DC Velocity - December 2016

str at e g ic i ns i gh t REV E R S E LOG I ST I C S

different sizes to assure a fit and then return all but one.

Handling this kind of volume can be challenging, but if done well, returns can actually benefit a company by providing an opportunity for positive interaction with customers. Returns can also be a valuable source of information that a company can leverage to optimize its supply chain.

“Returns, often considered a problem, are actually a valuable resource for gaining insights that can be used to improve the customer journey,” says Stef de Bont, founder and CEO of 12Return, a company that specializes in returns management software. “If done well, returns can really be turned into value for you and your customer.”

ALL RETURNS ARE NOT CREATED EQUAL

Part of what makes reverse logistics so difficult is that not all returns are handled the same way. The determination of how to treat a return largely hinges on the item’s condition, where it is in its lifecycle, and the reason why it was returned in the first place.

Products in the early stages of their lifecycles include those
that are returned simply because the customer changed his
or her mind. Items returned to a store in perfect condition
can be re-entered into inventory and put back on store
shelves. Often, though, product is returned with damaged
packaging. (Sometimes this is not the consumer’s fault, as
the packaging for many items must be destroyed simply to
open them.) In these cases, the product will need new pack-
aging or a change to the existing packaging, which might
require it to be sold at a discount.

Other products in the early stages of their lifecycle are returned because they are damaged or not working. In these cases, the items need to be evaluated and, if possible, repaired. In some cases, the products may be returned to stock as refurbished goods. In other instances, the products may have to be sent back to the original manufacturer for replacement.

Mid-cycle items are those that are returned for warranty issues. These typically need to be replaced or repaired and then returned to the customer. Retail stores generally do not handle these sorts of claims, but certain distribution centers will. In some cases, the repairs may be done at the facility; in others, the items will be returned to the manufacturer.

End-of-life returns are those where the product is beyond repair. When possible, these items are typically broken down into component parts. The individual parts may be reused for refurbished goods, or they may be recycled. In

As of Nov. 7, 85 percent of all the Galaxy Note 7 “phablet” smartphones sold in the U.S. had left U.S. consumers’ hands, according to Samsung Electronics, the maker of the device that was recalled in September and discontinued in October after repeated incidents of the phones catching fire due to overheated batteries. To encourage customers to return the remaining phones, Samsung said at the time it would issue a software update that would limit the phone’s ability to charge beyond 60 percent power. Virtually all of the returned phones had been exchanged for new devices, Samsung said. The recall covered 1. 9 million phones in the U.S.

The stunning chain of events that within two weeks turned what was arguably the most anticipated product launch in Samsung’s history into a $5 billion debacle and resulted in a black eye to the company’s reputation has seemingly run its course. If Samsung can take any solace, it’s that the returns process itself appears to have been competently handled, according to Irv Grossman, a pioneer in the design of reverse logistics programs for the wireless communications industry and executive vice president of the Americas for Atlanta-based Chainalytics, a supply chain engineering and consulting firm.

In a phone interview, Grossman said Samsung has
shown evidence of a fast response to product issues
by matching the products with their owners, a process
known in the reverse logistics trade as a “precise recall,”
because there was already so much information connect-
ing the customer to the phone. The returns effort likely
was aided by the wireless carriers, whose level of involve-
ment was much higher than it would normally be in a
consumer product recall, Grossman said. The vast major-
ity of U.S. phones were returned to the carriers because
that’s where most of the devices were bought. Neither
Grossman nor Chainalytics was involved in the recall.

In published reports, Samsung described the use of a special fireproof kit that would have allowed customers to return the phones via air directly to the manufacturer. However, shortly after the recall, the U.S. Department of Transportation issued a ban on carrying the phones aboard a commercial aircraft or classifying them as cargo. Instead, the returns have moved via truck. Samsung U.S. executives did not respond to requests for comment on this story.

In some customer returns scenarios, manufacturers could refurbish the defective items and sell them back into secondary markets. Given the nature of this recall and the adverse publicity surrounding it, that is unlikely in this case. The Note 7 is too unstable to be sold as new or nearly new, Grossman said, and will either be harvested for parts or recycled into metal.