greatest need for the recovered products (see “Value Recovery” section in Exhibit 2). The Service Supply Chain Organization was at the top of the list. The Refurbished Sales unit which was previously re‐selling used goods on a limited scale by re‐furbishing and re‐packaging was on the list by default. This unit also has a separate marketing group to promote the sales of refurbished products. The cost of refurbishing is about 10‐20% of the original unit cost of manufacturing and the refurbished products do not have any manufacturing costs associated with them. Processes like re‐packaging and boxing are accounted for under overhead. This group facilitated the sales of the recovered gear to the price sensitive external customers at a lower price point typically providing 25‐30% off of the original list price7. Employing comprehensive and rigorous ISO9001 and 14001 certified processes, Cisco Certified Refurbished Equipments are remanufactured to “like‐new” condition and offer the same warranty as new equipment8. Through Cisco Capital, financing is also extended. The Refurbished Sales unit offers a comprehensive inventory of 2500 products today. (See Exhibit 4 for a sample list of Cisco Certified Refurbished Equipment). Cisco’s Engineering Labs were another internal customer. Customer demonstration depots also joined the reverse logistics program’s clientele. Using the product returns for their “try and buy” program was proving very cost efficient. This complete makeover of the reverse logistics function was also aiding Cisco in its Networking Academy program as well as other philanthropy efforts to donate Cisco products to educational institutes with tight budget constraints. The harvest stage Every product for which none of the internal departments could find any use, stopped at harvest before going to recycle. Harvest was the stage where all such products were opened up and precious 6 7 Part A of this case details Phases I to III, Discovery Stage till Pilot Stage of the WWRL Program at Cisco. Cisco Certified Refurbished Equipment program overview. 8 Cisco: Remanufacturing for a Greener Planet 3 metals and proprietary Cisco branded components would be extracted (see “Recycling” section in Exhibit 2). The harvested commodity parts like memory, hard drives, power supply units etc. were resold in the open market, whereas the proprietary Cisco parts were destroyed. So value was recovered in every possible manner before the products (now dismantled in the harvest stage) were sent to recycle. Organizational change management The reverse logistics team took a very rigorous and innovative approach in implementing the program. The team’s philosophy was to run the reverse logistics function as a business with generating bottom line profits as the driving force. In addition to the issue of minimal re‐use another gap that became evident was that the Reverse Logistics team was not recovering as much product as it potentially could. In accordance with its philosophy two independent teams, Asset Recovery and Value Recovery teams were put in place to close these gaps. The Asset Recovery team was responsible for managing customer relations and tracking the Return Material Authorizations (RMAs) to closure when TPL Logistics received the returned gear at its facility. It managed the product returns arising from the Customer Trade‐In Program, extended support services to clients and handled Stock Rotation agreements with distributors. The “Manufacturing Excess and Obsolete” which is another source of product inflow is managed by one of the recycling vendors and majority of the products are offered through an internal website to the engineering labs. Dan also came up with the idea of establishing asset recovery targets for this unit which resulted in dramatically improving the RMA closure rate. Robert Anderson, Sr. Manager of the Operations team believes RMA closures have become five times faster since the initiative was implemented. Also at times, in response to an increased demand for a particular product, the asset recovery team proactively approaches Cisco’s clients for returning those products so that the demand can be fulfilled. The effects of these changes were seen as a 110% increase in tonnage of incoming product returns from 2005 to 20079. The increased volume of products coming back to Cisco meant that they were being diverted away from other channels like the grey market and landfill. As the idea of reusing the recovered gear at such a huge scale was unheard of, an industry standard core application was unavailable in the market to manage supply chain operations for the Reverse Logistics program that would cater to the needs of the RL team. Hence, the operations unit within WWRL created a tailor made solution using the spread sheet application to keep track of its available supply and match its supply view with the demand view created by Value Recovery team to effectively fulfill the product requirements of its customers. The Value Recovery team was established with the goal to unlock the value in the returned gear and put them to the best possible use. This team was entrusted with the responsibility to maximize the value of product returns which would directly translate into bottom line profits for Cisco. They came up with a proprietary “Allocation Algorithm” to achieve this goal. The Business Intelligence Manager, Ali Miyasaheb’s team which was involved in business analytics for Reverse Logistics program helped operationalize the algorithm that Robert’s team manages today. The algorithm prioritizes the various customers and decides allocation based on its logic. The internal