How to Get Value Out of Your Returns

As businesses gear up for the holiday shopping season, the focus is squarely on stocking shelves. Right now, every business is scrambling to meet increased demand and maximize sales. But focusing purely on sales ignores what’s just around the corner - the returns season.

Just as businesses recover from the post-holiday hangover, the returns will start pouring in. From January to March, returned gifts will inundate the supply chain. To minimize costs, these returns will have to be handled efficiently. 

Curtis Greve, principal at Greve-Davis consultancy, estimates that retailers and manufacturers lose 7-13% of sales revenues handling returns each year. This amounts to handling costs of over $40 billion annually. According to Greve, efficiently handling returns can add as much as 5% to the company’s bottom line. For retailers and distributors operating at narrow margins, this is a big deal.

The high cost of processing returns points to a simple fact: managing returns is just as important as managing sales.

Returns Management
In order to effectively manage returns, businesses need an efficient reverse logistics operation. Reverse logistics recaptures value from returned and excess inventory by sending it back through the supply chain for resale, reuse, or recycling.

When the concept of reverse logistics first surfaced in the 1980’s, it received little attention from the business community. The general perception among businesses at the time was that returns carried little to no economic value.

Today, however, it is understood that there is high cost to doing nothing about returns. A laggard economy and narrowing profit margins has drawn attention to reverse logistics. It is now viewed as essential to any supply chain or warehouse management software solution. When used properly, reverse logistics can increase customer satisfaction, reduce waste, and recover lost revenue.

Unlocking Value From Your Returns - Best Practices
Unlocking value from returned inventory is easier than you think. We have compiled a list of best practices, and the companies making them work, to help you in the reverse logistics process. Best practices for reverse logistics include:
 - Investing in reverse logistics systems;
 - Outsourcing logistics operations;
 - Accessing secondary markets;
 - Offering recycling services; and,
 - Preventing returns in the first place.

Investing in Reverse Logistics Systems
When quality management decisions are combined with an optimal IT infrastructure, reverse logistics operations run at maximum efficiency. Several software companies are now offering end-to-end solutions specifically designed  for reverse logistics. These solutions are out of the box configurable and can be integrated with existing software systems. Businesses that implement reverse logistics systems are able to decrease operation costs and return cycles.

To fully understand the benefits of reverse logistics software, consider the case study of Tellabs, the world’s largest provider of telecommunication services and equipment. Tellabs implemented Click Commerce’s return management software and now processes over 90% of returns requests automatically. Implementing the system led to an 88% reduction in return cycle times and decreased in-transit inventory by $1.76 million per month. Clearly, a software solution can deliver tremendous cost savings and streamline reverse logistics operations.

Outsourcing Logistics Operations
Handling the execution of returns is the most difficult part of running an efficient reverse logistics operation. If running in-house logistics is cost prohibitive, then it’s best to contract out with a third party logistics (3PL) provider. 3PL providers are great for managing a businesses transportation logistics and usually help accelerate the return cycle. 3PLs are also great for improving product visibility since most offer automated tracking services. Automated tracking provides real-time monitoring of product status and location. This helps plan ahead for inventory fluctuations.

The auto parts giant Mopar, the service wing of Chrysler, was able to improve their logistics operations by working with UPS. To enhance Mopar’s logistics operations, UPS used barcode technology to track returns in a centralized database. This allowed Mopar to plan ahead for inbound products and respond with staffing changes to manage the influx. It also significantly reduced travel times, enabling faster resale of the product.  Today, the average shipping time for a return from China to their Michigan headquarters is only 3-4 days.

Accessing Secondary Markets
The secondary market, valued at $300 billion, is where products wind up after businesses sell liquidated inventory to resellers. The secondary market includes outlet stores, discount stores, such as Big Lots, and flea markets. Many businesses have avoided the secondary market because of concerns that it hurts brand image. Businesses that opt out of this market miss an enormous source of revenue potential. Instead of liquidating product for someone else to sell on the secondary market, businesses should sell on the secondary market themselves.

Electronics companies have been quick to tap in to the secondary market by offering repaired and refurbished products at steep discounts. Dell features a Dell Outlet center on their website that offers shoppers the option buy used. By offering used computers at a fraction of the cost of new products, Dell recovers value from a returned item and taps in to the vast secondary market. Online retail is an easy way for retailers and manufacturers to gain access to this market. Reselling products online is easy and nets more revenue than liquidating.

Offering Recycling Services
When the product cannot be reused or resold, disposal may be the only option. Any time that a product is disposed of, it is critical to minimize the environmental impact of disposal. This means responsibly disposing of hazardous materials and salvaging raw materials for reuse when possible. Today, its no secret that socially responsible business practices are good for company image and the environment. In this day and age, going green can bring in little cash as well.

The proliferation of consumer electronics has produced a significant amount of electronic waste (“e-waste”). It is particularly important to properly dispose of e-waste because of the presence of hazardous materials. Hewlett-Packard (HP) has made the recyling of e-Waste simple for consumers. HP provides consumers with drop locations for batteries and ink jet cartridges and offers return services for old computers. This service makes HP customers feel environmentally responsible and generates revenue from salvaging valuable recyclables.

Preventing Returns in the First Place
The easiest way to reduce returns handling costs is to prevent the return in the first place. One way to prevent returns is to produce a high quality product that is unlikely to be returned by the customer. It is also a best practice to provide quality customer service to fix problems with or near the customer. Solving the problem close to the customer is not only good for customer satisfaction, it eliminates unnecessary handling costs.

Apple manages returns avoidance by providing professional troubleshooting at their Genius Bar. When a customer has a problem that can’t be fixed at home, they can take it to an Apple “Genius.” At the Genius Bar, the priority is to fix the problem in the store rather than send it off to a repair center. This saves customers from having to wait for repairs and it saves Apple the cost of sending the product to a repair center.

Businesses that approach returns through the lens of asset recovery are able to maximize resource use. In order to realize the full benefits of a reverse logistics operation, it is critical to make quality management decisions and use software capabilities.

Derek Singleton
ERP Market Analyst
Software Advice: www.softwareadvice.com
We work in several software industries and want readers to know this is related to our work in Supply Chain Management.
derek@softwareadvice.com 

Original Source: How to get value out of your returns