DC Velocity - December 2014

40 DC VELOCITY DECEMBER 2014 www.dcvelocity.com
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ager, healthcare, technology, and retail for Ryder Supply
Chain Solutions. A central facility does pay off in the next
stage in the reverse logistics life cycle, though. “You can
move products back out into different channels in a more
efficient way,” Sensing says. When planning facilities, he
adds, it’s important to optimize “not just the returns pro-
cess but also your ability to resell the product and gain a
benefit on the outbound side.”
Concentrating activity in one location can boost pro-
ductivity and efficiency. “It allows for a straightforward,
Centralizing returns processing can
be beneficial from a legal, tax, and reg-
ulatory standpoint, too. There can be
significant differences from state to state when it comes to
labor laws, payroll and inventory taxes, and regulations
concerning the disposal of returned goods, particularly
those deemed to be hazardous materials, Gordon says.

Having only one set of state laws and taxes to deal
with makes it easier and less costly to adhere to those
requirements.

But a single returns processing center may become
a liability for companies that serve customers across
the United States, especially if it’s located on one of
the coasts, says Alan Amling, vice president, global
logistics and distribution marketing for UPS. “Think
about a West Coast returns center serving an East Coast
customer,” he says. “That returned good could be making
at least two trips across the country. That’s a lot of time,
cost, and carbon.”
For a company that promises a quick turnaround on
inspections, repairs, and replacements, the time required
to transport that product to a central point and then back
to the customer may be too great. Furthermore, a single
processing center may be located far from some of the
manufacturing plants or retailers it serves, putting some
customers at a cost and cycle-time disadvantage compared
with those that are located nearby, Vehec says. Retailers
might have to set up pool points in order to get returned
merchandise from the store or customer to a single point,
adding multiple touches and increasing transportation
costs.

And then, as Sensing points out, there’s the “eggs in one
basket” issue. “You have to plan for disaster recovery,” he
says. “If there is a natural disaster or man-made interrup-
tion, then you will lose your ability to process returns”—
itself a potential disaster for customer service and a compa-
ny’s reputation.

REGIONAL CENTERS: PROS AND CONS

Establishing regional returns processing centers allows a company to optimize transportation time and cost based on where customers are located and the business strategy for serving them, Amling says. “If the returned item is in good condition and can be resold, then this optimization applies to the next sale as well,” he notes. If, for example, a company has both an East Coast and a West Coast reverse logistics center, both the return and the next outbound shipment will likely stay within the same region.

A network of regional facilities can reduce the total cycle time from return authorization request to a cash-generating resale. When reverse logistics hubs are close to both the original sale and resale locations—for example, near population centers with large concentrations of retailers—they can make a disposition determination and get products to secondary markets faster, Vehec says.

Another important factor is the impact on customer service, says Sensing. “If returns centers are repairing and refurbishing items and sending the same units back to the customer, then there is value in having multiple repair nodes because it speeds up that cycle and improves customer service,” he observes.

From a facility cost standpoint, regional centers have some advantages. They can be smaller and less costly to build and operate. Often, they are multiclient facilities managed by a third-party logistics company (3PL), which means that customers share the overhead. A network of sites allows companies to distribute work and labor across facilities if demand increases, Gordon says.

Furthermore, he adds, in times of natural disaster, only a
portion of capacity will be affected, and returns could be
diverted to another location until the affected facility is up
and running again.

One potential downside of regional processing centers is that the quantities of items being returned to each facility may be small, which raises the per-unit cost of processing and transporting them. Another is that it requires replicating processes, equipment, infrastructure, labor, information systems, and management structures to ensure consistent service. There’s also the need to maintain inventory in multiple places, which further drives up costs. On top of that, it’s necessary to ensure that items are returned to the right location—there are more inventory and customer service management issues to stay on top of, Sensing says.