customer delivering maximum returns and greatest customer impact is given the highest priority. It also ensures that in an event of supply falling short of demand, a percentage of the request raised by every department high up in the priority 9 CSCMP Innovation Award Whitepaper (April 2008) 4 list is served. So the product in limited availability and soaring demand does not entirely gets allocated to just one customer creating discontent in others. The algorithm also provides the RL team with an option to modify the calculated priority to accommodate certain special cases. Service Supply Chain was providing the maximum gains – virtual revenue – to WWRL program and hence enjoyed the highest priority. The next preference was given to Refurbished Sales group which refurbished and or repackaged the returned gear before reselling it in the open market. Such refurbished or repackaged goods typically sold at 70% to 75% of the new product’s price. So those companies which did not have the budget to buy Cisco’s brand new products, now had an alternative from Cisco itself at a cheaper price point which they could afford. The Service Supply Chain (SSC) and the Refurbished Sales group are the two biggest customers for the reverse logistics team. The goods received as part of Stock Rotation program from distributors are usually in highest demand as they are new and box packed and hence can be put back into the market without any rework. Such products are typically consumed entirely by SSC and Refurbished Sales group. Next in line are Cisco’s engineering labs which include both technical support as well as training labs. These labs have a limited budget and hence procuring used items from the reverse logistics team gives them a golden opportunity to cut their costs whereby they could spend the saved money for equipments on their wish list. Learning from other functions The Asset Recovery and Value Recovery teams incorporated many practices that are at the heart of marketing and sales organizations. Adopting from the sales department, linear and stretch targets were set for product recovery as well as resale. Performance management was pivotal in driving to the plan and stretch targets. With established quarterly goals and stretch targets that were tracked weekly (see Exhibit 5), individual teams were held accountable for their respective re‐use streams like SSC, Refurbished Sales, and Network Academies etc. This went a long way in driving strategic value of re‐use for Cisco. Marketing techniques were espoused to publicize and promote the returned products and there by expand the user base. Talking to the customers and helping them understand the advantage of product re‐use was instrumental in driving demand. The RL team intelligently segmented businesses, identified the decision makers and then influenced “buy” decisions. The learning from the finance department – tracking performance using virtual Profit and Loss (P&L) – was utilized in the full scale implementation of the program as well. On one hand, the Sales department derived benefits as capital constrained customers were being served leading to greater customer satisfaction levels. Also the smaller buyers were now more open to considering costlier premium products from Cisco resulting in opening of new markets for the company. On the other hand, this program helped the Marketing department. This is what Ali had to say, “The Brand management guys really love us as we are preventing the Cisco branded items from ending up in the grey market.” By observing the Engineering department, the RL team learned to effect design changes that would improve the product economics relative to recycling. Robert says, “We do from time to time bring in design engineers to look at how we have to break products down to make it recyclable.” As a result, when the Engineering Department designs a product, they keep in mind that at some point of time the product will have to be recycled. And it is more cost effective and efficient to design it in a manner so that when it gets to the recycling step it can be recycled properly and quickly. These changes do not affect the performance of the product in any way but certainly alter the level of ease with which it can be recycled. 5 A direct implication of this effort is that as the RL team continues to succeed over time with the WWRL program as a profit center, it might transform Cisco Engineering’s design process to a point where the designs of all products would be optimized from the outset to generate a continuing stream of profits through some pre‐designed number of end‐of‐life recovery steps. Phase V – Building the Foundation for Change Once the right partners were in place, and the operations were ready to scale, several hurdles needed to be addressed internally within Cisco before the $100 million profit contribution target could be achieved. 1. Scalable product allocations: In the pilot stage, most value recovery was driven by two channels (Service Supply Chain and Refurbished Sales). To scale profitably, the Value Recovery team had to expand to new customer channels while minimizing inventory held in the regional warehouses. 2. Building relationships and listening to the customer: In the pilot stage when volumes were relatively small, stakeholders were tolerant of perceived risks from the RL program. But with volumes projected to grow over 100% in 12 months, concerns such as service support costs and sales cannibalization needed to be addressed proactively with stakeholders. 