Third parties specializing in returns have seen a great increase in the demand for their services. The Reverse Logistics Association is a trade association focused on third-party service providers (3PSPs) who are providing aftermarket supply chain services. The Association monitors 1,400 such companies in its database of worldwide industry suppliers primarily supporting the automotive, computer, consumer, IT, medical, pharmaceutical, retail, telecom, and WiFi industries.
Recovering Assets One Customer at a Time
For companies dealing with consumer goods (either as manufacturer or retailer), reverse logistics is mostly focused on returns. Reverse logistics starts with making the returns process easy for consumers, while imposing sound and fair return policies. Depending on the nature of the business, companies may choose to accept returns via Web site or phone, and/or in-store. In each instance, products can either be taken back as is or may require a return merchandise authorization (RMA) number. This permits the return of the product by providing an inbound tracking number to assist in the receiving process. Businesses also have the option of including a return label with an RMA in the original packaging. While RMAs are optional, they provide authorization, verification, and automation benefits not found with blind returns.
Before a B2C return is accepted, a verification process must take place to ensure that unauthorized returns are not taken back. In 2003 alone, Philips Consumer Electronics billed back $4.5 million to retailers for unauthorized shipments of returned goods by capturing information at the point of sale. Having a system in place that can check to see if an item fits specific time constraints (often companies will have a 30-day return policy), is under warranty, or is in fact a product that was bought from that specific company can help stop unapproved items from moving through the point of return and avoid unnecessary shipping and processing costs.
RMAs can further expedite this process by providing real-time historical information on items. Once authorization is received, goods move through the remainder of the reverse logistics process. The return history provided by RMAs helps reduce fraudulent returns, minimize human error, cut costs, and improve customer satisfaction levels. According to Geri Spieler of Gartner Research, in online sales alone, automating the front end of returns offers an opportunity to reduce costs as much as 73%. This is because automation provides insight into what goods are on hand, helping companies lower shipping costs and labor dollars and increase asset recovery.
A successful reverse logistics program goes beyond simply being able to process returns, to doing so in a timely manner. Half of all returned goods take between one and two weeks to be processed; another 25% sit for more than a month. Turnaround time can mean the difference between profit and loss, especially with time-sensitive items. For instance, holiday and seasonal merchandise such as Halloween costumes and bathing suits can only be sold for a brief period of time. In order to expedite the returns process and recover funds, companies must have insight into this returned inventory and the ability to execute against the actions that will yield the highest asset recovery.
For example, a company may purchase a certain number of a particular item based on past sales, but be unable to reach that same sales level again. Instead of losing money by having the goods sit on shelves, these companies want to return them for a refund or for credit toward future purchases. This is where the B2B returns process can become more complex.
This system works great on paper, but in the past, distributors and manufacturers did not have the visibility to track this information and ensure that customers were in compliance. Returns were handled by specialized personnel—each with a different responsibility—leaving no centralized resource for information gathering. As a result, distributors and manufacturers would accept returned goods without verification in order to maintain customer service levels.
Fortunately, technology and reverse logistics management have evolved to the point where companies can combat this issue. Policy engines in reverse logistics software can establish and execute against an accurate, real-time tracking system to ensure that only authorized merchandise is returned. This technology allows vendors to enter all contract rules and regulations into a system that is accessible by both parties. The system then automatically informs both parties whether a request qualifies for a return. If the return request meets the guidelines established by the distributor/manufacturer and the vendor, rules-based determinations can optimize shipments and transportation costs and coordinate potential backhauls. If the return is not approved, the system can provide an explanation as to why—e.g., already met the agreed-upon dollar limit, need to wait until accruing ten of that particular item before returning, etc. Not only does this save manufacturing/distribution companies from accepting unauthorized returns and losing money, it also prevents the companies making the returns from spending money on shipping only to have the items sent back because they fall outside of established requirements.