Reversal of Fortunes: The Hidden Profit in the Returns Process

April 30, 2009
Reversing your supply chain effectively can eliminate wasted spending and bolster your revenue.

The very nature of a return might imply a cost to your business; a loss of profit by default. However, your business' returns process doesn't have to be a drain on your company's bottom line. In fact, there is valuable intelligence and profit that can be recovered when your business implements an efficient returns process. Reversing your supply chain effectively can eliminate wasted spending and bolster your revenue.

A returns process in the automotive industry, for example, is traditionally complex and costly. There's only one step to ship a part to a dealership or customer; however, there are many steps to reverse it. The lack of clarity can create fissures in your supply chain, with products returned by inefficient modes to incorrect locations. This results in improperly processed returns, which can cost your business two-to-three times what the part sold for originally. That's a serious breakdown, but it can be fixed.

The intelligence your third-party logistics provider (3PL) builds through automation can make it possible for a percentage of your returns to go straight from the customer back to the warranty center or recycler instead of the distribution center. Fewer touch points means faster time-in- transit, less chance for handling errors and more rapid turnaround of replacement and credit processing.

Working with UPS, auto parts giant Mopar was able to simplify its international parts returns process for radios and cores. With one simple scan, the information needed about the shipment, including the mode and destination, is populated without any manual entry needed thanks to a special Smart Label. Mopar's returns now spend less time-in-transit as well. Locations as far away as Botswana and Croatia have a seven-day transit time. Most of Mopar's international returns -- including returns from China, New Zealand and Romania -- have a three- to four-day return time.

Previously Mopar's manual returns processes had little to no inbound visibility, which led to an increased chance of misplacement once a part was shipped. Mopar-served dealerships can now track their returned parts throughout the return process, meaning dealers can repair more vehicles and ultimately improve customer satisfaction. Plus, the inbound visibility ensures that a part never gets lost in the system. In fact, the latest technology can put tracking tools in place to give your reverse supply chain the same end-to-end visibility as your outbound operation. Complete returns visibility eliminates inventory redundancy and reduces customer calls for status updates. It also helps appropriately allocate staff based on inbound volumes, and can automate the receiving and credit processes.

Your returns process can be a benefit rather than a burden. An automated system records every shipment. Each record is populated with valuable information that, when looked at cumulatively, can assist in identifying design flaws and quality control issues with various products. Imagine how much money your company will save knowing when a disproportionate number of a certain part or product is coming back to you. Inventory revisions and eliminations can be determined with improved speed and certainty.

An effective reverse supply chain will do more than make your internal operations easier; customers will reap the benefits as well. Automating processes like returns label generation and customer tracking for returns status will reduce credit delays and increase customer satisfaction. For example, Mopar reduced customer confusion because their process became clearer. Mopar now uses a universal waybill for all returned parts throughout the world. The standardized waybill ensures consistency for all inbound parts -- no matter if they're coming from the United Arab Emirates or the United Kingdom.

Dealerships and parts manufacturers alike will spend less time coordinating and running interference for customer issues. Instead, dealerships will be able to simply reference the data captured during the returns process. This could lead to faster identification of defective products, a smaller inventory foot print, reduced returns touch points and lower transportation costs.

Taking time to work with a 3PL to study your supply chain and improve its reverse operation will carry your business forward and reward your bottom line.

Dan White is an industrial sector vice president at UPS. He leads UPS's business development group for all supply chain products in the UPS portfolio for clients in the Automotive or Industrial industries.

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