DC Velocity - November 2010

strategicinsight REVERSE LOGISTICS

mon for Genco to find that a new customer is paying more to refurbish an item than it’s likely to recover through the item’s resale.

How do you determine whether a particular product is worth refurbishing? It will probably require some number crunching, says Terry Steger, a senior executive in Accenture’s Supply Chain Management practice. Basically, what you have to do is calculate what it costs to recover and refurbish a product and compare that with the current resale value of the revamped item, he says.

In the case of consumer electron-
ics and information technology
products, Konrad advises his
clients to follow a simple rule of
thumb: Consider refurbishment
only if the product originally sold
for more than $125. Konrad notes,
however, that there’s one exception
to his rule. If you have a hot item,
like a high-end MP3 player, where
there’s a demonstrable market for a
refurbished version of the product,
then by all means go ahead with
refurbishment.

than consumer electronics, different standards apply. Jeffrey Pepperworth, president of Inmar Reverse Logistics, believes that even relatively low-value products, such as kitchen appliances or sporting equipment, can be worth refurbishing under the right conditions. The key factor is volume, Pepperworth says. “If the volume is large enough, economies of scale make processing even low-value materials feasible.”

Even if you’ve already done all the cost calculations for your product, it could be time to revisit your decision. “Sometimes, a device or product is so old that, at that point in its lifecycle, it no longer makes economic sense to refurbish it,” Steger says. For products with very short shelf lives, such as wireless devices or high-end consumer electronics, the decision may have to be reviewed on a monthly basis.

2. Evaluate whether refurbishment is truly necessary.

Experts agree that only a small percentage of returned products actually require refurbishing. For example, in the consumer electronics arena, 50 to 70 percent of all returns have nothing wrong with them, says Konrad. “Products that have been returned due to buyer’s remorse or because the consumer didn’t understand how to use the product don’t need to go to the refurbishment operation,” he points out.

The sooner you can perform “triage”— that is, assess which products can be immediately resold and which actually need to be fixed—the better. By making this determination as early in the process as possible—say, at the retail return center or a regional DC—you eliminate touches, reduce transportation expenses and the potential for damage, and increase cash flow, says Pepperworth. It also allows you to get the product back on the market sooner and may help reduce (or even avoid) the need for markdowns.