In the current economic climate,
businesses are looking at creative ways to cut costs, without cutting value and
have focused energies in developing repeat business from satisfied
customers. Companies are beginning to recognize
the financial benefits of investing their resources into returns management to
accomplish those goals. The most critical factors in a successful reverse
logistics program include customer service, understanding and expediting
movement, warehousing, decision-making and assessment, and final
disposition. Harnessing technology to
create visibility with the organization will coordinate these critical
components of the reverse logistics life-cycle.
Reverse Logistics examines a wide range
of complex issues involved with managing excess inventory, returns, recalls or
defects, and the disposal of obsolete products.
In managing reverse logistics, there are many additional steps that must
be coordinated to develop a smooth flowing process that will “correlate their
reverse logistics expertise and systems to positive impacts on customer
service, brand equity, competitive differentiators, and profitability” (Millar,
2012). By strategically planning returns
management early in the supply chain life cycle, processes and procedures at
critical points in forward logistics could ultimately reduce the workload and
expense associated with managing products as they enter the reverse logistics
cycle.
Service Areas
Customer service is the most critical
part of the reverse logistics process because of the constant interaction
ensuring customer satisfaction. Service
areas are critical components, being a clearinghouse for information that can
be used to identify new opportunities for continual process improvements across
the enterprise.
Companies have invested billions of
dollars identifying why a customer does not buy a product or service. United Parcel Service conducted a survey
(2012) utilizing an on-line focus group to determine the effects of reverse
logistics and the post-purchase customer experience. The study identified that consumers are
looking for retailers that offer on-line services. Consumers are becoming more involved in
researching a products and identifying the best possible terms before making a purchase. Competitive advantage was last achieved with
the birth of “free shipping” that encouraged customers to complete the sale
on-line immediately, rather than wait to buy the product at a retail location. This concept evolved into the ability for a customer
to decide how soon they want the product, offering multiple shipping options
including “pick up” service at a retail location. Customers are now seeking the same
flexibility and ease with the returns process.
“Retail reverse logistics is gaining consumer attention and could be the
next ‘free shipping’ craze, with 42% of consumers reporting they want to see
improvements in the on-line returns process” (Supply & Demand Chain
Executive, 2012).
Managing customer relationships through
a mixture of distinct ways to offer convenience, reliability and support is a
critical differentiator to develop new organic business growth. L.L. Bean’s early success was found with word
of mouth advertising and customer satisfaction.
This was a value that was communicated consistently across the
organization. “To hear that one of his [L.L.] products had failed was a genuine
shock to his system” (L.L. Bean, n.d.).
That fundamental value was instilled in the corporate culture and is
embraced at all service levels. Customer
service understands the meaning of ‘customer satisfaction’ while capturing
critical information to expedite processing of returns. The reason for return is captured and that
information is used to begin the returns process. Within L.L. Bean, reason codes identify how
the return will be handled through the reverse logistics cycle as well as
expedite shipment of replacement merchandise, or credit to the customer. LL Bean offers reimbursement for returns,
store credit and exchanges for new orders is encouraged and the entire process
of completing the sales cycle simplified for the consumer increasing trust and
loyalty. More importantly, customer
service identifies the reason for the return while providing superior service,
help managers at appropriate destinations prepare for the return to expedite
handing.
It is critical to engage employees’ to own
their position, participate and become involved in the returns management
process to improve gatekeeping. Retailers
have voiced concern about service areas either being unwilling or unable to
screen the returns process which identifies the need to take the decision out
of their hands and rely on the return management processes to validate and
manage that return. Nintendo, a video
game manufacturer, experienced an unusually high rate of returns from
retailers. The manufacturer identified the high return rate as a result of consumers
who were delaying registration until a problem occurred, thus extending the
warrantee. The manufacturer incentivized retailers by crediting them $0.50 for
each game unit registered at the point of sale resulting in an 80% decrease in
returns (Tibben-Lembke, 1999).
