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Strategies to Optimize Return on Investment (ROI) Through Effective Reverse Supply Chain Programs

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According to a study conducted by Dr. Dale Rogers, Professor of Supply Chain Management of University of Nevada, U.S. companies spent over $35 billion a year to handle Reverse Supply Chain problems and issues in 2000.
As indicated by Gartner Group (May, 2001), returns can erode 100% of the profit margin on the Cost of Goods sold if not managed effectively and efficiently.

Supply-Chain Services, Inc. (SSI) manages national and/or regional product return programs for Fortune 1,000 OEMs. We specialize in industries such as telecommunications, consumer electronics and indus-trial electronics. We have acquired considerable knowledge and experience in structuring a viable Re-verse Supply Chain Model that maximizes OEM’s Return on Investment (ROI).
In this paper, we would like to share this model with the industry.

 

RETURN GOODS CATEGORIES

There was a misconception that returns are largely com-prised of defective goods. However, on the contrary, ac-cording to SSI as well as its OEM customers’ statistics, only 6-15% of returns contribute to defectiveness of equip-ment or components. There are a lot more complex factors that contribute to returns.
In general, there are two major sources of returns:
1. Returns from OEM’s business customers: retail stores, distributors, wholesalers, service providers (such as cellular service providers Xingular and Sprint to Mo-torola and Nokia), etc.
2. Returns from consumer end-users to retail stores, cata-log houses or internet based retailers
Different types of customers have different reasons for returning goods.

 

Business Customers

  • Overstock Inventories: This category could account for 30-40% of the returns.
  • Errors : Errors occurred when customers order the wrong items or OEMs pick and ship the wrong items.
  • Damaged Goods: Damage goods are often due to negligence during trans-portation, loading/unloading and shelving at retail stores or distributor’s warehouses.
  • Cancellation of Orders: Large business customers of OEM’s have the muscle to cancel orders when it desires.
  • Obsolete and Excessive Inventories

The rapid changes in technology and competitive mar-keting strategies have caused OEM’s to retire large vol-umes of inventories at an ever-increasing pace. These inventories are being returned from OEM’s distribution centers and field warehouses. For example, several of SSI’s OEM customers purge their inventories twice a year. Each time, there are about 30-40 trailer loads of new product in original, unopened packaging. SSI pro-vides an efficient, inexpensive de-manufacturing and domestic recycling service to insure these products do not re-enter their supply chain. OEM’s who are edu-cated on recycling costs can project them into their overall pricing policies.

 

Consumer Returns

Historically, consumers were not direct customers of OEMs. However, the internet is becoming an important sales channel for OEM’s to sell product direct to consum-ers. Whether consumers purchase from the traditional re-tail channels or direct via an OEM web site, their reasons for returning products are usually more diverse, more com-plex, more expensive and sometimes more suspect.
Based on SSI’s experience of serving as a national return center for OEMs in a wide variety of industries, returns from end-users can be summarized as follows:

  • True Defects: according to SSI’s ex-perience and industry statistics, only about 6-15% of re-turns are defective. For electronics, the average is about 10%.
  • Perceived as Defects Due to Product Usage Complications: Returns under this category could be as high as 30%.
  • Pricing Difference: When consumers find a better price for the same prod-uct at another store, they will return the product to the original store within the period of time allowed under the return policy.
  • Not as Expected: OEMs and retail stores spend millions of dollars in ad-vertising to attract consumers to purchase their prod-ucts.
  • Missing parts or Components: Depending on the product, whole units may be returned because some small, but vital part is missing.
  • Wrong Size, Model or Parts: Wrong size problems occur frequently in the clothing industry.
  • Impulse Buying and Buyer Remorse: Impulse purchases account for a significant percentage consumer purchases.
  • Recalls and Warranty Returns: Recalls and warranty returns do not fall under the nor-mal return stream. These types of returns usually cost more to handle.
  •  Bad Intention: As SSI processes our customers’ returns, we have iden-tified about 5-10% to be categorized as “bad intention”.

Download full white paper below.

Last modified on Tuesday, 28 August 2012 14:56

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