What Goes Around Comes Around
Case Study: Bell Atlantic Distribution and Reverse Logistics
The Challenge
Up until the mid-1990’s Bell Atlantic provided telecommunications services to the six state area of: NJ, PA, DE, MD, VA, and WV. The supply chain consisted of hundreds of vendors nationwide, three distribution centers, depots, and over 500 storerooms which provided tools and equipment to installers and repairmen. What was unique was that over 60% of the outbound material eventually returned either to repair centers or material reclamation centers (MRCs). Repairing expensive circuit boards for re-use or re-sale was a cost effective way to increase profits. Reclaiming copper cable and reselling the copper as well as other reclaimable material was also profitable. Reverse logistics was a significant part of the supply chain operation.
The Solution
Although all supply chain models deal with the forward flow of material, very few considered the reverse flow. (For a description of a supply chain model for the telecommunications, see the Verizon Supply Chain Optimization case study.) Georgetown staff modified their supply chain model to optimize forward as well as reverse logistics.
Because a lack to data at the time on return flows by site and product, and because of the wide variations of return flow for some products, we had to develop a method to estimate volumes. We built into the customer-product demand file a new field to specify what percentage of the forward demand would return. For example, x% of all new cable would return to the MRCs in the form of old copper cable; y% of the plug-in circuit boards would return to repair centers within a year for repair or scraping (if they were obsolescent). Because it was specific for every demand site and product, we had flexibility to anticipate return flows.
The first stage of the model read the forward demand data and calculated the reverse flow either to the MRCs or repair centers depending on the product. It then created links to all the possible return points. A master reverse “dummy” demand point for each product would force the reverse flow through the lowest cost reverse network. In this way the model mirrored the forward flow and created alternative paths for the return flow.
The Results
The lowest cost supply chain was to build a new, large distribution center northwest of Philadelphia to focus all vendor inbound shipments on one point, to minimize inventory, and to gain economies of scale for a large DC. These economies outweighed the increase in outbound freight to the storerooms. Because of the capital costs to build a new DC and because of the impending merger with Nynex, Bell Atlantic tabled the recommendation. Since the MRC’s sites are governed by many environmental rules and because the repair centers were staffed by highly skilled repairmen who would be reluctant to move, the cost savings identified by the model weren’t sufficient to justify changing the reverse network. It did establish an optimum distribution / reverse flow solution. As the scale and scope of the corporation changed due to mergers and aquisitions the data points were valuable references for future distribution network decisions.