Posts Tagged ‘returns management’

When the manager of a 3PL or aftermarket service provider looks at the logistics world, why on earth would he or she want to get into reverse logistics? It is the opposite of traditional or forward logistics. It is like flushing things up the pipe, not a natural thing to do. Reverse logistics providers deal with unusual problems. Nothing is in a new box. Everything is “broken” or “unwanted”. The service offerings seem unrelated and fragmented. There are no beautifully cubed out truckloads riding on pallets. Yet reverse logistics is becoming an ever more important link in the supply chain. 3PL’s and aftermarket service providers would be wise to think about the possibilities. Some would argue that the changing supply chain landscape makes adding a strong, state of the art, reverse logistics offering a survival move, not just a strategy to add incremental revenue.

The cost of fuel and the lack of qualified commercial drivers are causing the buyers of 3PL and aftermarket services to include reverse logistics more and more into their planning. The rise of sustainability initiatives and the confusing morass of state level end-of-life regulations for Consumer Electronic manufacturers are a big cause for concern.

These are all important factors. However, in the future the largest driver behind the need for reverse logistics and the least understood, is the coming shortage of rare earth minerals. This shortage will force manufacturers to examine their entire supply chain to uncover ways to reclaim, not only the parts, but the minerals and metals as well. This process will compact and shorten the supply chain and those 3PL’s and aftermarket service providers who can’t provide this service in an integrated way run the risk of becoming as extinct as dinosaurs.

 

Minerals – Years of Reserves Left

Hafnium – 5 to 10 years of supply

Indium – 5 to 10 years of supply

Platinum – 10 to 15 years of supply

Silver – 15 to 20 years of supply

Antimony – 15 to 20 years of supply

Tantalum – 20 to 30 years of supply

“Earth Audit” by David Cohen – New Scientist – May 2007

In the future, we believe, we will see many more distribution centers that have reverse logistics centers co-located within them. These facilities will handle the reverse logistics function of maximizing the value of the returned product through product disposition management. Cleaning, parts and raw material harvesting, refurbishing, product liquidation, recycling, repackaging, repair and remanufacturing will all occur alongside the much less complicated process of shipping products to customers.  These high end, technically complex processes will command a higher margin than simply shipping pristine cases to customers.

Todays distribution and reverse logistics network was built on the foundation of fuel prices at $2.00 per gallon and on the concept of unlimited natural resources. We now know that foundation was built on shifting sand. Fewer miles must be driven and raw materials must be recovered and reused at a much higher rate in order to provide electronics at an affordable price. The challenge for 3PL’s and aftermarket service providers is to understand what these changes mean to their customers and how they can develop their capabilities in order to deliver cost effective services that will meet the future demands of their customers.

Walmart and Sam’s Club will bring on board literally thousands of new suppliers every year. These new suppliers are only 2% of the manufacturers that attempt to become a supplier to the world’s largest retailer. Manufacturers across the globe work hard to join this elite club. While they will work pricing and sales pitch to perfection, they often over look a critical part of the program every Walmart Supplier must bring to the table to finalize the deal. We are talking about their program to handle returns, end-of-life product, and recalls.

Due to the huge number of companies wanting to pitch their service, Walmart developed a process to “qualify” potential suppliers.  This process is detailed and can be difficult to navigate for those who are unfamiliar with the “Walmart way.”  Having a product that would look good on a store shelf is just the beginning. A manufacturer’s ability to provide a comprehensive support program for their goods is as important to Walmart or Sam’s as is the item and the price.

Once a supplier has the required paperwork in hand and has completed the online questionnaire, they can then attempt to set up a meeting with a Walmart Buyer.  This meeting will determine if your item will be sold in a Walmart or Sam’s club, or not.  All the stories you’ve heard about going to the Walmart Home Office to pitch your product are true. For many, their company’s future will come done to 45 minutes with a Buyer who is tired, overworked, and has no time to waste.  You have a limited window to get the Buyer excited and you must be prepared to make the most of it.

