The October issue of Material Handling and Logistics magazine includes a cover story by RPA member Keith Schall. In the article, “Make Reusable Assets Show Returnable Value”, Schall lays out four steps for implementing an effective system to track and manage reusable assets:
➤ Understand the issues;
➤ Understand the available asset management systems;
➤ Develop the processes & KPIs necessary to create actionable and enforceable data;
➤ Obtain stakeholder alignment, educate the supply chain and implement a discipline to ensure compliance.
Managing and Tracking Reusable Assets: A Four-Stage Process
At any given time, a manufacturer can likely tell you the quantity of bulk items available for processing, and a distributor can tell you the number of trucks it has on the road and the number in for repairs. However not every company can tell you how many reusable assets, including pallets and containers, they have out at retail stores, in the warehouse or waiting for repairs. These reusables are recorded on a company’s books as assets, yet often they are not tracked and managed the same as other assets because historically packaging is often treated as an expendable commodity.
If you’re not tracking and managing your reusable assets, someone else is likely benefitting from your investment. There is a strong secondary market for reusable containers, with resellers and regrinders capitalizing on companies that do not properly monitor their reusable assets. Implementing an effective system to track and manage your assets requires four steps:
- Understand the issues
- Understand the available asset management systems
- Develop the processes & KPIs necessary to create actionable and enforceable data
- Obtain stakeholder alignment, educate the supply chain and implement a discipline to ensure compliance
1. Understand the Issues
If you use reusable transport assets, you need to be able to answer the following questions in order to address any issues associated with managing and tracking them:
- Where are your products shipped?
- How many containers are in your fleet?
- Where are they currently within your supply chain?
- What is your utilization rate? (Understanding dwell times and dormant assets)
- What is your annual loss rate? (How many you recover and how many you lose)
- Can you calculate container damage and repair rates?
Depending on the complexities of your business, attempting to understand these issues may take a considerable amount of time and resources. Whether you own your reusable asset fleet or are working with a pooler, understanding your true loss rate is a good place to start. To calculate this rate, begin by referring to the total number of reusable assets you purchased, which should be listed on your company’s Fixed-Asset Register (FAR). If you own the assets, each one should be marked in some distinct way, either serialized or barcoded, to indicate it belongs to your company. If you are working with a pooler, ask them if it is possible to have a uniform color for your reusables. This will help decrease your volume of “like-kind exchanges” or instances in which you receive back a very similar asset to the one you sent out, but not the exact same item. This can be an issue because your replacement may be an 8-year-old asset in place of your original which was newer, creating a loss on your FAR.
Next, you need a clearly defined audit process. This requires evaluating various entities that may potentially perform inventory counts and establish controls points within your supply chain. What are the risks of a supplier or 3PL (third-party logistics provider) reporting counts or activity? You will also need to clearly define how assets in transit, WIP, at off-site warehouses, or unusable assets, should be treated for standardization. A sound reusable asset inventory and audit process requires additional resources and potential expenses, but it will result in an accurate data set on which to base future decisions.
Additionally, your inventory must take into account damages and repairs to your reusable assets, keeping in mind all damages are not weighed equally. For example, damage to the base of a bulk bin is more significant than side wall damage, which can be more easily repaired. It is also important to track spare parts and attrition rates, and then incorporate those figures to the annual loss rate.
After you have gathered the above data, you are ready to calculate your true loss rate.
This diagram is an example of how the methodology can be applied. Because the period is 27 months, we divide 27 by 12 or 2.25, calculating the loss rate to be approximately 7.8%. You then need to compare your loss rate against your industry’s average acceptable loss rate to help gauge where you stand and determine whether there might be best practices for you to model. The RPA has been conducting a detailed loss survey and is observing a variety of variables from single digits in the automotive industry to as high as 40% other markets. To participate in this survey, visit https://reusables.org/1481/general/rpa-asset-loss-survey. Lastly, you will need to factor in the cost of your reusable assets. For instance, if you have $4 handheld totes, you may find a 7.8% loss rate to be acceptable, however if your assets are $1,000 stainless steel bulk containers, even 1-2% might be too much.
- 2. Understand Available Asset Management Systems
The asset management system you put in place will be dictated first by whether you need to track your reusable assets individually or in the aggregate. The supporting systems include manual paper and pencil, barcode scanning, passive and active RFID tags, and GPS. In order to select the methods that best meet your needs, the RPA has written a detailed article available at https://reusables.org/2215/general/managing-and-tracking-reusable-assets
Whichever method you choose, it must meet the following four requirements:
- Asset visibility. Your system should answer the questions: ‘Where are the containers today?’ and ‘Can I accurately dictate where these are and where they should be based on current demand?’
