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Improving Third-Party Reverse Logistics Using Kotter’s Eight-Stage Change Process

Abstract

The requirement for a repeatable, systematic, sustainable change or transformation method becomes clear as organizations embark on transformation or improvement initiatives. This endeavor is possible and typical at the tactical or process level but may be lacking when the change involves the entire enterprise. Enter Kotter’s change model. This eight-stage iterative process provides a high-level framework that separates discrete activities into two sections, then breaks down four stages within each section, to enable a step-by-step approach to managing organizational change. This is particularly applicable in production, supply chain, and processing industries including Third-Party Reverse Logistics (3PRL), where the marriage of this method and recognized best-practices such as Lean and Six Sigma is a natural, practical, and beneficial union. The case study presented offers a real-world example of this application including measures defined, actions taken, and the associated results.

Introduction

“Change can be hard. It is often difficult to conceive performing tasks in a different order, in a different place, at a different time, with different resources, or in a different manner altogether” (Bowie, 2011). This human challenge, whether termed change, improvement, or transformation, is constant and consistent in all organizations and systems at the macro- and micro-levels on this side of grace. While our Father in Heaven does change us, He is the only person who Himself does not change. “For I the LORD do not change” (English Standard Version Bible, 2001). The rest of us, therefore, need a method for the execution of effective and efficient change.

Reverse logistics is a critical component of supply chain networks. Unfortunately, the core tasks typically associated with this business model are classified as rework by the best business practices, fraught with waste and non-value-added activities (for example, unpackaging then later repackaging items). Companies tend to compensate for this by increasing inventory buffers and increasing staffing (includes temporary workers and overtime efforts). This presents unique challenges for reverse logistics firms attempting to achieve or increase margins (or to survive), and these challenges are amplified by reduced predictability. “Blind” buys, bulk purchases, and retail returns can impose several “unknowns” on the management team: unknown (but estimated) incoming volumes, unknown incoming product mix, and unknown labor requirements per product. This can make labor allocation and cost planning a nightmare. For example, it can be extremely difficult to plan labor costs when the cost per unit (CPU) for an eight-hour shift with 100 associates ranges from $0.20 to $0.80.

My firm, Roxtar Consulting, was approached by a distressed United States-based multi-million-dollar 3PRL firm that was struggling to satisfy a portfolio of customers, manage a diverse workforce, and control operations across multiple facilities and business lines. Specific core operations included multiple processing centers, multiple distribution centers, and a mobile set of flex retail locations. The primary leadership concern was clearly focused on two consecutive years of loss.

Attempting to solve issues like those referenced above at the tactical- or ground-level may produce some perceived improvement, but transformation across the entire enterprise is required to implement successful and sustainable change. “The most discussed change management theories are at the organisational level (Kotter 1996; Stacey 2001), as leaders of organisations attempt to steer the entire company in line with their corporate or business level strategies” (Sittrop & Crosthwaite, 2021).

While Lean Six Sigma and other process-related methods are best practices at the tactical-level, organizations may also employ a repeatable, systemic approach to encourage successful change management across the entire establishment. In this vein, “Kotter’s change model is one of the best-known frameworks for change management. It is regarded as a simple and straightforward framework” and “many practitioners continue to implement it” (Kang et al., 2022). This eight-step (or “stage”, “phase”, etc.) model provides a perpetual logical loop for continuous organizational assessment, planning, and improvement execution. Exploration of this model in two sections, the identification of industry and area in need of change and planning for change implementation, proportionally divides the eight-steps and enables a simple, point-by-point application discussion based on the corporate case study referenced above (3PRL company).


Section One: Identification of Industry and Area in Need of Change

“The first four steps in the transformation process help defrost a hardened status quo” (Kotter, 2012). The very first stage is focused on establishing a sense of urgency, or clearly describing the burning platform.


Stage One: Establishing a Sense of Urgency

This stage requires organizations to “examine the market and competitive realities” and to “identify and discuss crises, potential crises, or major opportunities” (Kotter, 2012).

As a first step, a comprehensive assessment was performed across the customer’s industry, facilities, and systems. Data and process analyses, coupled with observational data and executive, management, and hourly employee interviews, revealed that the customer’s historic system, process, administrative, management, and physical configurations generated multiple costly forms of waste (primarily transportation and over‐processing), consumed excessive amounts of capacity, required negative flow, severely limited external dock access, and enabled little‐to‐no management control of personnel, equipment, or inventory. The effects of the existing configuration included reduced shipping and receiving throughput and velocity, overtime costs, and unpredictable performance. A quantitative- and qualitative-data-driven Strengths, Weaknesses, Opportunities, and Threats (SWOT) assessment summarized and communicated this information, including macro- and micro-level details.


Stage Two: Creating the Guiding Coalition

This stage involves “putting together a group with enough power to lead the change” and, at the same time, “getting the group to work together like a team” (Kotter, 2012). A Change Control Board was designed and initiated to review and approve (or disapprove) all changes, and the team’s performance status was continuously assessed using Tuckman’s group development model. “The group development model is an abstract conceptual representation in the group development theory and encompasses five distinct phases: forming, storming, norming, performing and adjourning” (Guttenberg, 2020). This team included members of the executive team, middle-management, and floor-level leaders, and this construct enabled a cross-strata perspective for opportunity and risk consideration.


Stage Three: Developing a Vision and Strategy

Stage three includes “creating a vision to help direct the change effort” and “developing strategies for ac