In the current economic climate, businesses are looking at creative ways to cut costs, without cutting value and have focused energies in developing repeat business from satisfied customers. Companies are beginning to recognize the financial benefits of investing their resources into returns management to accomplish those goals. The most critical factors in a successful reverse logistics program include customer service, understanding and expediting movement, warehousing, decision-making and assessment, and final disposition. Harnessing technology to create visibility with the organization will coordinate these critical components of the reverse logistics life-cycle.
Reverse Logistics examines a wide range of complex issues involved with managing excess inventory, returns, recalls or defects, and the disposal of obsolete products. In managing reverse logistics, there are many additional steps that must be coordinated to develop a smooth flowing process that will “correlate their reverse logistics expertise and systems to positive impacts on customer service, brand equity, competitive differentiators, and profitability” (Millar, 2012). By strategically planning returns management early in the supply chain life cycle, processes and procedures at critical points in forward logistics could ultimately reduce the workload and expense associated with managing products as they enter the reverse logistics cycle.
Customer service is the most critical part of the reverse logistics process because of the constant interaction ensuring customer satisfaction. Service areas are critical components, being a clearinghouse for information that can be used to identify new opportunities for continual process improvements across the enterprise.
Companies have invested billions of dollars identifying why a customer does not buy a product or service. United Parcel Service conducted a survey (2012) utilizing an on-line focus group to determine the effects of reverse logistics and the post-purchase customer experience. The study identified that consumers are looking for retailers that offer on-line services. Consumers are becoming more involved in researching a products and identifying the best possible terms before making a purchase. Competitive advantage was last achieved with the birth of “free shipping” that encouraged customers to complete the sale on-line immediately, rather than wait to buy the product at a retail location. This concept evolved into the ability for a customer to decide how soon they want the product, offering multiple shipping options including “pick up” service at a retail location. Customers are now seeking the same flexibility and ease with the returns process. “Retail reverse logistics is gaining consumer attention and could be the next ‘free shipping’ craze, with 42% of consumers reporting they want to see improvements in the on-line returns process” (Supply & Demand Chain Executive, 2012).
Managing customer relationships through a mixture of distinct ways to offer convenience, reliability and support is a critical differentiator to develop new organic business growth. L.L. Bean’s early success was found with word of mouth advertising and customer satisfaction. This was a value that was communicated consistently across the organization. “To hear that one of his [L.L.] products had failed was a genuine shock to his system” (L.L. Bean, n.d.). That fundamental value was instilled in the corporate culture and is embraced at all service levels. Customer service understands the meaning of ‘customer satisfaction’ while capturing critical information to expedite processing of returns. The reason for return is captured and that information is used to begin the returns process. Within L.L. Bean, reason codes identify how the return will be handled through the reverse logistics cycle as well as expedite shipment of replacement merchandise, or credit to the customer. LL Bean offers reimbursement for returns, store credit and exchanges for new orders is encouraged and the entire process of completing the sales cycle simplified for the consumer increasing trust and loyalty. More importantly, customer service identifies the reason for the return while providing superior service, help managers at appropriate destinations prepare for the return to expedite handing.
It is critical to engage employees’ to own their position, participate and become involved in the returns management process to improve gatekeeping. Retailers have voiced concern about service areas either being unwilling or unable to screen the returns process which identifies the need to take the decision out of their hands and rely on the return management processes to validate and manage that return. Nintendo, a video game manufacturer, experienced an unusually high rate of returns from retailers. The manufacturer identified the high return rate as a result of consumers who were delaying registration until a problem occurred, thus extending the warrantee. The manufacturer incentivized retailers by crediting them $0.50 for each game unit registered at the point of sale resulting in an 80% decrease in returns (Tibben-Lembke, 1999).
Processes and Procedures
“Communicate how sustainability relates to the company, its products and the industry differentiating what it important from the customer and consumer points of view” (Lovins, 2012). A company must transform the workforce, communicating the commitment to meet reverse logistics objectives identified in the decision making and assessment processes identified. An increase of staff or investment of money into technology will not automatically guarantee increased efficiencies in managing returns.