Just imagine; the meeting is going well, the Buyer seems excited about your item, you talk about price and seem to be close to a deal, then you get blind sided.  The Buyer asks, “How are you going to handle returns?” The meeting comes to a complete stop. If you don’t have an answer the Buyer will ask you go do you homework and come back another time. Have fun flying home, knowing that you will have to reschedule another trip to Bentonville and try again to make a deal.  All the way home you will be kicking yourself for not having the answers to the Buyer’s questions.  If you had a plan to handle returns you would be flying home with a deal.

Within the Supplier’s Agreement, there is a large section that address returns. However, according to Walmart associates this is often overlooked or poorly addressed, which reduces the supplier’s chances of success.  You will need to be prepared to quickly explain how you will handle returns and negotiate the terms in the returns section of the Supplier’s Agreement. You will need to have a plan to deal with customer returns, end-of-life, and recalled products.

There are two requirements in the returns section of the Walmart Supplier Agreement, and eleven different variations of returns terms that you’ll need to quickly negotiate with the Buyer. The processes and terms used can vary greatly depending on the product.  In addition, the terms for end-of-life and recalls are often different from terms to cover customer returns or damage.

Do not assume that these terms are inconsequential just because they only apply to returned goods. According to a study conducted by the Aberdeen Group in 2010, manufacturers spend between 9% and 14% of sales on returns.  Poor preparation and negotiation of return terms can have a huge impact on the bottom line of a new Walmart or Sam’s supplier. In fact, the returns terms can impact a manufacturer’s bottom line by as much as five percent of sales. It is worth the extra effort to get it right.

Remember the motto of the Boy Scouts of America – Be Prepared. If you want to be part of the 2% of manufacturers that become Walmart or Sam’s Club suppliers, do your homework. You will need to have a program to deal with customer returns, end-of-life, and recalls.  You will also need to have a competitive returns fee structure in hand and ready to quickly discuss with the Buyer.  The purchase price is critical but it is not the only number you will need to have in hand.

To find out more about how the terms and conditions of a Walmart Supplier’s Agreement and the program you will need to have ready for you meeting with the Walmart Buyer, check out our Walmart Supplier Returns Program.

Aftermarket Services have been in high demand for a number of years now.  With the explosive growth in consumer electronics and offshoring of many factories, Aftermarket Service providers have seen demand skyrocket.  According to Livingston Partners, the Aftermarket Services sector has grown over 20% since 2006. Furthermore, they expect the Aftermarket Service sector to keep on this growth trajectory for the next five years. While demand for Aftermarket Services has been strong for quite a while, the service providers are still a fragmented lot with no dominate player emerging as the “Go-To” Aftermarket Service provider of choice.

Aftermarket Services traditionally include returns processing, repair and refurbishment services, and end-of-life services that include recall processing and product recycling services. Over the last few years, however, Aftermarket Services have expanded to include warranty management, customer service, and comprehensive reverse logistics programs.

Due to rising costs and pricing pressures retailers, distributors, and OEM’s have looked to outsourcing Aftermarket Services. They outsource because of a general lack of expertise in the services needed and to limit potential liabilities. There are other benefits but for the most part, companies outsource Aftermarket Services because the service providers can provide the services for a net lower cost, with lower capital requirements, and a higher quality result.

The question remains to be “Why hasn’t a dominate Aftermarket Service provider emerged?”

We think the answer is because of the wide variety of services and sectors that would be considered Aftermarket Services. There are a number of 3PL’s that offer returns processing but these services are often no more than gate keeping processes to receive and ship returned goods.

There are many companies that repair and refurbish aftermarket goods, but these companies are usually narrowly focused on a limited number of categories.  Most repair and refurbishing companies operate on a local basis and do not have the infrastructure required to handle the large volumes that come with a comprehensive nation wide program.

Few reverse logistics companies understand end-of-life processes at all, much less have comprehensive solutions they can take to the market.  Going beyond these three basic Aftermarket Services into the newer solutions such as warranty management, customer service, or comprehensive reverse logistics is a bridge to far for the Aftermarket Service providers of today.

