Assuring Many Happy Returns
By Frank Niglia -- TWICE, 12/4/2000
Now that Thanksgiving has come and gone, consumer electronics retailers and manufacturers are in the throes of the holiday selling frenzy. Filling orders, stocking shelves and advertising are the order of the day.
Unfortunately, less attention is paid to the post-holiday hangover caused by returns, or to the benefit that could be derived from a strategic approach to reverse logistics.
Often in electronics retailing, the Grinch doesn't show up until well into January, or even February-which is how long it takes consumers to open their gifts, break them or decide they are not satisfied, and then bring them back.
Companies with effective reverse-logistics processes, however, are prepared for the tremendous wave of returned goods and can effectively handle the post-holiday surge. To be prepared, a company should have a well-defined return policy, sophisticated software and a well-defined disposition strategy.
Return Policies: Consumers have identified retail return policies as a determinant of where they shop. Especially when considering large-ticket purchases, consumers want reassurance that they have recourse if dissatisfied.
In a study conducted by Dr. Dale Rogers with the Center of Logistics Management at the University of Nevada at Reno, participants in focus groups indicated that to be effective, retailers should clearly communicate their return policies. Suggestions by the focus groups included printing the return policy on receipts and mentioning the return policy at the point of purchase. These are in addition to the obvious option of clearly displaying signs with the return policies on them.
The manufacturer should also clearly communicate its return policy to both the retailer and ultimate end user. An up-front and open discussion with retailers should cover credit that will be given, what constitutes an authorized return, where the returns should be sent, who is paying freight, what disposition options the retailer has and any special handling considerations.
The manufacturer's warrantee policy should also be clearly and concisely conveyed to the consumer. This allows shoppers to make informed purchase and return decisions while providing a safety net for the retailer and vendor. With a clearly defined policy, customer service representatives can point to the terms and conditions that were provided to the consumer prior to purchase.
Reverse-Logistics Software: Sophisticated software is the key to effective reverse logistics and the engine that drives the entire operating, dispositioning and warehousing process.
Many reverse-logistic processes are driven by homegrown systems or done in a completely manual fashion. The problem with those processes is that they may not adequately address the needs of the user and in many cases do not provide useful management information.
The system must be flexible to meet changing business needs while providing productivity improvements and useful information that can help direct the design, marketing, packaging and positioning of a product. By utilizing scanning technologies and relational databases, a sophisticated returns processing system can accomplish those goals simultaneously.
Once populated with product and disposition information, the system drives the entire reverse-logistics process. The system allows for efficiencies and productivity gains in many areas that one may not immediately recognize, including:
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Customer service. Significant improvements can be realized through simplified processes that are clearly understood by the consumer.
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Store labor. By implementing a centralized and automated reverse-logistics process, less time can be dedicated to reverse logistics at the store level. Some retailers have reported reductions in store labor of 40 hours per week per store.
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Shrinkage. Returned product is an easy target for unscrupulous employees. Simplifying the return process reduces the opportunity for theft of the returns inventory.
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Distribution center space and labor. By moving the reverse-logistics process out of the distribution center, valuable space is freed up, and labor can be dedicated to productive outbound processing.
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Accounting and finance. The automation of the credit and deduction process eliminates the resource requirements for key entry of accounting transactions and significantly improves accuracy.
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Returned inventory performance. Item-level tracking throughout the reverse-logistics process provides inventory visibility, so informed inventory decisions can be made. Additionally, predefined shipping and inventorying criteria built into the system provide for the automation of some shipping functions.
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Vendor Relations. With the high degree of accuracy associated with a solid reverse-logistics plan, retailers and manufacturers can be confident when handling returned shipments. This improved relationship results in less deduction discrepancies and a streamlined reconciliation process. Additionally, the system can facilitate sharing information that can identify product defects, allowing the trading partners to expeditiously remedy the situation.
Strategic disposition management: The final component of reverse logistics determines where a return will end up and should be viewed as a final opportunity to generate value from your product. An effective disposition strategy will maximize product value while minimizing trips to the landfill. Options include:
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Domestic liquidation. Selling your returns on the secondary market for a percentage of cost will generally maximize your value recovery. But it may also expose you to brand-protection issues and potential "A" market infringement.
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International liquidation. Cost recovery on merchandise for export tends to be lower than domestic liquidation. However, by selectively choosing the destination of the merchandise, brand and market protection improves.
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Donation. Donation is a viable option for disposition management and generally provides tax incentives. There is typically no cost recovery for donated product, but the tax benefit for donating goods can be significant.
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Destruction. This is the final disposition option and should be avoided whenever possible. There is a double negative in destroying returned merchandise because there's no cost recovery or tax incentive, and landfill charges are incurred.
Effective management of your reverse-logistics pipeline has become a competitive necessity. While there will always be returns, companies that pay attention to reverse logistics and give it the time it deserves can effectively keep the Grinch at bay.
Frank Niglia is a vice president at GENCO Distribution System, a provider of reverse-logistic services to such clients as Hewlett-Packard, Kmart, Philips, Sears, Sony, Target and Thomson Consumer Electronics. For more information, visit GENCO's website at www.genco.com, e-mail info@genco.com or phone (800) 224-3141, ext. 3752.
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