Developing rules, procedures, instructions, and communications that are applied consistently throughout the enterprise is critical to controlling and automating the returns process. “The positive influence of process formalization derives from its potential to reduce work ambiguity, this reducing managerial and coordination costs, and, at the same time, increasing efficiency of operations (Genchev, 2007). By establishing specific operational goals, a chain of command, establishing what information should identified, and how the return should be handled is the most critical component that will drive the efficiencies of the process.
In developing the decision tree to manage returns, it is critical to understand five basic questions that are the backbone of process development. Why the organization is receiving the product? Why is the product being returned? What is being returned? Who is returning the product? How will the product be returned? By answering these open ended questions, it provide context for developing a knowledge base unique to the organization or industry and provide a framework to begin setting goals and examine opportunities for continuous improvements.
The first phase of decision making is strategic, planning for recovery where objectives are identified. A determination is made on how the items should be recovered, and in what capacity. This phase can begin as early as product design. “The issues here are where to locate warehouses, re-distribution plants and so on and at the same time allowing for enough future capacity” (deBrito, 2002).
The second phase is tactical examining the integration of a reverse logistics chain. This is how you determine how the return will be handled and managed.
The final phase of the decision making process is the Operations Planning. “At the operational level, we find production scheduling and control related decisions as the disassembly and reassembly operations” (deBrito, 2002).
Many retailers are negotiating returns management working with vendors to identify the most cost effective terms to manage repair of defects, replacement, or end of life actions. The longer an item remains in the distribution center, the more cost is incurred as the value of the products decline. Once an agreement is negotiated, a plan to communicate and manage the terms of that agreement should be implemented into the standard operating procedures. Visibility throughout the supply chain should not be neglected and the exchange of data within the supply chain should be included as part of the negotiation process. “Companies are moving to a virtual world of contract manufacturing, a new opportunity for sustainable long term growth and competitive advantage” (Anderson, 2009). If returns are sent to an outside entity as part of the contractual agreements without data, a company can lose the competitive advantage that comes from that information. Losing the opportunity to identify quality issues or consumer demand could negatively impact any competitive advantages.
QVC, Inc. contracted with Soleus International to sell 28,000 electric space heaters on a drop shipment basis. QVC was receiving an inordinate number of consumer returns citing manufacturing defects including smoking, sparking, overheating, and flames. The contract of sale did not provide return solutions, and QVC failed to establish clear procedures for customer service to manage consumer complaints and returns. Frustrated consumers filed complaints with government agencies identifying manufacturing defects that caused the heaters to smoke, spark, overheat, and produce flames. The manufacturer refused to make repairs, or provide restitution to the retailer or their customers. QVC agreed with the governing agencies to initiate a recall, instructing consumers to snip the electrical plug containing the bar code and send it back to QVC for full refund. QVC initiated a lawsuit to recover costs of the faulty merchandise to recover the costs associated with faulty products. QVC received financial relief, but the cost to QVC’s reputation through poor vendor management and communications with front line customer service not necessarily recovered (QVC, Inc. v. : MJC AMERICA, LTD. : D/b/a SOLEUS INTERNATIONAL, INC., 2011).
“Return initiation, determining the routing for the returned goods, receiving returns at the firm’s facility, selecting the disposition option, crediting the customer/supplier and analyzing and measuring reverse logistics program performance are considered multidimensional processes providing the framework for assessment” (Rogers and Tibben-Lembke, 1999). When rules and procedures are clearly defined throughout the organization, they become knowledge based assets to manage gatekeeping challenges. This creates visibility in the supply chain that will move the decision-making process away from service areas and place it with management to develop continual process improvements. “For example, firms can issue pre-printed shipping labels that specify the contracted carrier(s) to take the decision out of service areas, and the exact location where the return should be set or communicate specific routing policies that cover destination, timing, carrier selection, returned product condition, etc., as agreed upon in advance with business partners” (Genchev, 2007).