Processes and Procedures
“Communicate how sustainability relates
to the company, its products and the industry differentiating what it important
from the customer and consumer points of view” (Lovins, 2012). A company must transform the workforce,
communicating the commitment to meet reverse logistics objectives identified in
the decision making and assessment processes identified. An increase of staff or investment of money
into technology will not automatically guarantee increased efficiencies in
managing returns.
Developing rules, procedures,
instructions, and communications that are applied consistently throughout the
enterprise is critical to controlling and automating the returns process. “The positive influence of process
formalization derives from its potential to reduce work ambiguity, this
reducing managerial and coordination costs, and, at the same time, increasing
efficiency of operations (Genchev, 2007).
By establishing specific operational goals, a chain of command,
establishing what information should identified, and how the return should be
handled is the most critical component that will drive the efficiencies of the
process.
In developing the decision tree to
manage returns, it is critical to understand five basic questions that are the
backbone of process development. Why the
organization is receiving the product? Why is the product being returned? What is being returned? Who is returning the
product? How will the product be
returned? By answering these open ended
questions, it provide context for developing a knowledge base unique to the organization
or industry and provide a framework to begin setting goals and examine
opportunities for continuous improvements.
 |
Fig
1. Five basic dimensions of reverse
logistics (deBrito, 2002)
|
The
first phase of decision making is strategic, planning for recovery where
objectives are identified. A
determination is made on how the items should be recovered, and in what
capacity. This phase can begin as early
as product design. “The issues here are
where to locate warehouses, re-distribution plants and so on and at the same
time allowing for enough future capacity” (deBrito, 2002).
The
second phase is tactical examining the integration of a reverse logistics
chain. This is how you determine how the
return will be handled and managed.
The
final phase of the decision making process is the Operations Planning. “At the operational level, we find production
scheduling and control related decisions as the disassembly and reassembly
operations” (deBrito, 2002).
Many retailers are negotiating returns
management working with vendors to identify the most cost effective terms to
manage repair of defects, replacement, or end of life actions. The longer an
item remains in the distribution center, the more cost is incurred as the value
of the products decline. Once an
agreement is negotiated, a plan to communicate and manage the terms of that
agreement should be implemented into the standard operating procedures. Visibility throughout the supply chain should
not be neglected and the exchange of data within the supply chain should be
included as part of the negotiation process.
“Companies are moving to a virtual world of contract manufacturing, a
new opportunity for sustainable long term growth and competitive advantage”
(Anderson, 2009). If returns are sent to
an outside entity as part of the contractual agreements without data, a company
can lose the competitive advantage that comes from that information. Losing the opportunity to identify quality
issues or consumer demand could negatively impact any competitive advantages.
QVC, Inc. contracted with Soleus
International to sell 28,000 electric space heaters on a drop shipment
basis. QVC was receiving an inordinate
number of consumer returns citing manufacturing defects including smoking,
sparking, overheating, and flames. The
contract of sale did not provide return solutions, and QVC failed to establish
clear procedures for customer service to manage consumer complaints and
returns. Frustrated consumers filed
complaints with government agencies identifying manufacturing defects that
caused the heaters to smoke, spark, overheat, and produce flames. The manufacturer refused to make repairs, or
provide restitution to the retailer or their customers. QVC agreed with the governing agencies to
initiate a recall, instructing consumers to snip the electrical plug containing
the bar code and send it back to QVC for full refund. QVC initiated a lawsuit to recover costs of
the faulty merchandise to recover the costs associated with faulty
products. QVC received financial relief,
but the cost to QVC’s reputation through poor vendor management and communications
with front line customer service not necessarily recovered (QVC, Inc. v. : MJC AMERICA, LTD. : D/b/a
SOLEUS INTERNATIONAL, INC., 2011).
