Strategic Procurements Objective

How can Johnson Automotive improve and optimize their return parts channel? This will be the objective of Strategic Procurements objective. Johnson Automotive should understand reverse logistics and its process. If Johnson Automotive does not understand the hidden value of the reverse logistics, then it can never capitalize on this important facet of its business. Application of a supply chain is important, but just as important is the identification of any issues that would arise from the reverse logistics of electronics, batteries, and paint products. Also, this business is similar and different than other industries and the identification of these similarities and differences will help Johnson Automotive in their quest to operate their reverse supply chain more efficiently. Finally, is there an opportunity for a competitive advantage for Johnson Automotive? These are the questions that will be discussed.

What is reverse logistics? "Reverse logistics is the process of moving products from their typical final destination to another point, in an attempt to recapture some of the value of the product through resale, reverse auction, or for the purpose of disposal of the item if not resalable or reusable." (Reverse Logistics: Important or Irritant?) Some companies feel that returned merchandise is a losing effort for a company. However, with the proliferation of companies taking back returned items for any little reason, companies must view returned items as an opportunity for profits. The liberal return policies have given consumers an upper hand as regards the use and return of products. It is almost as if the consumer has the attitude of a "rent to own" policy because they will use a product for a few times and return it, not based on performance but based on if they like it or not. Unfortunately, this customer service trend is here to stay and companies must learn how to adapt to this new behavior and understand that it is part of business and to make it profitable. It has been stated that the average rate of return is thirty six percent, is this the same rate of return that Johnson Automotive experiences?

The processing of returned items includes the following: "processing returned merchandise that is either damaged, seasonal, has to be restocked, is returned for salvage, is returned for rebuild/refurbishment, has been recalled (for any number of reasons), and items that may now be excess to your inventory. Recycling of packaging and packing materials and/or containers is part of the business of Johnson Automotive. The reconditioning for resale, remanufacturing, refurbishing, rebuilding of items is very common in the automobile repair parts industry and the disposal or donation of obsolete items. The recovery of hazardous materials to prevent environmental implications, which in some cases, hazardous materials can be recycled to further reduce the environmental impacts." (Reverse Logistics: Important or Irritant?) This is a common method of basic operation when dealing returned items.

It appears that in times of war, reverse logistics became quite a concern once the war was over. Near the end of the Civil War, there was a surplus of ammunition, so General Sherman told his troops to dump their excess material in the river, hardly acceptable in today's world. World War II saw incredible shortages in the beginning of the war, so the American public began saving scrap metal, aluminum, tires, and other necessary raw materials for the war effort. However, at the close of World War II, the United States had over seventy seven million square feet of storage across Europe with over six point three billion in excess materials requiring shipping back to the United States, another example of reverse logistics. The United States military did not have to respond quickly to this issue, other companies have to respond quickly to certain business situations. The company Johnson and Johnson, had the 1984 Tylenol scare which was some tainted bottles of Tylenol had killed some consumers. The company had to respond quickly to restore good faith among their customers. They had to get the old bottles off the shelf quickly, have them sent back, develop new bottle technology (tamper-proof), and have the new bottles on the shelf. Necessity helped develop new standards in processing return products.

The problem is that Johnson Automotive is using archaic methods in their supply chain management systems. Therefore, it is necessary for this company to use methods and technology that will benefit their company. "In conventional supply chains, logistics network design is commonly recognized as a strategic issue of prime importance. The location of production facilities, storage concepts, and transportation strategies are major determinants of supply chain performance. Reverse logistics should also be taken into account during the design of the support network such as location and capacity of warehouses, plants, choice of outsourcing vendors, distribution channel and supporting technology. Returns information captured should be integrated with forward supply chain information to achieve optimum planning and reduction of costs. The whole support network can then be designed in such a way that it can service both the forward and Reverse Logistics processes efficiently. This is in line with the concept of a closed-loop supply chain design." (Reverse Logistics: An Important Dimension of Supply Chain Management) Is this part of the procedure that Johnson Automotive employs when handling returned goods? Does Johnson Automotive play the part as a "middle man" when providing key parts to one of the big three or is Johnson Automotive the prime manufacturer producing these parts? Because of the constant warranty work that happens in the production of new vehicles, the second question is really important when undergoing the arduous task of implementing a streamlined reverse logistics process.

"Overall logistics costs are estimated to account for approximately ten point seven percent of the United States economy. Reverse logistics itself is not developed enough to have established systems that can measure its attributes. Experts are guessing that reverse logistics accounts for approximately four percent of their logistics costs. That makes reverse logistics costs about a half percent of the total United States Gross Domestic Product." (Reverse Logistics: Current Trends and Practices in the Commercial World) Reverse logistics is critical for the automotive parts and remanufacturing industry. "The Auto Parts Remanufactures Association estimates that raw materials saved by remanufacturing worldwide would fill one hundred fifty five thousand railroad cars annually and for a train over one thousand one hundred miles long. (Reverse Logistics:

...