There are a number of 3PL’s who are looking to expand their services and develop differentiating services.  The market is looking for a service provider that can provide comprehensive Aftermarket Services.  When the two intersect, growth and prosperity will abound for both. The question is “Is there any provider out there who has the vision and the capability to be the dominate Aftermarket Service provider?”

Many executives go out of their way to avoid product returns. In many companies, if you want to take a nap, just go lay down in the returns area and enjoy a peaceful rest. Ok, that may be a bit of an exaggeration, but not by much.

Executives regularly skip by the returns department during their facility tours because of flawed thinking. They most likely believe in one or more of the 5 myths of product returns.  Once they realize the impact of returns, and the truth about product returns is separated from the myth, they will never avoid the returns area again.

The 5 myths about product returns are:

Myth #1 – Returns are junk.

This is the biggest and most pervasive myth about returns.  Returns are not junk.  In fact, studies have found that only about 20% of returns are actually defective.  The other 80% are functional and are often valued at 75% to 95% of original value. Even defective returns have value if processed properly. If you look at the reasons consumers return their purchases, the number one reason is some version of buyer’s remorse. Thinking returns are just junk can cost a company a lot of money.

Myth #2 – When processing product returns, take your time, there is no hurry.

Key to maximizing the value of returns is to process returned goods as fast as possible.  Best-in-class returns operations will turn their inventory anywhere between 24 times to 50 times per year. For those companies that are not best-in-class, their managers think you can put off processing returns for a while. They will use the returns staff as flex staff for everything else. It’s not unusual to see the returns area go unmanned until the end of the month or longer.

Remember, returns are like bananas not like wine.  They don’t get better with age.  On average, returns lose 10% of their value every 30 days. Putting off processing returns is tantamount to burning money in the corner of your facility.

Myth #3 – You do not need dedicated returns management.

There are a number of companies that assign responsibility for returns management to a mid-level manager that already has a full time job.  Returns management is a function that requires executives to work with buyers, operations, sales people, accounts payable, and systems.  Asking somebody to figure out how to run returns and do their normal job is simply ensuring that returns will get the short end of the stick.

Myth #4 – Managing returns is much easier than running a distribution center.

Often, companies will take a second shift supervisor and put them over their reverse logistics operations.  The theory is that running a distribution center is much more complicated than running returns. If you believe this, you could not be more wrong.  In a DC, you receive, put away, pick, and ship orders that are composed of small, medium, and large containers. Somebody created a PO, notified the facility it was on the way, and when it arrived it was received on an invoice.  When orders are received, you generally go to the same location, pick the item, load it on a trailer and off it goes.  There are clear standards for receiving, picking and shipping and most companies have a WMS that drives the process.  The manager’s job is simply to staff the operations properly and keep them trained and happy.

Running a returns center is much more complicated.  First, you do not know what you are going to receive until you unload the truck.  Nobody orders returns.  When product returns are received, each item has to be inspected, and based on it’s condition, it could be handled one of six ways.  When shipping, a return authorization request usually has be provided by the OEM, and most of the product is not in the original carton or packaging which complicates everything. Returns processing requires dedicated, intelligent, leadership that is creative and has a broad set of skills.  A common mistake company’s make is to try to save a couple of pennies by not investing in leadership for the product returns management.

Myth #5 – You can use your WMS to process returns.  You don’t need special returns software.

Companies around the world lose a lot of money because they don’t want to invest in a returns management application (RMS).  They think they can use their existing WMS system to process returns.  However, there are so many differences (See Myth #4), that they end up doing a bulk receiving in the WMS and stacking the returned goods in a corner of their warehouse. Once the product is in the warehouse, it has to be manually inspected and prepared for shipping.  Every company’s we’ve worked with that was using their WMS for returns was shocked to learn how much money they had lost because they tried to save money by using their WMS that was not built to process returns.

Returns have a big impact on a company’s bottom line.

