Supply Chains Also Work In Reverse

April 10, 2007
Manufacturers are discovering profits in the "lost world" of returned products.

It happens every minute of every day -- a product is returned by a customer, for any number of reasons. Maybe the product was defective, or it didn't come as advertised (blue instead of red), or it was the wrong size. Perhaps the consumer just decided they didn't want the thing after all. Whatever the case, up until recently, manufacturers spent relatively little effort addressing the causes and effects of product returns.

As the concept of reverse logistics has gained acceptance, though, companies have woken up to a startling statistic: Product returns cost U.S. manufacturers and retailers $100 billion every year in lost sales, transportation, handling, processing and disposal. Looking at it another way, customer returns can reduce a manufacturer's profitability by an average of 3.8%.

Many manufacturers have yet to identify exactly where and how the reverse logistics "leak" exists within their operations. A good starting point is to figure out what a company's actual return rate is, and then determine what return rate is acceptable. According to analyst firm Aberdeen Group, best-in-class companies have improved their situation by following this type of strategy:

  • At A Glance: Reverse Logistics

    Reverse logistics is the process of moving returned goods from their consumer destination for the purpose of capturing value or proper disposal. It includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory, as well as packaging and shipping materials from the end user or reseller.

    Restructure the service organization with higher-level oversight and accountability.
  • Upgrade technology solutions to automate portions of the returns process.
  • Recover more costs from suppliers.
  • Integrate the service organization closely with sales and marketing, as well as with design and manufacturing.

Aberdeen's analysis indicates that manufacturers typically use one or more of four technology solutions to support their reverse logistics efforts: customer relationship management systems, service management systems, transportation management systems and warranty claims processing systems.

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