- The system must be easy to use. Obviously, even the most sophisticated software will be worthless if people are not using it. The system needs to be simple enough for everyone within the supply chain – from the floor to management – to use and understand. If your new system is time consuming to execute, production will likely see it as an impediment to getting their work done.
- Bill-back accountability. If suppliers or manufacturers are using your corporate-owned assets, it is critical for your company to have bill-back accountability. You can’t simply say to a supplier, ‘I need to bill you for a hundred lost assets’. In order to recoup your loss, you will need to have detailed data showing the day the assets left your facility, arrived at the supplier, and then were never returned.
- Ability to produce reports and proactive alerts. Your system should let you create automated alerts to notify you when assets are overdue. For example, an alert could tell you reusable pallets have been sitting at a supplier’s site for 90 days so you can in turn notify the supplier they have 10 days to return the assets before they are billed for loss. Data also allows you to identify supply chain bottlenecks.
Before purchasing a solution, explore whether a system is already in place in another area of your company, and determine whether the system you are considering can integrate with the data already housed in your production system.
- 3. Develop the processes & KPIs necessary to create actionable and enforceable data
Once you have your tracking system in place, it’s time to start reviewing data and looking for areas of improvement.
Inventory and activity reports provide only basic information regarding a reusable asset fleet. To improve performance, you need to review more advanced metrics such as loss ratios, system compliance and dwell-time reports. Utilization rates are also very important in helping understand which assets are in use and which are idle. Once you have a good grasp on this, advanced measurements such as loop variance reports will potentially identify which assets can be reallocated, ultimately allowing you to lower your overall capitalization expenses.
If you purchase or lease a fleet of containers, ask yourself if KPI’s are in place to help you answer:
- What is your utilization rate?
- Are they being used?
- Are they turning?
- Are they sitting?
- Where are the bottlenecks in the supply chain?
Reviewing this data will also help you identify other opportunities for improvement. For example, you might find current handling practices often result in damages to the bottom of a tilt strap. These reports will also help your executive management team make decisions on the reusable fleet and will help you monitor whether enough containers are available, in addition to when and where they are needed.
- 4. Obtain stakeholder alignment, educate the supply chain and implement compliance processes
Stakeholder alignment and compliance are critical to the success of implementing a program to manage and track your reusable assets. The importance of training and communication cannot be understated.
Identify all stakeholders involved and make sure everyone receives ongoing communications and adequate training on the processes and any new software or systems you are using. Your stakeholders will likely include corporate headquarters staff, plant workers and your suppliers. Be sure to clearly state the importance of tracking and managing your reusable assets, while keeping in mind that you are asking people to take on new tasks or responsibilities. Explaining to them how it saves the company money, which ultimately benefits the employee, will help them buy into the new system.
Some companies fail initially at the implementation stage because they have not provided enough employee training. Every employee and supplier who touches the reusable asset or sends it back needs to be trained. This can take place on site or possibly online through webinars or videos. Tracking is a new function for them even if a logistics provider is managing your reusables. Companies have been known to create new positions and responsibilities specific to managing reusable assets.
Also use your new reporting information to identify areas of non compliance. If even just a few suppliers or vendors are not in compliance, your inventory will get out of control very quickly, and you might not find out where those containers are until they are finally returned.
Finally, provide a method for people to voice feedback on the new system. Ask workers for their suggestions and for information on what is working and what’s not. Feedback can be given through a user forum or message board where any system user can provide suggestions for improvement. This is a key component to refining and improving your overall program and it also makes users feel part of the new process. People and processes are central to the success of an asset tracking and management system.
In previous years, asset tracking was viewed as a luxury, but today it has become a necessity. A lack of containers can stop your production line; a shortage of pallets could delay delivery of product to your customer. Asset tracking helps you make sure your reusable assets are available where and when you need them, and that the company is not losing them to theft. Also, with compliance standards and governing entities such as Sarbanes‑Oxley, it has become even more critical to implement reliable tracking solutions into supply chains. If a company has $10 million of returnable containers on their balance sheet, Sarbanes‑Oxley will require the company to know exactly where and when those assets passed what point. This is a significant development and will greatly accelerate the use of tracking systems. Implementing an asset tracking and management system requires time, research and changes in processes, but it is a necessary step to protect these valuable assets and to keep the flow going throughout your supply chain.