According to the NRF, the average retailer’s return rate is 8.12% of sales.  According to a study done by the Aberdeen Group, the average manufacturer spends between 9% and 14% of sales on returns.  Managing returns can have a big impact on a company’s bottom line.  A first step toward improving the bottom line contribution from managing product returns is to stop believing in the 5 mythes of product returns.

In Reverse Logistics Podcast #13 – 4 Key Metrics in Reverse Logistics, Curtis Greve discusses the four critical metrics that a reverse logistics expert should monitor to ensure there return centers are operating efficiently and effectively.

There are two primary goals for every return center: 1. Maximize the net asset value of inventory flowing through the reverse logistics pipeline; 2. Process reverse logistics inventory at the lowest possible over all cost to the organization, while maximizing inventory recovery value.

Net asset value is the value of returned goods realized after being processed through a returns facility, less the cost of processing.  In order to maximize net asset value, the reverse logistics leadership team should monitor a number of metrics. There are many activities that should be measured and monitored to ensure you are running a best-in-class operation.  There are countless variations, the complexity of which is dependent upon the returns process, the inventory, and a number of critical business decisions such as brand protection, sustainability concerns, liquidation options and the like.  Among the variations there are four critical metrics that you must pay very close attention to and they are:

1. Thru Put
2. Cost per Unit
3. Yield Rate
4. Recovery Rate

Before you start writing emails pointing out the need for quality, it should be said that quality is a given for each area of your operation and should be a part of every operation.  In order to achieve your primary goals stated above and to achieve the desired results for each metric above, a high level of quality is required.

In this podcast, Curtis Greve will discuss each of these metrics and why they are important pulse points for every reverse logistics operation.

RL Podcast #13 – 4 Key Reverse Logistics Metrics

Reverse logistics is the part of the supply chain that is often outsourced to third party service providers (3PL’s).  Many companies that have best-in-class supply chain functions outsource reverse logistics.  If these industry leaders can run very complex global distribution networks, why don’t they operate their own return centers?  For the last two decades, we have worked with Fortune 500 Companies who have outsourced their reverse logistics to 3PL’s and we have found they do so for one of three reasons:

1. To get reverse logistics expertise quickly and with less risk
2. To achieve greater flexibility and faster speed to market
3. To create a protective barrier against outside forces and limit potential liabilities

Many companies outsource reverse logistics because they do not have the expertise within their management ranks to run the area, or they don’t want to use these resources on the function under consideration.  Retailers, for example, want their top executives working on ways to improve traditional core supply chain functions, or store operations, or merchandising systems.  Manufacturers want their top talent running manufacturing plants, working with customers, managing imports, managing parts or just about anything other than focusing on returns.

Reverse logistics is more often treated like the red headed stepchild of the supply chain.  No one wants to deal with returns.  When I first got involved with returns, Lee Scott, now retired Walmart CEO and then VP of Logistics had to promise me that I would not have to spend any more than two years running reverse logistics for Walmart before I would agree to take the position. That was over 25 years ago and for me it became a career.  The point is that reverse logistics is outsourced because there is no internal expertise and/or the company is unwilling to invest in the team and technology needed to develop reverse logistics.

This is the main reason why retailers and manufacturers outsource their returns processing functions.  A qualified 3PL can have a significant impact on a company simply because of their experience in returns.  They can also help leap frog the competition by leveraging systems, liquidation networks, and by sharing best operations practices that will reduce the processing costs.

The key, however, is to outsource to a firm that is experienced and has a broad view of the issues.   Many 3PL’s claim they “process returns”, few actually do and fewer still have any idea about what happens upstream or downstream from the actual returns processing function and how they must be coordinated to achieve maximum results.

When you are selecting a 3PL, it is important to do your homework and select a provider that has real experience providing reverse logistics services in your market.  Can they help you improve the product flow upstream so you can process more efficiently and maximize the value of the returned assets downstream?  Do they understand the impact of returns on customers, suppliers, stores, DC’s, and how they effect the financial well being of the company?  Do they have existing operations repairing product that is similar to your returned items.

