| The challenges of returns processing |
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 As leading corporations grapple with the challenges of delivering on their „green” promises, those involved in the supply chain are coming face to face with a stark choice: Profit protection vs environment protection. But need it be the way? Can a green agenda deliver better value to the customer as well as cost savings? And how do you process returned goods to best effect, without damaging the brand?
Reverse logistics represents the business of pulling goods back from some point in the supply chain, be it a distribution centre, a store, or a consumer/end user, for resale, rectification or recycling.
It can be a messy business as you would expect in running a process in the opposite direction to that for which it was primarily designed, one that has an increasing impact on a supply chain’s perceived „green” footprint. The questions are wider than simply how to manage reverse flows – are we making the right goods in the first place? Do they last long enough? Has planned obsolescence gone too far? And are the supply chain implications really appreciated in the whole design to disposal centre? What do firms do to meet the WEEE requirements for example.
The companies’ general philosophy should be one as green as possible where it makes economic sense and have a pragmatic view, given that they represent business not charity. Electrical goods must be handled in cooperation with the authorities appointed for this purpose. For other goods, like clothing, there is a familiar model. Customers should have the possibility to return the ordered goods that do not correspond with their requirements to the store. Some can be put straight back to the shelf, for example, some can be a little dirty because of the packaging or bad processing and can be re-sold with a small discount. If the goods cannot be resold they should be disposed.
Protecting the brand
 The key is to have a good base of jobbers to take stuff off a company’s hands while protecting suppliers brands – some of them don’t want their goods turning up at a car boot sales. Many companies find their products sold much cheaper or as second hand goods. This can only bring damages to their sales and to their brand image.
The more you can get it early in the supply chain, the fewer returns; but when stuff does come back into the store you need to have the right incentives to deal with it properly. A good manufacturer should be ready anytime to face the returns from the stores that prefer to send everything back up the chain for a full refund rather than selling it in-store at a discount. But every stage of the returns processing costs money.
Within the conditions of the well known world crisis, it is important look at how to reduce returns and damaged stocks. Damage stocks can be recovered and can act as an internal source of supply. Lots of efforts are made to avoid damage – reams of paper, for example, are very easily damaged so whole packs must be shrink wrap. But this is a trade-off against the “green” agenda and doesn’t necessarily play well in countries like Germany. UK is at the very beginning of following the path Germany has successfully chosen. But hasn’t got sorted out the model it wants to adopt and the industrial implications. Separation of wastes is good but is there a proper recovery mechanism to extract value from waste? The legislative environment around damaged and recycled goods is not yet finished.
One is to turn the returns process into a cash generator for the client or at least significantly improve on the losses. The other is to drive down on anything that may otherwise go to landfill. Companies try to maximize revenues using alternatives like internet sales markets, returning to suppliers anything that may be resold. So, “green is lean”.
A cultural shift
 Nowadays people no longer expect things to last, an attitude which of course runs counter to the whole green agenda. Twenty years ago people were astonished that things were not worth repairing – now that’s normal. With globalization, the original manufacturer, who potentially has the repair capability is just too far from the end market for repair to be economic.
From plastic, paper carton or metal gains can be obtained. It is possible for these materials to be sent to a garbage hole and pay for this operation and it is also possible to re-sell it to the collection centers. The latter is the best one, although there would not be much revenues from it, it is the best option from „green” point of view.
Market is slowly developing in this sense. Companies are beginning to advertise through mass media and it is a good thing that companies started to make money from business benefic for the environment. The general question is who will broker between the firms that can do the technical recovery and the logistics of getting the stuff to them economically.
The loss from a possible illegitimate 10 per cent discount needs to be weighed against the very real costs of a fully complaint returns/recovery/waste cycle. Firms need to get a better idea of their cost of returns.
Returns apperared first when mail orders were introduced. Compared to this form of sales, multi channel retail is much more fragmented there are more people potentially handling returns and the scale economies are lost. There’s all the triage to determine where something should go, have you got a back-to-back deal with the supplier , and so on. Far from an industrial process, it is a series of isolated decisions.
In classic mail order a 20 per cent or higher return rate was common. In modern fashion the figure is more like 50 per cent. Firms have gone into shortages if returns have been lower than expected. On the other hand, multi-channel retailers have greater chances of managing expectations.
The way forward
There are still some serious market failure – industries are not picking up responsibility, preferring to sign a cheque to a “scheme” rather than participate actively. Some trade practices positively exacerbate the problem. There is too little autonomy in the most effective routing of individual returns and when we get down to the recycling level there is neither the support for the creation of appropriately scaled and located recycling industries nor for the creation of markets for the products of recycling. Also, there is very little in the way of “accepted best practices” around the reverse supply and even the basic research on the economic and environmental costs and benefits of different reverse flows is missing.
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Article available in these languages: EN, RO
Date added: 12 Jan 2009
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