“Return initiation, determining the
routing for the returned goods, receiving returns at the firm’s facility,
selecting the disposition option, crediting the customer/supplier and analyzing
and measuring reverse logistics program performance are considered
multidimensional processes providing the framework for assessment” (Rogers and
Tibben-Lembke, 1999). When rules and
procedures are clearly defined throughout the organization, they become
knowledge based assets to manage gatekeeping challenges. This creates visibility in the supply chain
that will move the decision-making process away from service areas and place it
with management to develop continual process improvements. “For example, firms can issue pre-printed
shipping labels that specify the contracted carrier(s) to take the decision out
of service areas, and the exact location where the return should be set or
communicate specific routing policies that cover destination, timing, carrier
selection, returned product condition, etc., as agreed upon in advance with
business partners” (Genchev, 2007).
Governmental Influences
Although there are laws mandating the
disposal, enforcement of those laws are critical to creating deterrents. A study conducted by the State of Oregon’s
Department of Environmental Quality conducted a survey consisting of 450
businesses and 450 private residents to identify what deters businesses and
individuals from violating environmental regulations. 70% of the businesses reported compliance
with the laws was not motivated by fines.
The monetary penalty for non-compliance was minimal. The key deterrents were the risk of exposure
and negative publicity. The primary
concerns were “forced shut downs, environmental damage, criminal prosecution,
corporate reputation, community pressure and customer pressure” (State of
Oregon, u.d.). 65% of Oregon residents
said they would stop doing business with companies that were not committed to
the environment.
There are tremendous challenges in security
surrounding forward logistics and shippers discussions have been focused
identifying and mitigating risk. Businesses
should be concerned with security in reverse logistics as well. “Forward logistics is the primary focus for
shippers of all commodities, but fine-tuning the “reverse loop” is becoming
more urgent as high-end companies develop new revenue streams focus on reverse
logistics and after sales services” (Burnson, 2012). There are a multitude of privacy laws in
place that mandate the protection of personal identifiable information. Shippers are mitigating risk by working with
business partners developing visibility and transparency in the supply chain
from point of origin to point of destination.
Although many states have implemented
strict environmental laws in place surrounding the disposal of e-waste, there
has been a decline in proper disposition that is believed to be a result of the
economy. Electronics recyclers have
filed bankruptcy in recent years due to the lack of work. One of the most significant problems
identified by the Environmental Protection Agency was the lack of visibility in
the supply chain. “New Jersey passed
e-waste recycling laws implemented in 2011 recognizing it was impossible to
identify and quantify how many devices were recycled, and how many ended up in
landfills” (Siriwardane, 2009). Employers
are seeking opportunities to reduce disposal costs and have been exploring a
shared responsibility approach.
Retailers and manufacturers relied heavily on local communities and
townships to manage waste. European businesses
are beginning the realize that this may not be the most cost efficient way to
manage disposition, seeking opportunities to collect and re-use materials,
rather than buy new. “Cross-industry
consortia are also emerging where companies with a shared requirement for
recycling, but without competitive clash, pool their resources to cost
effectively manage their waste” (Elliot & Wright, n.d.)
Conclusion
Reverse logistics is the opportunity to develop
a smooth efficient process to manage excess and waste not only recapturing
values, but develop clear communications with all stakeholders to improve
profitability and the customer experience. By investing a company’s resources
into reverse logistics and examining the five dimensions of reverse logistics a
valuable knowledge center can be created.
The knowledge center will identify the most cost effective ways to
manage returns as well as help identify new opportunities to streamline and
improve efficiencies.
Having a clear written guideline once
the process has been developed to identify how returns will be handled is
critical. By taking the decision out of
the hands of front line sales staff and customer service personnel, their focus
can remain on customer satisfaction by communicating concise and consistent
information. Setting the customer’s
expectations from the start of the relationship through post-sales service is a
significant component to developing customer loyalty and repeat business. Written procedures and processes are also
significant in t developing transparency between the company and their vendors,
establishing clear roles and responsibilities and maintain cooperative
beneficial relationships.
Although governmental influences play a
role in the reverse logistics planning, companies are more concerned with how
customers perceive them. Businesses
using transparency and visibility in the supply chain identifying
environmentally sound or sustainable practices can use this information as an
additional communication opportunity to strengthen customer loyalty, attract
new business, and acquire repeat business.
References
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(2002). Strip the risk out of reverse logistics. Logistics Management, 5(6),
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