WARNING: Watch out for the 3PL who wants you to be the first.  Often 3PL’s who repair phones will spin their experience and try to convince a TV manufacturer that they really can process, test and repair TV’s because they have been in the consumer electronics repair business for years.  In reality, they have never fixed anything other than cell phones and they are looking for a customer to fund their technical development.  Buyer be ware.

Lack of on point experience is often why companies outsource reverse logistics, but speed and flexibility also drive many to outsource.  Companies outsource reverse supply chain functions not because they don’t have the leadership or experience but because they need a solution fast and going to a 3PL with the focus, motivation, experience, existing technology, capital resources and staff can get things up and running much faster than the company could do it on their own. A quality 3PL will be able to start up a new reverse logistics operations within six months.  Most companies who decide to develop reverse logistics internally will take at least twice that long.

The third reason companies outsource supply chain functions, including reverse logistics, is to have a layer of protection and minimize their risk.  Many companies outsource operations to avoid unwanted attention from labor unions. It is against the law for companies to fire employees who attempt to organize a labor union, however, a company can fire a 3PL and replace them with another if the 3PL doesn’t meet performance metrics.  This is true even if the 3PL did not achieve it’s goals because of a strike or other union activities.

Companies also outsource to cap and control other risks and liabilities such as inventory shrinkage, workers compensation expenses, medical benefit costs and other “non-controllable” expenses.  Companies protect themselves by either negotiating a fixed fee arrangement for multiple years or with some form of variable pricing.  This enables companies to limit these risks by negotiating caps within their outsourcing agreement.

Outsourcing reverse logistics is often the best way to develop returns processing capabilities for many manufacturers and retailers.  You will need to employ experienced resources to help select the 3PL and negotiate an acceptable contract. However, with in six months you will have a best-in-class reverse logistics process that maximizes the value of returned assets, with limited risks and controllable costs.

The best way to reduce the financial impact of returns is to reduce the amount of product that is returned by your customers.  Figuring out ways to actually reduce customer return is usually the first thing executive bring up when discussing what to do about the negative impact of returns, but it is usually the last thing they try to do anything about.

When faced with the challenge of actually reducing consumer return rates, the natural reaction for many executives is to tighten the customer return policy.  While this does reduce the amount of goods returned, it also greatly reduces total sales.  In fact, a study conducted by MIT Sloan found that a lenient return policy does tend to increase the volume of items returned but the ratio of returns to sales actually drops.  Customers see a lenient return policy as a way to mitigate the risk of buying so they buy more and return more items but much less as a percentage of total purchases.

If you look at other examples of companies that have adjusted their customer return policies over the years, the conclusions are clear.  Restricting customer return policies does much more to reduce SALES than it does to reduce the percentage of good returned. If reducing customer returns is the goal, the answer clearly is not to tighten up your customer return policy.  There are more effective steps that can be taken that actually will reduce customer return rates and they all happen to be much more customer friendly, which promotes sales.

The reasons for return at a high level are generally the same. Across every industry, regardless if the product is industrial or consumer goods, the most common reason for return is some form of customer remorse.  According to the National Retail Federation, United States consumers return over $194 billion in 2010.  Of this, $17.7 billion was from fraud and abuse.  Other studies have found that only 20%, or $40 billion of consumer returns is actually defective.

Clearly, the steps one would take to reduce the 20% of returns that are defective would be completely different than actions taken to reduce fraud and abuse.  If you treated the other 70% of customer who return goods like they were perpetrating a fraud, you would eventually go out of business.  The biggest opportunity to have a real impact on return rates is to focus efforts on reducing this 70% group of valued customers.

The first step in reducing the return rate is to identify the top 20 items returned by dollar value.  Once you have the top twenty identified, organize them by category or some other appropriate.

For complex items that require instructions and/or user guides to operate, get a copy of the instructions / user guides and read them.  You will be surprised how poorly many of them are actually written.  Take a new item home and ask your spouse to put the item together or use it.  Do not help them just observe them and take good notes.

Next, look at the trouble shooting section.  Where is the trouble shooting section?  Is it easy to find?  Is it easy to read?  Does it make sense?  Again, take good notes.

