April 2003 | Commentary | 3PL Line

Consolidating Reverse Logistics and Warehousing Yields Greater Returns

Tags: 3PL

While 3PLs have been tuned in to the retail industry's returns management dilemma, manufacturers are also struggling with similar problems. In addition to traditional consumer returns, manufacturers are also charged with managing overstocks, seasonality, stockouts, shelf damage, obsolescence, and sales trends.

As a result, it's crucial to get valuable inventory assets returned back through the supply chain quickly and accurately. Companies that import consumer retail products must also be aware of the actual contents of returned merchandise because parts and production capacity can limit rework opportunities.

Logistics Responsibility

Typically, logistics departments are responsible for handling warehousing and distribution sales dedicated to supplying mass merchants and club stores. They are also charged with directing product returns back to manufacturers.

Often, these manufacturers experience a 45- to 90-day turnaround period through the returns process, which is further complicated by customer demands for shorter lead times in both issuing return credit and order cycle times for new product. As a result, customer service satisfaction may not be at a competitive level, which can negatively affect dealer, distributor, and supplier relationships.

In a typical scenario, warehousing/distribution and returns processing take place in two distinctly different locations, often resulting in additional storage, handling, and transportation costs. Consolidating the warehousing/distribution inventories and the returns processing center into one location can yield significant benefits, especially as more customers demand and companies integrate total logistics and systems solutions.

These solutions must be designed to handle the entire process—from inbound receipt of goods coming from overseas to shipment of consumer product to retailers and finally returns processing.

Laying the Ground Rules

Consolidated returns processing should start with a well-defined credit policy, including ground rules coded into a customized proprietary software solution. The software should provide infrastructure necessary to manage returns receipts, order information, billing/credit services, and replacement fulfillment.

The process, in turn, must capture returned item information at the component level, which will control the manufacturer's exposure to invalid and incomplete returns.

For good reason. Invalid and incomplete returns can be very costly to manufacturers and importers. If there are 12 components to a retail item, for example, several questions must be considered:

  • Are all 12 components returned?
  • Are all serial numbers valid for each component?
  • Did the retailer utilize a valid return authorization?
  • Was the returned merchandise really sold by the manufacturer?
  • Should the unit be replaced?
  • Should some level of partial credit be issued?
  • Was the return credit issued correctly and in a timely manner?

Eliminating these incidents will add significant revenue to a manufacturer's bottom line.

Returns Dividends

Manufacturers can reduce overall supply chain costs by as much as 25 percent and returns processing backlogs from 45 to 90 days to eight days by consolidating reverse logistics and distribution processes in one location.

Reprocessing and refurbishment can also be added to the returns process and include diagnosis, disassembly, repair, restoration, rebuilding, and reassembly activities with requirements for product sorting, accurate inventory control, and warehousing for components, goods in progress, and rebuilt finished product. These activities require customized processes to meet specific needs.

Outsourcing can also help ensure optimal results in finished product quality, variable labor efficiency, and flexible space management.

Ultimately, though, strong IT infrastructure, well-defined policies and procedures, a flexible workforce, accurate inventory control and accounting, and aggressive space management are the necessary ingredients for manufacturers and importers looking to maximize the value of their reverse logistics supply chains.