- THE MAGAZINE
It was a major retailer that realized it had a problem. Deeply entrenched in its market with consistently solid sales, the retailer just could not reign in its rate of returns, which stubbornly held at 10 to 15 percent annually. Finally, it decided to manage liquidations in-house by setting up several different virtual storefronts to resell undamaged and salvageable items.
Under the new system, the retailer takes in returns at its brick and mortar stores, as it always has, but instead of then sending those products to a centralized warehouse for sorting, it assesses the condition of goods on site.
Many returned goods can be walked right across the shop floor and placed back on the store shelf, but those that cannot are assigned a specific virtual portal, often under a different brand name. When sold, the goods are shipped directly from the store.
“This is one of my favorite recent examples of innovation in dealing with returns,” says Carrie Parrish, director of corporate strategy for reverse logistics at UPS Inc., who shares the story. “This [kind of approach] really drives up the yield recovered from the returned good, because not only are they quickly returning the product to sale, but they are doing so without having to invest in the additional transportation services,” she says.
With the low-hanging fruit of supply chain enhancements long gone, shippers and manufacturers are working like never before to maximize the value of the unwanted products and waste coming back into their logistics stream.
As a result reverse-logistics management, once the decidedly unsexy side of the industry, is now the belle with all the callers.
What that means for 3PLs and other service providers is a new generation of clients — and some of the old ones too — eager to tackle returns in a proactive and creative manner.
Not all that long ago, a retailer might take in a return at its customer service desk and send it back to the chain’s return operation without a second thought. Now, they are asking more questions, trying to understand why the product came back and whether it can be resold.
“There’s no question it’s now a driving force for many businesses,” says Martin Palmer, business development director for Norbert Dentressangle, UK.
Confirming the specialty has shed its old image — part headache; part the cost of doing business — Palmer adds, “I think everyone has woken up to the fact that there’s a lot of money in returns.”
And that’s transforming the demands and requests being put to 3Pls and warehouse or transportation service providers.
A case in point: Palmer’s own firm.
Norbert Dentressangle has longstanding relationships with big supermarket accounts in the UK, companies like Asda, which is part of Wal-Mart Group, and Tesco PLC, the British grocery and specialty retailer.
In both cases, the contracts called for simple waste management and the maintenance and repair of pallets, shopping carts and totes, the basic stuff of the merchants’ existence.
“Now they want to us to process this reverse stream... more deeply, if you will,” Palmer says.
On one level, Norbert Dentressangle’s profile as a service provider in this new order has not changed all that much — it is simply separating different kinds of waste and sending them down multiple disposal streams.
But in addition to that work, the company, which manages more than 200 warehouses and distribution facilities in the UK, is also being asked to do more handling and checking of electrical goods, “to see what value can be created out of those,” Palmer says.
“Now, companies have always had returns and they’ve always had to be dealt with, but I think our experience with those clients illustrates how this side of our business was grown as reverse logistics has gone higher up the agendas of our customers,” he explains.
The Eternal Upstream
The irony of this heightened interest in reverse logistics is that returns have not only always been with us, but this side of the commerce cycle never goes away.
Clothing retailers, for instance, experience spikes in their returns activity in concert with the fashion seasons, while companies like Lowes, Home Depot and others that serve the DIY (do-it-yourself) markets see their reserve logistics tested in early spring and fall.
Other peaks coincide with St. Valentine’s Day, Mother’s Day and graduations.
How these enhanced reverse-logistics efforts are managed and operated vary from client to client and service provider to service provider, but in nearly all cases, the shipper or manufacturer sets the criteria upon which a return will be judged and the 3PL, or whoever is dealing with it, acts according to those guidelines.
“Our own system is a kind of decision-free software application,” Palmer says. “The questions are pretty basic: ‘Is the box damaged? Is it not damaged? Has the product been used? Has it not been used?’ And through answering those questions, you wind up putting the return down a certain path.
“So for instance, if a garment comes back and it has been worn, then obviously it can’t go back on the store’s shelves,” Palmer explains. “But let’s say you look at it and it hasn’t been worn, and it’s still in the original packaging. Well, then, perhaps it can be resold.
“That’s the ultimate goal: to recover the full value of the good in question rather than scrapping it, but you still can’t assume at this point that that’s the correct path this garment should follow. You still have to do some stringent checks to make sure the product is as good as anything you might get directly from the manufacturer.”
Even then, Palmer says, Norbert Dentressangle does not make the final call.
“We do the sorting; the retailer, or whoever the client is, will make the ultimate decision.”
The reason for this level of care is self-evident. While the aim of effective reverse-logistics management is for the client to derive as much revenue as possible from a returned item, the act itself is not cost neutral. As a result, any item returned more than once, really puts a crimp in the objective of the exercise.
“That’s why the criteria for these operations have always been stringent,” Palmer says. “In fact, it’s so critical that we prevent repeated returns that it’s actually worth spending a little more money to check products more carefully, and maybe replace some parts or do extra work to make it a good product that can go back on mainstream sale.”
Thankfully for the service provider community, many clients have already come around to this fact, and more are joining their ranks every day.
“Oh, it’s a much easier conversation to have today than it used to be,” Palmer says. “Now, we quickly get to the question of ‘What can we do, proactively, to create the most value?’”
As a result, he says, “in some of our operations, we might actually hold spare parts. So if a wardrobe or other piece of furniture is coming back, we’ll have knobs and hinges and other small elements on hand, and if one of these things is the only issue with a product, we can quickly replace it and get it back into stock.
