items. It also helps to prevent returned goods ending up at
unintended locations that may pose legal risks to the company. In addition, many companies do not trace mobile
returnable assets like containers and pallets, but doing so
would enable efficient management of these assets and free
up the capital locked in excess buffers.
Causes of returns. To truly understand the implications
for their business of their reverse logistics processes,
National Retail Federation (NRF) has
estimated that fraudulent returns
cost U.S. companies up to US $3.68
billion in 2010.7 Nine in 10 retailers say that they have experienced
the return of stolen merchandise
and fraudulent returns involving
employees.
8 By collecting and
analyzing the claims data, companies can identify the claim patterns, fraudulent claims, and the
loopholes that enable fraudulent
returns.
For legitimate claims, such research
can identify product and design flaws.
And in cases of returns due to delivery of
excess items, shortages, or in-transit damages,
conducting a collaborative root-cause analysis with
logistics and transportation service providers and distributors can help to reduce such incidents. In short, companies
can leverage the reverse supply chain’s actionable intelligence in order to improve product and process design and
also reduce the quantity of goods in the reverse supply
chain.
Recalls, warranties, and repairs. A product recall is one of
the most undesirable situations a company can face. Recalls
carry much risk to a company’s image and hence should be
handled with care. In the case of food recalls, regulations
also come into play, and companies will be required to generate and maintain compliance reports.
Warranties and repairs are another sensitive area for customers, and providing the necessary information and regular updates to customers will go a long way toward assuaging their concerns. A company’s website should be the first
source of information about returned material authorizations (RMAs), followed by helpdesk support.
Logistics optimization. Working closely with third-party
logistics service providers (3PLs) and using transport optimization techniques can make the reverse supply chain
more efficient. Some 3PLs have recognized the need for
this type of improvement and are differentiating them-
selves from other providers by providing reverse logistics
capabilities.
THE PROFIT CENTER VIEW
Companies can make positive strides in the above areas of
their business by taking a “profit center” view of their reverse
supply chain. An examination in detail of the various disposition strategies in the context of both financial and
nonfinancial considerations makes it possible to
develop a framework for such a profit center approach, as well as develop a set of
performance indicators for the reverse
supply chain.
Disposition strategies
Several options exist today for
disposing of returned goods. The
choice of one or more options
should be governed not only by
financial concerns (a cost-benefit
analysis) but also by nonfinancial
concerns like brand image, customer satisfaction, and regulatory
compliance.
Option 1: Refurbish/repair/remanufacture. (Note: Refurbishing, repairing, and
remanufacturing, in which the original identity
of the item is not completely lost, have been considered
together in this analysis.)
In this disposition option, damaged or discontinued
returns are repaired or refurbished and sold again. The
financial driver for this option is the comparison between
the cost of repair and refurbishment plus the cost of transportation and handling versus the market price of the item
that has been repaired, refurbished, or remanufactured.
However, nonfinancial concerns are equally relevant. It’s
important that companies identify parts that have been
repaired, refurbished, or remanufactured separately to
avoid any risk to brand image due to product failures in the
field. Also, consumers tend to consider such parts and
products as inferior. However, a company can highlight this
practice as a sustainability initiative and give it a more positive image.
In some industry sectors, this disposition option has
become a huge market in itself. For instance, the automobile industry sells a wide range of remanufactured automotive components, including engines, clutches, gearboxes,
fuel injectors, and other products, in the automotive after-market. A remanufactured part may sell for around 50–75
percent of a comparable new one and carries the same warranty. However, the remanufactured parts must be labeled
