September 2002 | Commentary | Viewpoint

Proactive Returns Management Yields Hard ROI

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Multi-channel product distribution and stiff competition for more demanding and discerning customers require creative strategies for managing and maintaining customer relationships. As companies search for areas of opportunity to meet these needs, returns management tops the list.Product returns and their impact on a company's bottom line is an age-old problem. The complexities of reverse product flow, internal disconnects between logistics functions and enterprise management systems, and the onus of identifying owners with these difficulties have all contributed to putting this problem on the back burner. Companies have been neglecting or consciously ignoring this problem because of its complexities and the limited automation solutions available to date.

Returning the Favor

U.S. businesses currently pay more than $40 billion in annual reverse logistics costs for the handling, transportation, and processing of returned products, according to a report by Rogers and Lembke. The magnitude and impact of reverse logistics varies by industry and channel choice; however, the amount of reverse logistics activities in the economy is large and growing. Optimizing the reverse logistics process enables businesses to create new revenue streams, cut product costs, and enhance customer service and satisfaction.The customer return rate for U.S. businesses across all segments varies widely, ranging from two percent to 50 percent, but its impact on customer satisfaction and perception is uniform.When the economy is booming and companies are growing, writing off returns or handling customer dissatisfaction through discounts, credits, and other costly solutions is easily absorbed in the normal course of business. As revenue drops, however, the cost of dealing with returns becomes a significant impact on the bottom line. This is especially painful when planned reserves no longer cover the actual cost and there are no funds to cover the excess.

Know Thy Returns

Understanding returns, and implementing an efficient process for handling returned merchandise, can provide a unique competitive and strategic advantage. The improved understanding and efficiency gained from automating returns transactions drives immediate cost reductions, profitability, and benefits including:

  • Reduced transportation costs.
  • Accurate warranty validation, which can help reduce or avoid invalid returns.
  • Reduced excess and obsolete inventory reserves.
  • Market-responsive product design and distribution.
  • Faster response to product quality issues.
  • Rapid credit processing and quick reconciliation.
  • Enhanced customer service, satisfaction, loyalty, and retention.
  • Enhanced dealer, distributor, and supplier relationships.

A New Approach To Managing the Return Trip

Product returns are increasingly recognized as a part of supply that companies should manage like any other incoming inventory. But even leaders in multi-enterprise supply chain management excellence are early in the process of what AMR Research calls "getting their houses in order." Few have seriously invested in solutions to automate both returns processing and information collection.Far too many businesses still process returns on spreadsheets and collect and store data in separate, outdated databases. A select few, however, have taken the approach of collecting information and managing issues before the product starts on its return trip. This results in more cost-effective returns processing—avoiding excess handling and providing earlier recognition of potential product problems or customer satisfaction issues.New solutions are now available to help companies manage this complex problem. Forward-looking businesses that recognize the strategic advantage of proper returns handling will gain a significant competitive market advantage.Those willing to invest resources in implementing these new solutions will bring millions of dollars in cost savings to their companies, while improving customer service and retention.

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