1) Scalable product allocations: The Reverse Logistics team quickly realized that, with a constrained supply of returned product, having a set of value recovery criteria was imperative to fairly and efficiently allocate product among the various customer demand channels. Also, to make best use of warehouse space and inventory, they came up with certain measures that were used to decide which products could be held in inventory for re‐use and which ones needed to be sent directly to harvest. The deciding factors were many. Firstly, the age of the product and the number of engineering revisions it had undergone was considered. Secondly, it was seen how many years of service coverage remained within the lifecycle of the product. Thirdly, the demand for the product was taken into account and it was a major determinant. 2) Building relationships and listening to the customer: Rehman Mohammed, Director of Value Recovery team put it in an interview to Supply Chain Brain that “you want to make sure that you bring the stakeholders along on the journey with you”. The RL team did exactly this by addressing early on, the concerns that two of the groups: Service Supply Chain (SSC) and Refurbished Sales had regarding the Reverse Logistics program. This ensured that the resistance the RL team faced at the end of the day was minimized, and the organization was aligned to drive toward a common goal. Cisco’s Service Supply Chain (SSC) organization was a key stakeholder, being both a source of product supply for WWRL through excess service parts inventory as well as WWRL’s largest customer (see Exhibit 6 for returns material flow between different groups). This is the organization that supports warranty claims and service contracts for Cisco’s customers. For this purpose they stock a wide range of products from current to end‐of‐sale. SSC initially raised concerns that the flow of returned product back into circulation would risk increasing downstream service costs. The RL team adopted a purely data and analysis based approach to prove to them the inherent value in the program. First of all, the RL team already had the value recovery criteria in place, which made sure that only those products would be considered that were still being supported with at least 3 years remaining before End of Support. Also, 6 WWRL gave SSC access to a wider range and volume of products to support their operations at zero cost, to reduce their expenses from new buys. This promised substantial cost savings for SSC. These key points in support of the reverse logistics function were very well received by the SSC. In return, they could send their surplus service inventory to WWRL. The RL team guaranteed that the surplus goods coming from SSC would be utilized better as they would either be re‐allocated to another unit or would be sent to harvest. Thus the RL team shared a unique relationship with the Service Supply Chain Organization as they were a supplier as well as a customer for the RL team. In 2008, on average about 10% of SSC’s service parts and materials came from the Reverse Logistics program. Addressing the cannibalization issue Another Stakeholder was the Refurbished Sales group. Traditionally, they had been procuring and reselling SSC’s surplus inventory. Now the Reverse Logistics program gave them an opportunity to widen their scope of operations and create larger customer impact as well as greater customer satisfaction. At a superficial level, the expanded scope gave the impression of cannibalization of demand among the external customers for virgin units of Cisco products becoming a major problem. But the RL team analyzed the problem thoroughly, only to conclude there wasn’t any such threat at all. Mark West, a Business Analyst involved with the WWRL program from its early stages, reasoned that through the resale of refurbished goods, Cisco could now target the price sensitive customers. Earlier they had no product offerings for such clients. He explained that it is similar to what happens with the rental cars in the automotive industry. If these customers, like Cisco experience using the refurbished goods, then they would be more willing to stretch their budgets’ for purchasing brand new Cisco equipment the next time. So in actuality, this program was enabling sales. Understanding external customer’s pain points Robert Anderson, Sr. Manager of Operations who has been with the RL program from the early days of its inception cited three major problems their customers were facing at that time. Firstly, Cisco did not have a global operations process in place to effectively recover products from its customers in Asia or Europe. Hence the Return Material Authorizations (RMAs) created were not being addressed properly. So when its customers called in to enquire if the products returned by them have been received by Cisco or else when they expect to receive the products, Cisco did not have enough transparency from its then vendor’s side to answer the queries effectively. Ali recounted that the situation was so bad that RMAs would have been created for receiving 100 units of hubs but what may arrive at Cisco’s warehouse would be 60 units of routers and 20 units of hubs. Secondly, the processing of credits to customers was delayed as they did not receive their credit for the returned goods until and unless the respective RMAs were closed. Thirdly, Cisco could not effectively extend its Customer Trade‐ in Program and use it as a sales tool to offer higher discounts to its customers in Asia or Europe. Ali added that as part of the Customer Trade‐in Program in 2005, Cisco’s customers were required to collect their old and used products from different field locations which they operated and bring it to their central