Multi-channel visibility

Customers expect a streamlined, easy way to return items. The notion of returning on-line purchases online and retail purchases to the store “…is inadequate and is breaking down,” Brian Kinsella, order lifecycle management product manager at Manhattan Associates, points out. Nowadays, “The retail customer expects a seamless experience—the ability to walk into a store and return an item ordered online. But, without cross-channel visibility, that is impossible.”

A handful of solutions providers offers cross-channel visibility by integrating their reverse logistics applications into their customers’ point of sales systems, thereby allowing cashiers to have instant access to an individual’s online and retail purchase and return history.

Easy, instant access to this level of detail also allows companies to establish rules-based return policies based upon individual purchasing behavior. For example, most valued customers may have a more lenient returns policy than occasional customers or those who frequently return items. Frequent returners can be charged a restocking fee easily, by establishing rules within the system.

A robust returns system can also be used to build store loyalty. Tim Konrad, senior vice president of reverse logistics for GENCO, recounts the story of a woman who returned a damaged suitcase to Sears, with her wedding ring inside an inner pocket. Because the suitcase barcode was linked to the customer, Sears, through GENCO, located the suitcase at the return facility and returned the wedding ring.

Multi-channel visibility works the other way, too. Sometimes customers buy at a store and need to return items online. Kinsella also advises adding a returns section on Web sites, so customers can print shipping labels and read return instructions when they can’t drive to a store easily or when the packaged instructions are lost. The goal is to provide the best customer experience possible.

Centralized returns facility

Reverse logistics are performed most effectively through dedicated facilities. Although both forward and reverse facilities ship merchandise, the conditions under which they operate are completely different. Forward distribution centers are designed to ship goods out. They handle merchandise that arrives in neatly organized pallets and boxes of uniform size that can be managed easily. The flow has been compared to that of a fire hose.

Return centers, in contrast, typically receive a wide range of merchandise that often is returned in any box the consumer had available, with or without all the parts and manuals. A return center, therefore, must have additional space to sort, test, accumulate and re-package goods. This is reminiscent of repackaging Lego kits from a child’s toy box.

Centralized reverse logistics facilities also provide a visual way of identifying problems, GENCO’s Konrad says. For example, when a manufacturer of weed whackers experienced a jump in returns from 3 to 11 percent, mainly because of sticky switches, a product manager visited the returns facility. When he saw that most of the returns had white switches rather than the blue the company usually used, he realized the problem was with a new components manufacturer. If he hadn’t seen the returns, he may not have made that realization or may have made it much later, which would have delayed resolution of the problem.

Quick identification

As goods flow in for return, stores and return centers should create procedures to inspect the merchandise. Because 70 percent of goods returned as defective actually work, it makes sense to identify them early, before they are shipped to repair facilities. “The goal is to minimize loss, as soon as you can,” Konrad stresses.

The objective is to make repair decisions as close to the retailer as possible. To that end, GENCO and some other reverse logistics firms incorporate diagnostic tools for electronics into their return centers. That capability allows about 70 percent of returned consumer electronics to re-enter the supply chain without being shipped to repair center or contract manufacturing organizations (CMOs) that are often based abroad. In the case of a CMO located in Juarez, Mexico, Konrad says diagnosing equipment at a return center shaved 10 days off the time it otherwise would have taken to return the merchandise to the supply chain. That means that the cash associated with that equipment was able to work an additional 10 days.

Coordination

To maximize the revenue from these returns, as well as from refurbished merchandise, some retailers have opened lower price outlets, like Nordstrom’s Rack. Others are making sure they align their sales, marketing and pricing teams to effectively retail refurbished products, often in regular retail channels or online. About half the best-in-class firms have done this, expanding their retail opportunities in the process, according to the Aberdeen Group’s reverse logistics report.

Another strategy manufacturers are using is to decrease returns, Konrad says, by making products easier to use and owners’ manuals easier to understand. Some leading consumer electronics manufacturers are even putting staff on the sales floors of major electronics retailers to help potential customers understand their products and learn quickly how to install and use them. Some electronics retailers operate diagnostics centers in the stores themselves, making customers more responsible for their return decisions. The downside, however, could be a loss of customer loyalty if the return process becomes onerous.

The best-in-class companies take a holistic approach to reverse logistics, enterprise wide. They have standardized processes, accurate forecasting, and visibility into every aspect of their return lifecycle of every part and product. That comprehensive approach is boosting bottom lines as well as customer perceptions. wt

Contributing writer Gail Dutton specializes in reporting on the intersection of business and technology.

Sidebar: Turning Returns into a Competitive Advantage

Charlie Covert, vice president, customer solutions, UPS, explains that a big part of building a successful returns program begins with “having our customer look at what’s being returned and make sure they understand the economic value of that product,” so that they can make the right transportation choice.Historically, product returns have been viewed by most companies as a ‘necessary evil’ of doing business. Increasingly, though, a sophisticated returns program can not only dramatically improve the end customer’s experience but also qualify as a competitive advantage in the marketplace.

For example, “some product could be destined for scrap or recycle, other for liquidation, or maybe for repair or refurbishment, while another product is destined for the vendor or maybe even returned to inventory,” he explains, all of which will affect the transportation decision. Furthermore, for a product that is going to be repaired or refurbished, the customer needs to consider the depreciation for that product and decide how quickly it needs to get back into inventory, Covert adds.

Internet retailers have become acutely aware of how a successful returns program can enhance an online buyer’s experience, with a handful of companies, such as Zappos, using the returns process as a true competitive advantage.

A study by Forrester Consulting, commissioned by UPS, found that while Internet retailers, in general, do not recognize the long-term value of how a generous returns policy can affect their business, “consumers are very clear about how generous returns policies affect their future web shopping expenditures.”

According to Forrester, “The findings from our consumer survey revealed that generous returns policies are most likely to positively affect a web retailers’ best customers and ultimately drive long-term sales and loyalty.”

In order to improve an end customer’s experience, some companies, especially apparel retailers, will include a return label and, in some cases, a return package, for customers to return merchandise. UPS provides its customers with a number of options to offer their end customers, including the option to call UPS for a residential pickup, deliver it to a driver, while some UPS trucks even have a drop-slot on the side of the truck.

Commercial returns, such as service parts, are also a substantial part of UPS’s businesses. The Intelligent Automated Return System (IARS) allows UPS’s customers to make decisions based on current needs. For instance, technicians working in the field can send defective parts directly back to the manufacturer, while good parts can be sent straight back into inventory. At the same time, decisions can be made as to how the shipments need to move, either expedited or standard delivery. “The decisions can be made dynamically,” explains Covert, “and customers can change routing instructions as they need.” The IARS also comes with robust reporting tools, he says. Ultimately, “you don’t want working capital tied up in inventory; you want visibility to help accelerate the cash flow for the customer.”

Covert notes that improved visibility in a returns program also supports a company’s operations. “When you have visibility on the inbound product for returns, you can adjust your staffing accordingly.” Furthermore, improved visibility also helps a company better balance their stock inventory. “It’s another example of how visibility accelerates the cash flow,” Covert points out. — Lara Sowinski

Sidebar: Minding the Metrics

When analyzing the effectiveness of any reverse logistics operations, Grant Gordon, managing Partner of GSG Consulting, advises monitoring:

•    The percentage of items returned.

•    The dollar volume of items returned.

•    The cost of recovery and return versus that of recycling or scrapping the items.

•    The item repair costs as a percentage of overall purchase costs.

•    The cost of ensuring spare parts for items no longer manufactured.

•    The cost of disposing of consumer electronics.