If there is a help line you can call.  Call it.  We worked for a client who sold a household appliance that had to be mounted on the side of the customer’s house.  When we called the 800 number that was on the carton to get help, we got a recording that said their hours were from 9:00 am to 4:00 pm Monday through Friday.  Our client was very surprised when we told them this.  Their target customer installs their item after work or on the weekend, when there was no phone support.  This was a quick fix for them to reduce the rate of return.

If items are in a box, put flyers that provide clear instructions to customers for common mistakes or questions.  Make the trouble shooting information easy to find.  Just because it is trouble shooting information doesn’t mean it should be a lot of trouble to find or figure out.  If instructions and guides are difficult to find, read, or follow, you will see return rates climb.

Packaging and labeling are often overlooked but could be a source of returns.  A number of years back when they first started selling bread makers for the home, the return rates were very high.   In fact, the first model had return rates close to 80% of sales.

The manufacturer was upset, the buyer was mad, and there were a lot of customers where were not happy.  It was a bad situation for all.  We were asked to sample a large group of returned bread makers and determine what the real reasons for returns were.

When we tested the bread makers, less than 5% were actually defective. We then noticed that on the bread maker’s carton was a picture of the bread maker on a nice kitchen counter.  Sitting next to the bread maker was a nice, brown, rectangular loaf of bread.  The problem was that the bread maker make smaller round loafs of bread.  The company changed the pictures on the carton, highlighted the fact that the bread maker made delicious, ROUND, loafs of bread, and sales took off and the return rate dropped dramatically.

For items sold online, check your labeling and the narrative on the net.  Also, according to Dr. Mark Ferguson at Georgia Tech, items sold on the internet that have customer reviews and comments, on average, have 20% fewer returns than other similar items without customer reviews.

There are customer friendly things that can be done to reduce customer returns.  Training sales employees is always a great idea and spending time examining an item’s instructions and packaging can yield surprising results.  Studying why products are returned and figuring out customer friendly solutions will increase your bottom line by reducing returns, while improving customer relations and sales.

According to an article published in the MIT Sloan Management Review, written by J. Andrew Petersen and V. Kumar, product returns cost companies over $100 billion or approximately 3.8% of profits every year.  They also note that the electronics industry alone spends over $14 billion on returns every year.

When executives realize how returns impact sales, many will do what seems to come naturally and that is to reduce the volume of returns by tightening up their customer return policies.  Many go so far as to institute anti-customer strategies such as restocking fees, reduced time limits on when goods can be returned, complicating the return authorization process or simply deny all returns.  Many of these tactics are effective in reducing the volume of returns in the short run.  However, most of these measures have a detrimental impact on sales and profits as well that may not be immediately visible.

Petersen and Kumar studied six years of purchases and customer returns data from a nationally known catalogue retailer.  They found that a lenient return policy does NOT drag down sales but in fact promotes sales growth.  They found that even with a higher return volume, the impact on the bottom line was positive.

The results seem counter intuitive to what many think when looking at customer return policies.  Because of the huge financial impact of returns and the obvious impact on a company’s bottom line, many companies attack the problem by restricting customer return privileges which has been proven time and again not to work.  What many find out, much to their latter disdain, is that when companies restrict customer return privileges they are in fact restricting sales and encouraging their customers to go elsewhere.

In the fall of 2010 Best Buy realized that having a restrictive customer return policy was having a negative impact on sales and this strategy was driving customers away.  For a number of years Best Buy had one of the most restrictive returns policies in the US retail market.  They would not take back some returns after a specific time periods at all and would often charge restocking fees when purchases were retuned within the prescribed time after the initial sale.  The result was disappointing sales figures for November of 2010 and a warning about the forth quarter results that pulled the rug out from under Best Buy’s stock price.