warehouse. From here, Cisco’s recycling vendor would collect the gear. This was an added burden for Cisco’s customers. Results – Evidence in Action At the time when WWRL program was gaining momentum, Cisco started constructing a brand new Technical Assistance Center (TAC) in New Delhi, India. The lab had a limited budget and was faced with an aggressive timeline to commence its operations. When this TAC approached the Reverse 7 Logistics team, they supplied over $7 million worth of premium equipment to the lab within a short span of time. This facilitated the lab’s initiative and enabled them in going live faster than they had anticipated. This incident got a lot of positive press for the WWRL program. In Ali’s words “The successful implementation in TAC became a poster child for the RL team to target many more labs.” This world class lab stacked with premium Cisco equipment is able to provide better customer support as the engineers can re‐create customer issues and resolve them on the same equipment that customers use. Today this lab is producing increasing numbers of Cisco Certified engineers. A serious benefit of this success is that labs needing equipment now turn to the Reverse Logistics team first. Christine says, “We present two major benefits upfront to any internal organization that approaches us. First, all our products are free except for the shipping costs. Second benefit is that, their request gets serviced faster here than it would if they go to manufacturing or external market.” Value add to Cisco In 2008, the percentage of returned gear being re‐used by Cisco touched 44 percent. Just three years back, the figure was less than 5 %. (See Exhibit 7 for a chart showing percentage re‐use and the dollar value attached with it). All along the program, the reverse logistics team focused on minimizing operating costs as much as it focused on driving demand and achieving top line growth. Bringing the whole process in‐house and selecting best in class vendors for recycling and managing the returns process provided Cisco complete control and visibility of its products till their final disposition. Additionally, Cisco realizes actual revenue from its recycling process in the order of multi‐million dollars every year. The program improved overall productivity and reduced operational expenses to 39% in 2008 from 119% in 2005, when expressed as a percentage of the value of processed gear (see Exhibit 8). According to Christine, from the customer’s perspective, the systems have improved almost a 100% as there were none in place before the reverse logistics program was started. Until now, throughout the life of the project, the RL team has maintained a perfect rhythm to keep doubling its net contribution every year to reach the $100 million dollar mark in FY’ 2008. (Exhibit 9 shows WWRL program’s net contribution by year). The RL team also managed reporting requirements for Tax and Customs department by providing them whatever data they requested. Dan’s team embarked on this journey with a very clear vision of its objectives and has done well to achieve them in full measure. Though the objectives did not change over the course of the project, the team did see certain benefits which they had not anticipated. The director of process and policies group pointed out that there was more value at many different places internally within Cisco than they had expected. Robert mentioned that, “As we went through re‐engineering and redesigning our processes and systems it helped us to ultimately understand them as never before.” Earlier Cisco had outsourced the whole reverse logistics function as well as recycling to a sole vendor and in that case they were vulnerable to the various environmental regulations and policies. But now, regulations like the European Waste Electrical and Electronic Equipment (WEEE) Directive was part of Cisco’s restructuring process. In fact, Cisco engaged a member of the WEEE team who had a part to play in the implementation of the Reverse Logistics program in Europe. Future Challenges From 2005 to 2008, the RL team grew the program very efficiently and captured all the low hanging fruit. One of the biggest challenges in front of them today is that the business has plateaued. Some of the organizations that haven’t been tapped yet have very large business demands to stay 8 competitive. Trying to match these would increase costs for the WWRL team and hence their operational efficiency would be affected. FY08 and beyond10 For three years the WWRL team had functioned as a small team with just 50 members. Implementing the program on a global scale and reaching a target of $100 million in net profit with no major investment in IT infrastructure is a huge achievement by any standards. The Project has gone from a manual pilot stage to a transformation stage to a stabilization stage now, where the foundation is set. There is another project currently running under Dan, wherein Cisco is working with its distributors for achieving better demand forecasting. When asked about this project affecting the supply stream for WWRL, the managers of both Business Analytics team and Operations team agreed that their product inflow may see a dip but considered the bigger picture that it would be beneficial for the company on the whole. Robert added that, every year Cisco acquires new products and companies thereby new products start coming back to the RL team which had never even existed on their radar a few months ago. All of these products that require slightly different processes to support them quickly become a part of the asset recovery world, operations world and