“That’s the level of the conversations we’re having with our clients today,” he says.
David Vehec, senior VP of GENCO, a specialist in reverse supply chain services, says adapting to the peaks and other challenges associated with returns has gotten easier, thanks to the sophistication of the newer iterations of supply chain modeling software.
Nevertheless, Vehec says, “There’s still a long way to go for a lot of retailers and manufacturers when it comes to reverse logistics.”
“Many companies are being proactive, but it’s not everyone,” he explains. “It’s probably most accurate to say that there are pockets of excellence in the retail environment, and pockets of excellence in the manufacturing environment.
“At the same time, I think a lot of things are evolving in this arena, especially on the retail side, with the proliferation of buying groups and merchants making better decisions on buying,” he continues. “Overall, I would say retailers are being more conservative in regard to what they are buying and bringing to market than in the past. That enables better supply chain management from a reverse-logistics standpoint.”
Another factor buffeting and shaping the future of the reverse-logistics environment is government regulations related to what can go to municipal landfills and what cannot.
“Keeping things out of landfills has been a hallmark of reverse logistics since it started, of course, but as regulations have changed we’ve had to take a harder look at what can be repurposed and have another life, and what we can harvest from goods that cannot be resold.”
“It’s a balancing act, to be sure, and one that’s coming more and more to the forefront: Finding a way to properly dispose of goods in accordance with government regulations, while also mitigating loss and cost,” he says.
Where does the logistics service provider come into the equation?
According to GENCO’s Vehec, the initial involvement often comes down to what he terms “the same old questions: ‘How can we be more efficient? How can we get a handle on this? What can I do from a technology standpoint to gain access to better or deeper data?’”
“That last question is particularly important to answer because data drives the determination of where a product goes, how it gets handled, and how you’re going to comply with government regulations and reporting requirements,” Vehec says.
Then there’s the question of how much of the reverse-logistics operation the retail or manufacturing client is going to handle in-house.
“When you think about a retailer or a manufacturer, their goal or function is to deliver products to consumers. So, if products come back and they have to deal with them, the inflow of goods is typically not handled as efficiently as the outflow of goods,” Vehec says.
And that is precisely where the opportunity lies for GENCO and other service providers in the reverse-logistics space.
“Triage, remanufacture or reworking returned products are not activities that are conducive to the forward-product or distribution center environment. As a result, finding someone to perform those functions becomes absolutely critical,” Vehec says.
He suggests that expecting to simply hand off an unwanted or burdensome task is the fastest way to ensure one’s reverse-logistics efforts come unwound.
“What you’re really looking for — and this applies to both retailers and manufacturers — is someone who can address your reverse logistics needs in an efficient, effective and repetitive manner, while at the same time constantly trying to improve the system, he says.
“Things change. A lot. And necessity of dealing with returns doesn’t go away. So what you’re really looking for is an ongoing collaboration,” he adds.
While there is not a one-size-fits-all reverse-logistics model, most share at least some basic characteristics.
Terry Haber, senior VP and technology sector leader for the Americas Region at CEVA Logistics, compares and contrasts these functions in two sectors — consumer electronics and the telecom industry.
“In consumer electronics, our role is to accept the return from a retailer or in some cases, directly from the consumer, and then do one of two things with it,” Haber says. “First, we’d go through some sort of inspection of the process. If it came back a truly clean product and we could put it back into the same inventory in the same warehouse, we’d do that.
“In other situations, those in which a return did not pass inspection, we would put it into some kind of quarantine area. Then our customer would come in and inspect it, and decide either to scrap it — a decision that usually comes down to the value of the good in question — or sell it into a secondary market.”
CEVA’s next responsibility would be to ship the item to whichever channel the client chose.
“After that, from CEVA’s perspective, we would be out of it,” Haber says. “It would be in somebody else’s inventory in the secondary market, and presumably, they would try to sell it to a discount retailer.”
The more a company specializes in the reverse-logistics sector, the more potential services it will provide. For instance, some 3PL specialists run full-blown returns warehouses; others will finance the return and become the owner of the inventory in the process, and either take the responsibility for scrapping it or reap the benefits of selling it in a secondary market. And this can mean anything from employing an independent distributor to selling it direct to a bidder on eBay.
“There are companies out there that [take over that level of ownership]; we don’t,” Haber says.
More unique is CEVA’s involvement with the telecom industry.
“What we do is distribute set-top boxes for a major cable company,” Haber explains. “On the forward supply chain side, we ship the cable boxes to a central store room, where the company’s technicians can pick them up and fulfill their installation work orders.
“In some cases we actually ship the boxes to a subscriber’s home, where they can self-install the equipment,” he says.
With the exception of the boxes destined for new cable customers, the installation of one box means another is coming back.
“Initially, our role was entirely on the outbound side, and the technical inspection and possible technical repair was done in an entirely different four-wall environment,” Haber says. “Recently, we partnered with a company that does technical analysis and repair, and we’ve brought those activities into our warehouse.”
Explaining the rationale for doing this, Haber says, “It provides our customer with an improved operation situation. After all, if the cable box is returned to the place it originated from, and there’s nothing wrong with it, it can easily be put back into inventory; and if it does need to be repaired, it can be repaired by our partner, in our facility, and easily go back into inventory then.
“This benefits our customer in a number of ways,” Haber explains. “We’ve consolidated the inbound and outbound flows and have eliminated a second repair warehouse in the process. That translates into improved transportation costs and the ability to carry fewer inventories, because the old stuff gets back into system pretty quickly.”