Ever notice how some companies always seem to struggle with processing returns and managing their reverse logistics programs? The reason so many companies struggle with returns is because it crosses natural internal departmental boundaries. For example, in a retail environment, store operations take the hit on sales when a customer returns an item. The buyer or merchandising will take a hit on margin when that same item is written off. Transportation eats the cost to haul the item from the store and warehouse operations pays for labor to unload, record, and store the item until it is disposed of, at which time the warehouse gets to pay all the disposal costs.
All along the way, no one party is taking responsibility to minimize the overall costs of handling the return, much less making sure company gets the most for the item when it is processed. Due to the nature of returns, from an organizational standpoint, there is a traditional separation of duties and responsibilities that make managing returns challenging.
For these reasons and many more, the most important decision a company can make to improve the management of returns is to put a senior leader in charge of returns management. This does not mean writing a returns management goal for the VP of Supply Chain, or the CFO. This means making reverse logistics somebody’s job. For an organization to have an effective reverse logistics program the organization must invest in leadership. You need someone waking up everyday worrying about one thing – managing returns.
When I was first put in charge of returns operations at Wal-Mart, Lee Scott, then vice president of logistics and eventually Wal-Mart’s CEO, called and asked me to come over to his office. On the way over, I remember thinking he was going to give me a pep talk and tell me how important it was to provide great store service. Much to my surprise, Lee wanted to talk to me about how important it was that I worked with the merchandising group and store operations. Lee told me he wanted me to attend the weekly merchandise meetings and work with store operations to develop store returns processes that would save the stores time and money. He expected me to develop programs to maximize return goods value, improve vendor relations, and contribute to the bottom line. This was all on top of running great operations. This was the first time I realized that I was responsible for more than just running a warehouse operation that happened to be called a return center.
Lee wanted me to work with buyers on vendor agreement language, the invoice office task force on store processes, and work with the transportation department to ensure returns didn’t take up too many trailers that were needed to deliver new goods to stores serviced out of the local distribution center. If a vendor was upset with the volume or condition of goods returned to them, it was my job to work as with that vendor, merchandising and store operations to develop a solution that worked for everyone. I remember driving home from the meeting thinking that this job was much bigger than I thought and that I was probably underpaid.
Always the visionary and thought leader, Lee Scott saw the potential value in the development of a comprehensive reverse logistics program. Lucky for me, I was given the opportunity to focus all my time and energy toward this effort. From 1988 to 1994 I was responsible for Wal-Mart’s reverse logistics program, spending much more of my time working with buyers, vendors, suppliers, store operations, systems and accounting than I did managing the actual operation of the facility.
While I was responsible for return center operations and my team did increase productivity by 130% during that time, the impact on the overall company from working with the related teams as directed by Lee Scott had a much greater impact on Wal-Mart’s profitability. The true significance of this approach was recognized in 1990, when Mr. Sam asked for a special report on Wal-Mart’s returns program be included in the board of director’s quarterly report.
Because of my unique perspective as head of the program, I was able to help the different departments throughout Wal-Mart uncover opportunities and profits they would have missed. It is this unique perspective that crosses internal functional boundaries that enables a company to join the best-in-class organizations and add significant dollars to the bottom line. In fact, a study of reverse logistics completed by the Aberdeen Group in February 2010, identified the establishment of an executive responsible for reverse logistics as a best practice that companies recognized as best-in-class shared.