Recovering lost profits by improving reverse logistics
Friday, August 22, 2014
Until recently, the most attention that the supply chain got was for product management centered on the new introduction of products or on the outbound shipping part, where volume shipping is part of the product life cycle.
But, according to Supply Chain Quarterly, around 20 percent of everything sold in the United States finds its way back to the company that manufactured the goods for return or recycling. The cost to industry is more expensive than most people know — costing companies about $100 billion per year.
Expenses associated with returned goods are in the neighborhood of 9 to 15 percent of a company's top line. Actually, for some the cost of processing the returned item often is two or three times that of the cost of shipping the product outbound.
How reverse logistics improve profitability
To understand how to improve profits from a reverse logistics, let us define what we mean. When we speak of reverse logistics, we mean the processes used for accepting a product or product components to recapture value from them or dispose of them properly.
The plans and processes that guide reverse logistics heavily bank on reversing the supply chain so manufacturers properly identify and competently categorize products returned for disposition. Disposition offers many ways to get more revenue.
As a process, it is more than keeping a record of customer returns. In fact, it is more complicated than shipping things outbound as customers or consumers are the ones who start the reverse logistics process — this makes the return process much less predictable.
What many manufacturers do not realize that by handling returns correctly, that 9 to 15 percent cost can add 5 percent revenue to total sales.
Returns are "failures." They are unsold discontinued products, damaged products or products returned by the buyer. However, Steve Dollase, supply chain president at Inmar, an intelligent commerce network says: "A reverse logistics strategy is much more than simply figuring out how to be more efficient in shipping and processing returns and cutting costs, today it's about driving top-line sales and long-term brand loyalty through a more holistic view."
What is Dollase really saying? Here are some suggestions to turn a failure into a success.
If it broke, fix it
Consumers will not buy broken or expired products. Products like these on the market are an albatross on the brand. They lead to lost sales, which is damaging to the top line if the company fails to find and correct the problem.
Once the source of a problem is found and fixed, then the repair and refurbishment of returning products helps increase revenue. The secondary discount market continues to grow and offers a way for a consumer to buy the item at a lower price.
In addition, analyzing the data that comes from product returns and "failure analysis" provides great information that often leads to improved product design, manufacturing process and packaging. All of these lead to increased top-line revenue.
Consumers believe they have the right to change their mind. If they believe this, it is true. So make the return process as easy as possible. If they are treated well and the return process is hassle-free, they might be return as future customers.
Discover the value of reverse logistics
Curtis Greve, principal at Greve Davis, a reverse logistics consultancy, points out that only about 25 percent of returns are customer returns or defective goods.
"Recalled product, overstocks, fixtures, recyclables, capital assets, end-of-life goods and assets to be disposed of make up the majority of goods in the reverse logistics pipeline," Greve said.
Planning for disposition of goods such as these are opportunities for adding to your company's bottom line.
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