Although there are laws mandating the disposal, enforcement of those laws are critical to creating deterrents. A study conducted by the State of Oregon’s Department of Environmental Quality conducted a survey consisting of 450 businesses and 450 private residents to identify what deters businesses and individuals from violating environmental regulations. 70% of the businesses reported compliance with the laws was not motivated by fines. The monetary penalty for non-compliance was minimal. The key deterrents were the risk of exposure and negative publicity. The primary concerns were “forced shut downs, environmental damage, criminal prosecution, corporate reputation, community pressure and customer pressure” (State of Oregon, u.d.). 65% of Oregon residents said they would stop doing business with companies that were not committed to the environment.
There are tremendous challenges in security surrounding forward logistics and shippers discussions have been focused identifying and mitigating risk. Businesses should be concerned with security in reverse logistics as well. “Forward logistics is the primary focus for shippers of all commodities, but fine-tuning the “reverse loop” is becoming more urgent as high-end companies develop new revenue streams focus on reverse logistics and after sales services” (Burnson, 2012). There are a multitude of privacy laws in place that mandate the protection of personal identifiable information. Shippers are mitigating risk by working with business partners developing visibility and transparency in the supply chain from point of origin to point of destination.
Although many states have implemented strict environmental laws in place surrounding the disposal of e-waste, there has been a decline in proper disposition that is believed to be a result of the economy. Electronics recyclers have filed bankruptcy in recent years due to the lack of work. One of the most significant problems identified by the Environmental Protection Agency was the lack of visibility in the supply chain. “New Jersey passed e-waste recycling laws implemented in 2011 recognizing it was impossible to identify and quantify how many devices were recycled, and how many ended up in landfills” (Siriwardane, 2009). Employers are seeking opportunities to reduce disposal costs and have been exploring a shared responsibility approach. Retailers and manufacturers relied heavily on local communities and townships to manage waste. European businesses are beginning the realize that this may not be the most cost efficient way to manage disposition, seeking opportunities to collect and re-use materials, rather than buy new. “Cross-industry consortia are also emerging where companies with a shared requirement for recycling, but without competitive clash, pool their resources to cost effectively manage their waste” (Elliot & Wright, n.d.)
Reverse logistics is the opportunity to develop a smooth efficient process to manage excess and waste not only recapturing values, but develop clear communications with all stakeholders to improve profitability and the customer experience. By investing a company’s resources into reverse logistics and examining the five dimensions of reverse logistics a valuable knowledge center can be created. The knowledge center will identify the most cost effective ways to manage returns as well as help identify new opportunities to streamline and improve efficiencies.
Having a clear written guideline once the process has been developed to identify how returns will be handled is critical. By taking the decision out of the hands of front line sales staff and customer service personnel, their focus can remain on customer satisfaction by communicating concise and consistent information. Setting the customer’s expectations from the start of the relationship through post-sales service is a significant component to developing customer loyalty and repeat business. Written procedures and processes are also significant in t developing transparency between the company and their vendors, establishing clear roles and responsibilities and maintain cooperative beneficial relationships.
Although governmental influences play a role in the reverse logistics planning, companies are more concerned with how customers perceive them. Businesses using transparency and visibility in the supply chain identifying environmentally sound or sustainable practices can use this information as an additional communication opportunity to strengthen customer loyalty, attract new business, and acquire repeat business.
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Jennifer Bilodeau, a Reverse Logistics specialist, formerly supported the Department of the Defense in day to day management of both inbound (return) and outbound distribution of goods throughout the command. She was recognized for exemplary performance throughout the base relocation effort working with internal/external stakeholders managing multiple projects assessing tangible goods for movement to new facilities, acquiring replacement items, as well as recapturing value from left behind products. In this role she oversaw reverse logistics operations including repair and warrantees, secondary markets, deconstruction and re-utilization of parts, as well as final disposition instructions.