However, Best Buy didn’t sit back and hope for miracle.  Immediately following their poor numbers, they announced they were easing customer return policies and eliminated many of their restocking fees.  This all took place just a few days before Christmas of 2010 and it provided a welcomed shot in the arm that helped December’s sales recover. (Click here to read Best Buy’s current return policy.)  This relaxed return policy reduced the risk of a bad purchase for Best Buy’s customers.  This is a clear illustration of the link between a company’s return policy, sales and value.

To a customer, the return policy is really about limiting risk.  For the majority of buyers, the return policy is not about abusing the company that sold them the product.  It is about buying something with some assurance that if the item does not satisfy their need they can return it and get the a different item that will satisfy their need. A study conducted by the National Retail Federation found that less than 9% of returns were fraudulent.  That is less than 1% of total sales. However, many customer returns policies are written like the almost all customer returns are fraudulent. All to often the return policy reads like it was written by the VP of Sales Prevention.

The study conducted by Drs. Petersen and Kumar found that when return policies are less restrictive, customers tend to make more purchases.  We believe that this is true and it this happens because the customer’s risks are limited by the customer friendly return policy.  In addition, a liberal returns policy increases sales because the returns experience provides the seller an opportunity to interact with their customer.  This is the critical point to satisfy your customer in the short term and improve your long term customer relationship.

A company’s return policy says a lot about who they really are and how much they really care about their customer. What many fail to understand about customer returns is that the more they return, the more they buy.

Returns are a fact of life for just about every manufacturer in the world.  Some see it as a necessary evil, while other see it as an opportunity to improve customer relations and improve their bottom line. The facts are that returns cost manufacturers on average 9% to 14% of sales.  Manufacturers, however, are often hesitant to invest in their reverse logistics programs.  This is often because the senior leadership team does not understand the actual cost and associated risks.  Once they understand how much they are really spending and the risks of short changing the process, it is not difficult to get support for resources to focus on the reverse logistics pipeline.

In addition to the financial impact of returns, there can be an even bigger impact on customer satisfaction.  In fact, a study completed by the Aberdeen Group in February of 2010 found that manufacturers that were rated best-in-class in reverse logistics had, on average, a 12% advantage in customer satisfaction over their competition.  Another study published in the spring 2010 MIT Sloan Management Review found that focusing efforts to improve and manage customer returns actually increased overall profits, even during tough economic times.  When we say “manage returns” we do not mean reject returns or make it harder for customer to return goods.  This same study found that a lenient return policy actually increased total sales and profits, while a more restrictive policy has a detrimental impact on both the top and bottom lines.

Case in point, during the 2010 Christmas season Best Buy Stores revised their return policies, making it easier to return products and eliminating most restocking fees.  The result was a surge in sales and profits for December.  While Best Buy is not a manufacturer, this shows the impact managing returns can have on a company’s sales and earnings.

In addition to customer returns, product recalls can have dramatic impact on a manufacturer as well. For a manufacturer to have a comprehensive reverse logistics program, the program must include a robust recall process.  In 2009 the Consumer Product Safety Commission ordered 465 product recalls and 433 recalls in 2010.  You can expect more product recalls from this point on as well. The first piece of legislation passed by Congress after the election in November was to give broader authority to order more manufacturer recalls.

So what does all this mean for manufacturers? Simply put, the question is not if one of your products is going to be recalled but when and how many products will be recalled.  Because of the very real possibility of being forced to recall product from the market and the potential for financial liability and damage to your reputation, manufacturers must have a sound plan in place to ensure they have a means to process recalls on very short notice. Johnson & Johnson can certain testify about how recalls can hurt a company.  Between April and September of 2010 the value of J&J stock dropped over 13.5% due to product recalls and the way J&J handled those recalls.

Reverse logistics will have a significant impact on every manufacturer. The question is whether returns will have a negative impact or if it will provide a competitive advantage. Developing and investing in your company’s reverse logistics processes can improve sales, reduce risks, and increase profits.  It takes a long term dedicated commitment to be best-in-class and proper resources but in the end it will be well worth it.

The Reverse Logistics Podcast

Your host is Curtis Greve.

The Reverse Logistics Podcast

Your host is Curtis Greve.