Posting 9

Reverse logistics Flow Process

Characteristics of reverse logistics

The reasons for returning products can be distinguished by where the returns initiated. Listed below are the main return reasons for each supply chain partner.

Customer not satisfied

Most manufacturers and retailers allow customers to return products if they do not meet their demands within a predefined period. Moneyback guarantees are standard practice for most direct sales channels. Consumers and retailers will sometimes abuse the return policies of manufacturers. Consumers wanting to try a new product will sometimes abuse the ‘not satisfied, money-back’ guarantee and simply return the product within allotted return period and receive their money back.

Installation or usage problems

Some customers experience problems with installation or usage of their recently acquired products. They perceive the product to be defective, while the reason for dissatisfaction is actually caused by difficult set-up or installation procedures or unclear instructions. This is a common problem in the computer industry where in some categories such as CD-ROM drives, return rates of 25 to 40 per cent are not uncommon. Complicated installation procedures and a lack of clear and simple instructions exacerbate the issue.

Warranty claims

Defective products or parts can be sent back to retailers or the manufacturer for repair. Products might either be dead on arrival, not working according to specifications or cosmetically damaged. This could happen either to the retailer or the end consumer. Alternatively, products might break down during the course of their life cycle. If the product is still within the warranty period extended by the manufacturer customers might return their product to the manufacturer or if that period has expired, customers could take up other options such as taking the product to a specialist repair center.

Faulty order processing

Both end consumers and retailers can experience shipping problems. Products need to be delivered in full and on time or customers can make claims against manufacturers and return (part of ) their shipment. Examples of delivery problems are incomplete shipments or missing parts, wrong quantities, wrong products, duplicate shipments and untimely delivery, which can cause the customer to miss out on the intended use of the product.

Retail overstock

Manufacturers can provide resellers with the luxury of returning unsold stock. This is a common practice in the book industry, for example. Retailers that need to make their accounting figures look good for the end of quarter or month will sometimes send significant

amounts of unsold stock back for credits, only to reorder it again after the end of a financial period.

End of product life cycle or product replacement

Once a product has reached the end of its life cycle, many manufacturers want to get it out of the retailers’ shelves as soon as possible to prevent sales cannibalization of the new version. This means that the old products have to be disposed of. Manufacturers either have to take the stock back, based upon the conditions agreed with the retailers, or the latter need to dump the old version quickly.

Manufacture recall programs

Serious flaws in a product can lead to a recall, instigated either by the manufacturer or a government agency. Common recalls appear in the automotive, pharmaceutical, and the toy industry. Aside from the safety issues in such situations, getting the discredited product out of circulation and into designated storage centers as soon as possible is a crucial part of damage limitation strategies. It is a grim deadline that any company would prefer not to have to meet, but many do. The US Consumer Product Safety Commission in 1999 reported 304 corrective actions involving over 75 million consumer product units of various types that either violated mandatory safety standards or presented a substantial risk of injury to the public.

Attacking the returns challenge

Improving the process : The four key steps involved in a returns process are local screening,

collection, sorting and disposition

·         Local screening

Local screening is done at the point of collection of the returned products. Often products enter the supply chain that should not enter in the first place and cause unnecessary transportation, administration and handling costs. In an ideal reverse supply chain, products are screened at the point of collection according to specifications of the manufacturer. Disposition, however, changes based on the product (or its version), the vendor and the retailer. Therefore, complex decision mechanisms need to be maintained to allow disposition of product based on customer agreement on a product-by-product basis. With the ubiquitous presence of the Internet plenty of opportunities exist to do this in a cost efficient and effective way. This will be discussed in more detail in the Technology section.

·         Collection

There are many different ways to collect the products that are destined to enter the reverse supply chain. Retailers often have to send their return products back to their suppliers’ different warehouses throughout the country. Different processes need to be set up to facilitate timely processing of these returns. This can often be very complicated and confusing for both retailers and manufacturers as they are dealing with multiple parties, many of whom are concentrating on getting products out to the customer, rather then back to the source. Some companies have set up central collection centers for collecting and sorting returns, which have proven to be very effective.

·         Sorting

Some large retailers have been using centralized return centers (CRCs) for many years. They have selected centralized return centers dedicated to handle their entire reverse logistics operations. The advantages of using centralized return centers are numerous. When a company dedicates an entire facility, organization and system to optimize the handling of returns, benefits arise from a whole range of areas. Some of the key benefits are: efficiency can increase as employees occupy positions full-time and can focus on handling returns only, experience in the sorting process will help employees make better and quicker disposition decisions, and cycle times will improve, resulting in better asset recovery and higher customer satisfaction.

        o   Sell as-is:

–        resale (as new)

–        sell via outlet or discount store

–        e-auction, and

–        sell to secondary market

o   Repair or reuse:

–        repair

–        refurbish or re manufacture

–        modify and

–        recycle

o   Dispose:

–        scrap

–        donate (to charity), and

–        dispose in secure manner (for example, certain drugs).

Disposition should be done to maximize the value of reclaimed goods or dispose of the goods in the most cost-effective way. Below are some innovative ways leading practice companies have adopted to improve the disposition of their returned items. Successful reverse logistics projects

Throughout this chapter many companies have been named that have engaged in one way or another successful reverse logistics projects.A good example complete reverse logistics program is a project by cosmetics manufacturer Este´e Lauder.The firm used to dump $60 million of its products into landfills each year, destroying more than third of the name brand cosmetics returned by retailers. Este´e Lauder made a small investment of $1.3 million to build its proprietary reverse logistics system of scanners, business intelligence tools linked to an Oracle database. The company has apparently recovered its investment in the first year through reducing labor and other costs.

                   Este´e Lauder has reduced its production and inventory levels through its increased ability to put returned goods back on the market and the availability of better data on the reasons for returns. In the first year Este´e Lauder was able to evaluate 24 per cent more returned products, redistribute 150 per cent more of its returns, reduce the

destroyed products from 37 per cent to 27 per cent and save about $0.5 million in labor costs. After implementation, Este´e Lauder even considered making the system commercially available through a consulting firm that could serve as a reseller of the software.When companies decide to embark on a reverse logistics project they can leverage knowledge, tools and processes from other successful projects such as Este´e Lauder’s, to prevent them from reinventing the wheel. Together with specialist service providers in the reverse logistics arena, significant improvements can be made to reduce costs, improve customer service and increase revenues.