Service Supply Chain Management for Increased Shareholder Value

Excerpted from the White Paper, Leveraging the Supply Chain for Increased Shareholder Value

Product return rates are a bitter pill for any industry to swallow, especially for retailers as well as original equipment manufacturers (OEMs). Returns will vary by industry and normally range anywhere from 6% to 20%.

An average return rate for consumer electronics devices ranges between 11% to 20% in the US and 2% to 9% in Europe. Surveys also state that 95% of the returned products have nothing wrong with them.

Returns can be an enormous drain on revenue. There is money to be refunded to customers, plus the cost of repackaging, restocking and reselling the returned items.

Sometimes products need to be repaired or destroyed, depending upon the condition of the returned product.

All these costs add up quickly and negatively impact the cost of goods sold (COGS). Therefore, for retailers, as well as OEMs, addressing returns is one of the key priorities to ensure improved profitability and customer satisfaction, as well as increased shareholder value.

Retailers, OEMs and secondary channels can take the following list of initiatives into account when creating action plans to address returns:

1. Reduce Returns: The best and most effective way to address and minimize return processing costs is by reducing returns. However, in a customer-centric business environment, it is unrealistic to assume that there will be no returns. At the same time, there are approaches that will help reduce returns while keeping customers satisfied. These include:
   • Market the right features – Many times, returns are the result of a retailer carrying products that do not have the features which customers demand. They may still buy the product; however, the end result will typically be a return.
   • Deliver products on time – Not delivering a product to a customer may lead to either a customer buying it from another company or not buying it at all, as the desire for the product fades.
   • Educate sales personnel – It is important to ensure that employees are trained and their incentives are aligned properly so they do not try to sell products with features that are not valuable to the customer. It is also extremely important to ensure that product functionality is explained clearly to avoid any customer disappointment.
   • Follow-up with customer after the sale – It is a good idea to have sales associates make follow-up calls to see how product is working. An added benefit of this tactic is that it also helps the retailer establish a relationship with the customer.
   • Encourage customer reviews – When a pet supply retail chain engaged customers to facilitate customer reviews, their returns immediately dropped by 20%. The more reviews a product received, the lower its return rates. Therefore, this approach could be used effectively to reduce return rates either for select products or for a broad range of products.
     
     
2. Improve Cost per RMA (Return Material Authorization): Processing cost per RMA directly impacts the bottom line of corporations. Therefore, minimizing cost per RMA is increasingly becoming a key measure of effectiveness of service organizations.
   
   
3. Improve Velocity of Returns: Returned products diminish in value quickly. Some technology products, due to their short life span, could lose value in a few short months. Therefore, time required for receiving, processing and final disposition for returned products is critical to capturing maximum residual value of the products.
   
   
4. Capture Residual Value of Products: The following options are available to optimize residual value of a returned asset:
   • Put back on shelf after reconditioning/repackaging
   • Perform test, perform re-kitting and put back on shelf as appropriate
   • Auction to secondary channels
   • Donate to charity for tax deductions
     
     
5. Derive Value from Sustainability Initiatives: Some products (e.g., electronic items and out of warranty home appliances) can be de-manufactured and harvested for precious metals and components. Also, components that could not be harvested need to be disposed of in an environmentally friendly manner, complying with local, state and federal regulations.
   
   There is a new industry emerging that augments and supports sustainability efforts for various industry players. They are part of downstream service supply chain and are continuously improving their technology, processes and infrastructure. Companies can leverage their service supply chain or association with downstream partners to derive value from sustainability initiatives.

In summary, returns management certainly presents opportunities to reduce the cost of goods sold and improve the corporate bottom line.

For more, download the White Paper: Leveraging the Supply Chain for
Increased Shareholder Value