Chapter 15: Returns Management

1. Chapter 15: Returns Management Process Management: Creating Value Along the Supply Chain (1st edition) Wisner and Stanley

2. Chapter Outline • Introduction • Defining Returns Management • Returns Management and the Product Life Cycle • Developing a Returns Management Strategy • Establishing Returns Policies • Design of the Returns Network • The Returns Management Process in Practice

3. Chapter Outline (cont.) • Environmental Issues in the Returns Process • Disposal of Hazardous Materials in the United States • Disposal of Hazardous Materials in Europe • Returns Management Along the Supply Chain • Summary

4. Learning Objectives After completing this chapter, you should be able to: • Explain why returns management is important to process management and supply chain management. • Describe the elements of returns management. • Understand the role of the returns management team at each stage of the product life cycle.

5. Learning Objectives (cont.) After completing this chapter, you should be able to: • Develop a returns management strategy. • Understand the role of other functions in developing a returns management strategy. • Explain the operational processes of returns management. • Define green logistics and green supply chain management.

6. Learning Objectives (cont.) After completing this chapter, you should be able to: • Describe alternatives to the disposal of used products and materials. • Explain the laws that govern the transportation and disposal of hazardous materials in the United States and Europe.

7. Introduction • Goods flow backwards from customers in the supply chain when they are returned. • The number of mistakes made in the returns process has risen as the number of marketing channels increases. • Retail customer returns account for 6% of sales. • Catalog returns may account for up to 35% of sales revenues in returns for soft goods such as clothes and shoes. • The logistical costs to process returns can be very high. • Challenges of remanufacturing and returns management

8. Defining Returns Management • Reverse logistics: “The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.” • Returns: process of receiving and processing merchandise returned for any reason and includes after-sales customer support. • Closed-loop supply chain management: broader term, encompassing both forward and reverse flows of products • Returns management incorporates the definitions of returns, closed-loop supply chain management, and reverse logistics.

9. Returns Management • Major returns management activities • Recycling • Repair • Refurbishing • Remanufacturing • Cannibalization • Landfill • Return to supplier • Sell as new • Sell through outlet or discount store • Sell to secondary market • Donate to charity

10. Returns Management and the Product Lifecycle • Returns management is an important factor to consider throughout each product’s life cycle. • Product development : important to consider the environmental impact as well as other returns characteristics for a product at this stage. • Employees involved in returns process should be involved • Secondary market broker: buy returned product and then resell it for a profit. • Product introduction: it is difficult to predict the number of returns at this stage. • Returns management personnel can provide valuable feedback to the company’s product designers by collecting the data on the reasons for product returns as well as handle actual returns.

11. Returns Management and the Product Lifecycle • Growth stage: new types of defects may become evident and as a result the returns will increase. • Returns management team will need to find alternatives for repairing, recycling, salvaging or disposal. • Maturity stage: cost reduction and revenue generation is the goal. • Decline stage : the manufacturer can command better prices for returned products in their negotiations with secondary market brokers. • Cancellation stage: returns will slow until they stop completely at this stage.

12. Developing a Returns Management Strategy • Returns management strategy plays an important supporting role in company-wide initiatives such as TQM, six-sigma, BPR • Returns management strategy is an integral part of any company’s customer service strategy • Goals of return strategies: • To show companies are environmentally responsible corporate citizens • To increase the loyalty of a firm’s customers. • To increase profitability by protecting certain marketing channels and/or the value of their brand labels.

13. Developing a Returns Management Strategy • Asset recovery : the process of classifying and disposing of any returned goods, scrap, waste, surplus or other assets to maximize a return to the owner while minimize the cost and liability associated with disposition. • Organizations should develop a returns management strategy based on • The role of returns in their customer service strategy • The way returns can improve their profitability • Their current capabilities (current processes, facilities, and personnel)

14. Establishing Returns Policies • Gatekeeping: the screening of defective and unwarranted returned merchandise at the entry point into the reverse logistics process. • Avoidance: avoiding or minimizing return requests through a number of means. • One way is clearly written instructions and to implement reward systems to reduce the number of returns. • Suppliers provide product support to manufacturers and service companies to avoid returns. • Activities resulting in fewer consumer returns • Everyday low pricing : consistently selling products at their lowest profit-generating price • Upselling: letting customer return a product in exchange for an upscale model • Cross-selling: cross-sell complimentary products that will enhance the original product's capability

15. Establishing Returns Policies (cont.) • Disposition: • Secondary markets: if an item is no longer resalable to regular customers, it may be sold to other parties outside the original supply chain, including outlet mall stores, online auctions • Examples: Big Lots, eBay • Disposition policy should be designed based on environmental and legal requirements, e.g. ISO 1400

16. Establishing Returns Policies (cont.) • Key factors in returns policy and guideline development • In retailing: • Retailers typically take back merchandise and refund the full purchase price with a receipt. • In some cases without a receipt, customer might receive a credit for the current sale price. • Some stores require merchandise to be returned within a certain time frame to receive a refund. • In B2B: • Chargeback: the supplier allows straight deductions or discounts for returns to be taken from the supplier’s invoice. • Short payments: pay less than the invoice amount • Zero returns policy: no returns, give return allowance

17. Design of the Returns Network • Returns management is impacted by the design of returns and related information networks: CRM team, order fulfillment personnel • In-house or 3PLs? (Example: Xerox) • Transportation modes: companies choose the least expensive mode for returns regardless of service levels • Movement of recalled products: an effective communication network is required.

