Identify a specific industry and discuss the trends and opportunities in recalls and returns.
Retailers have to cope with all kinds of returns—from apparel that just didn't suit... View the full answer
- REDUCE, REUSE, RESPECT REGULATIONS With 400 million electronic items ending up in landfills every year, a growing number of jurisdictions are imposing new requirements on tracking and safely disposing of certain goods and materials. Consumer electronics are a major focus, but other products are included in the rules as well. "For many years, the Environmental Protection Agency (EPA) had not defined hazardous waste for the reverse logistics sector," says Johnston. But that changed over the past few years, prompting Home Depot, Walmart, and other companies to work with the EPA to clarify regulations. Under the statutes, retailers are responsible for executing and documenting their good faith efforts to ensure they properly dispose of the governed goods. Stepped-up enforcement of laws regulating hazardous materials such as herbicides is driving increased spending on specialized waste-removal services. Consumable goods are subject to their own set of requirements and processes, such as managing expirations. Many food manufacturers and retailers set up local donation programs to deal with saleable returns and procedures for destroying expired product. Recalls represent an especially complex facet of the reverse logistics supply chain. They require fast action, detailed reporting, and processes that ensure recalled product doesn't enter the secondary market. The average retailer handles recalls infrequently enough that it can be challenging to keep effective programs in place. "Most retailers do not have adequate capabilities to manage recalls, so they often outsource the process," says Inmar's Dollase.
- May 06, 2016 at 11:30am
- MANY HAPLESS RETURNS Imagine opening a returned package and finding a piñata where a PC should be, or peering inside a game console to discover all the chips replaced with scrap metal. Those are some examples of fraudulent returns recently discovered by retail returns personnel. Even when consumers return legitimately purchased merchandise, retailers are faced with challenges such as product malfunction, missing parts, damaged packaging, and expired perishable merchandise. Add recalled product, end-of-season merchandise, and overstock, and the sum is a substantial volume of goods moving to a variety of final destinations. It takes time, space, and training to ensure a return is authentic, determine what to do with it, perform any required repairs or repackaging, then send it on its way. Despite that back-end complexity, it is critical that retailers make returns easy and seamless to the customer. "Over the past few years, most retailers have come to appreciate that creating a good return experience offers a competitive advantage," says Charles Johnston, director of repair and returns for Atlanta-based home improvement retailer The Home Depot. That's a tricky line to walk, however: The more information retailers can collect from a customer, the better they can head off fraud and nail down the reason for the return. The more they know about the reason, the better their decisions about needed repairs and improving future procurement. But consumers want a fast and easy returns process. "Some retailers that significantly tightened their return policies drove customers away," says Johnston. And while forward logistics is all about pristinely packed cartons shrink-wrapped onto well-planned pallets and moved out to stores and customers along pre-set routes, reverse logistics is inherently more complex—and sometimes even messy. The variability of properties and terms surrounding each item creates many potential dispositions: return to manufacturer, transfer to another store, refurbish, repackage/re-kit, liquidate, disassemble and reuse, recycle, donate, or just plain throw away. A package of cosmetics that looked shiny and appealing on its way into the store, now returned, may be unopened and good enough to resell, or it may be eligible to be re-kitted into a bonus giveaway. But it might also be near expiration and suitable only for clearance, or past expiration and classified as hazardous waste that must be destroyed in a prescribed way. "The same capabilities used in the forward supply chain can't be leveraged in reverse logistics," notes Steve Dollase, president of Winston-Salem, N.C.-based technology provider Inmar Supply Chain Services. "Reverse logistics requires different processes, technology, capabilities, and expertise. It's more of a network model." In the 1990s, an industry study documented that significant savings could be gained from a consolidation center model, inspiring many larger retailers to adopt this strategy. While stores may engage in some light sorting and documentation, most returns are processed at a handful of centralized facilities dedicated to the task. "By reducing administrative and transportation costs, consolidation cuts reverse logistics costs by 40 percent on average," says Johnston. Some reverse logistics operations are now being co-located with forward logistics facilities to easily move resalable goods back into stores—for example, transferring lawn chairs from Wisconsin to Georgia as the seasons change. "Performing fulfillment from a consolidation center into the forward supply chain is a capability that did not exist years ago," says Dave Vehec, senior vice president, retail logistics for Pittsburgh, Pa.-based product lifecycle and reverse logistics provider GENCO.
- May 06, 2016 at 11:30am
- REVISING REVERSE Retailers are embracing a number of new strategies to maximize value from their reverse logistics efforts. These include: Outsourcing. Many retailers, particularly larger chains, consider reverse logistics outside their core competency, so they outsource part or all of the function to 3PLs and specialists. "Reverse logistics is not a core competency, it uses different software, it's hard to get systems help, and nobody in the supply chain wants to run a returns center," notes Greve. A holistic perspective. "A product's lifecycle used to be cradle to grave, but the new concept is cradle to cradle," says Home Depot's Johnston. This approach involves finding strategies to avoid disposal of returns. Manufacturers and retailers are increasingly collaborating to establish the most effective reverse logistics processes. This collaboration includes addressing issues such as the handoff location, what and where value-added processes should occur, what liabilities exist and how to address them, and ensuring sustainability and compliance. Retailers are also looking at their logistics networks holistically, considering forward and reverse operations together. "Connecting the two provides more optimal inventory reuse and rapid redeployment," says Parris. "The better the link, the less time spent trying to fit recovered assets into forward processes." Prevention. Some retailers are pushing even farther upstream, seeking to impact return rates during the design process. Soft Surroundings and Canadian Tire, for example, offer a high volume of private label merchandise, and analyze returns data to discover root causes that can be engineered out of the product (see sidebar). Other retailers collaborate with manufacturers toward this objective. "Soft Surroundings does returns analysis on every product that comes back in," says Barrett. "We've invested in managing quality and fit, and enhancing our fabrics to create a better product. That has helped to reduce return rates." But driving returns prevention back to product design is still not as common as it should be, and represents an opportunity for improvement. In consumer electronics, for example, about 65 percent of goods are returned with no fault found; often consumers didn't understand the product. Greve sees opportunity for manufacturers to offer technical support call centers to help prevent returns. Network reoptimization. New suppliers come on board. Regulations change. Transportation costs rise. New stores open. These are all reasons why retailers need to continually revisit reverse logistics network design to ensure they are minimizing costs and maximizing recovery rates. "Most logistics network costs are predicated on about a $2-per-gallon diesel fuel cost," says Greve. So when fuel prices rose in 2007, it didn't pay to move some low-priced goods back to a centralized DC. "Today, however, regulations deter companies from just throwing product away," he adds. "That will drive more regionalized, smaller facilities as transportation prices rise." Instead of operating, say, three returns centers across the United States, companies will run 10 or 15, handling items such as old point-of-sale systems and fixtures in addition to retail returns, Greve predicts.
- May 06, 2016 at 11:31am