value recovery world. Now that the foundation is stabilized the RL team realizes that it constantly needs to create and build new capabilities. The dip in product returns from distributors was no problem at all for them when they consider other challenges, much bigger in nature that have to be addressed by the RL team. Now the team needs to manage a highly fragmented customer base as the Value Recovery team taps into new internal users. They need to do away with the original central planning process and bulk weekly shipments as the demand list has grown from 3 to 82 different lists in 2008. This could only be fulfilled using small sporadic shipments. Christine feels this scalability issue could partially be addressed by creating an automated end to end system for order collection and processing. Also the system could be integrated with the order collection system that exists for external customers currently. Increasing headcount is the other part of the solution. The reverse logistics program is experiencing a 20% increase in its Customer Trade‐in Program but the lack of capacity and coverage on a global scale is resulting in increased errors and discrepancies and generating backlog. This transforms into slower credit processing for customers and ultimately into reduced customer satisfaction levels. This problem needs to be addressed at the earliest. Also there exists some level of friction between RL team and some of its internal customers with respect to the Allocation Algorithm and its Disposition logic. To make the situation amiable, Ali and his team continues to have dialogue with the various departments to make the Allocation Algorithm System more attractive for them. Currently the product flow happens in an “as is” condition until it gets allocated to the internal customers. There is no screening process to identify and separate cosmetic issues from full repair requirements. All the DGI goes through the same process. This capability gap is resulting in reduced supply of products for re‐use or resale, long lead times and higher repair costs. WWRL is also plagued by certain profitability issues resulting from higher transactional costs. The other drivers for this problem are global product routing rules which are not optimized and high freight costs with little control or visibility on this side of the business. Creating solutions for these problems requires convincing the 10 Some of the information in this section is derived from Eclipse Phase 0, Execute Commit ‐ Cisco internal company presentation. 9 management for millions in investment. Though the Reverse Logistics program by WWRL has been stunningly successful, there are new challenges that need to be addressed innovatively and effectively along the way as it grows. A new beginning? After 3 years into the implementation of the innovative Reverse Logistics program and achieving stellar profits that are unheard of in this industry, the team is considering the option of patenting the process. A senior member commented saying; there have been serious talks from certain team members for filing intellectual property (IP) for specific parts of the program as well. The reverse logistics program enables Cisco to enhance the useful life of its products by up to 6 years and thereby extend their value manifold. The WWRL team feels that what they have achieved stands as a practical example for other companies seeking to unlock more value from their own products and parts, and obtain major reductions in diversion rates to landfill. 1 0 Exhibit 1 Comparison of Challenges in Implementing Closed Loop Supply Chains across Industries Source: Guide, Daniel V. and Luk Van Wassenhove, Business Aspects of Closed Loop Supply Chains, June 2, 2001. 1 1 Exhibit 2 Reverse Logistics Program Stakeholders TPL Logistics manages product collections and warehouse centers Mostly managed by a Recycling Vendor and majority of the products are offered through internal website to Labs. Recycling Vendor locations 1. Netherlands 2. Fremont, CA 3. Roseville, CA 4. Singapore Product flows in as is condition till it reaches the internal customers Source: Compiled by case writer. 1 2 Exhibit 3 Product end‐of‐life (EOL) practice at Cisco, post Reverse Logistics program High Value Recover Assets & Reconcile RMAs Low Value High Value Manage Returned Inventory Recover Value High Risk Create & Manage RMAs Pickup Returned Product Receive Returned Product Recycle Cisco Source: Cisco internal company presentation. Outsourced Cisco Outsourced 1 3 Exhibit 4 Sample product list of Cisco Certified Refurbished Equipment Exhibit 6 Returns material flow between different groups Source: Cisco Company website. 1 4 Exhibit 5 Learning from Sales (adopting quarterly quotas/stretch goals and tracking them weekly) Virtual Revenue from re‐use of product returns Weeks: FY 08 Source: Cisco’s Reverse Logistics: Using product returns to drive sustainability and share holder value, Company Presentation 1 5 Exhibit 6 Returns material flow between different groups Source: Company internal documentation. 1 6 Exhibit 7 Total Return versus Re‐use Source: Council of Supply Chain Management Professionals (CSCMP) Innovation Award Whitepaper (April 2008). Exhibit 8 Productivity Gains (as a percentage of the value of processed gear) Source: CSCMP Innovation Award Whitepaper (April 2008). 1 7 Exhibit 9 WWRL program’s net contribution by Fiscal Year $100 million Net Contribution $8 million Cost center Source: Cisco’s Reverse Logistics: Using product returns to drive sustainability and share holder value, Company Presentation 1 8 ...
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