18. Design of the Returns Network • Returns management information systems : should be able to link every return to a specific customer and the date of original purchase, along with the manufacturing location an the date of manufacture. • Return authorizations (RA): numbered authorization forms used to permit the return of a product. • Advanced shipment notification (ASN): electronic version of the shipping notice that is transmitted by the retailer to the manufacturer once the returned product is released to the transportation provider. • An effective returns management system should enable to analyze the costs to serve each customer by profiling each customer’s returns history and looking for trends for abuse.

19. Supply Production Distribution Use Forward Supply Chain Resell? Inspect Transport Collect/ Gatekeep Return Measure Performance Disposition Store Shred Disassemble Test Discard Reprocess Remanufacture Recycle Landfill Repair Clean Reassemble Reverse Supply Chain The Returns Management Process in Practice Figure 15.4

20. The Returns Management Process in Practice (cont.) • Customer initiates return request • Returns from supply chain members: • Market returns: products returned by an organization somewhere within the supply chain other than the end user for many reasons including slow sales, quality issues • Buy-out/lift, job-out: one manufacturer buys out a retailer’s supply of a competitor’s product to gain access to that shelf space • Asset returns: organization may want certain items returned to reposition that asset • Environmental returns : firms may also be responsible for following environmental regulations to dispose of hazardous materials

21. The Returns Management Process in Practice (cont.) • Initial routing: after a return is received, employees determine the product’s routing and any transportation requirements. • If product is in good condition, the product is placed back on the shelf for resale. • If the product is defective, it will be sent back to the manufacturer for inspection. • If the item is seasonal, it may be transported and sols to a retail outlet for later resale, or may be donated.

22. The Returns Management Process in Practice (cont.) • Centralized returns center: if the product is sent back to the manufacturer, a centralized return center, or a warehouse is notified of the incoming shipment. • Advantages of a centralized return center: • Economies of scale in the center and during transportation occur • Specialization of workforce is possible • More consistent decision making • Store processes simplified • Shrinkage is reduced • Retailer can focus on core competencies • Inventory control easier

23. The Returns Management Process in Practice (cont.) • Determine disposition: once returns are delivered to the warehouse or centralized returns center, they will be inspected. • Each return is then assigned a code based on the reason for its return. • The appropriate disposition must be determined. • Recycling: process of returning products for reuse in either the same form or something completely different though remanufacturing or refurbishment. • Refurbishing: to renew or to restore to a new condition and/or appearance • Reclaiming: the use of reclaimed materials to create new products (i.e. the automotive industry uses shredded metal from older vehicles to make new parts) • Collect and analyze performance metrics: at this stage companies develop a relevant set of measures to monitor the success of the process and then acts to address any problems that have been identified. • Companies may also be interested in measuring the impact of their return policies on customer satisfaction or loyalty.

24. Environmental Issues in the Returns Process • Green logistics/green supply chain management: understanding and reducing the ecological impact of logistics in the both forward and reverse supply chain. • Programs include customer-supplier relationship to • Reduce the environmental impact of certain modes of transportation • Achieve ISO 14000 certification • Increase energy efficiencies in supply chain logistics activities • Reduce the amount of materials used by redesigning the products and processes

25. Disposal of Hazardous Materials in the United States • US companies must handle any hazardous waste in a responsible manner. • U.S. Resource Conservation and Recovery Act sets up strict, technology-based standards for any hazardous waste deposited into landfills. • 300 million shipments per year of hazardous materials in the US alone • U.S. Code of Federal Regulations (CFR) governs the handling, packaging, and transportation of hazardous materials • Hazardous materials: “severe pollutants to the environment” • Explosives, radioactive materials, gases, liquid, posions

26. Disposal of Hazardous Materials in the United States • Communication issues: specific warnings regarding each shipped hazardous material must be communicated on shipping documents, package markings and labels, placards, and written emergency response information • Packaging requirements: should contain similar warnings that are provided on shipping documents. • Operating rules: Carriers must report all incidents and keep them in an automated hazardous materials information system database. • Training: Employee training is designed to increase an employee’s awareness of safety considerations involved in transportation of hazardous materials, thereby helping to reduce the number of incidents and mitigate their effect.