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Wednesday, 18 July 2012

Improving Reverse Logistics: How to Get Out of Neutral and Accelerate Profitable Growth

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Improving Reverse Logistics | Reverse Logistics StrategiesHow effective are your current Reverse Logistics Strategies? Find out by asking your CEO, CFO, VP of Sales, Heads of Design, Engineering, Packaging, Manual Design, Operations, and Call Center these two fundamental questions:

1) Who manages our Returns Reduction Program as part of your overall reverse logistics strategies? Who is the single person inside our company responsible for following and working on reducing our product returns from the design stage all the way through to return liquidation?

2) When one of our end customers takes one of our products home and has a “perceived” problem, what is the first thing we want that customer to do? What practices have we put into place that ensure this action will actually happen?

If you discover inconsistencies in the answers you receive (or perhaps an inability to get sufficient answers along with supporting data), then read on. The potential for increasing profits via reverse logistics is significant and attainable. 

When it comes to maximizing profits, very few electronics and appliance manufacturers pay close enough attention to all of the money they are hemorrhaging after the point-of-sale. Typically, executives apply their focus and strategic efforts toward increasing top line revenue via new product designs, penetrating untapped markets, and forecasting market share changes. Why? These are the forward-facing functional areas within a company, which means stakeholders (customers, employees, shareholders, distribution partners, etc.) can see and feel new products, get excited about the potential impact of new promotional campaigns, etc. As a result, product returns are often considered a cost of doing business. Consequently, the development and implementation of reverse logistics strategies becomes a missed opportunity.

The reality is that there is nothing functionally wrong with approximately 70 percent of all electronics and appliances returned in the United States each year … 70 percent!! The lost margin from these product returns can provide the fuel to accelerate a company’s profitable growth and increase customer loyalty and market share. 

Understanding the Impact of Reverse Logistics Strategies

Let’s dig a little deeper. In any product’s life cycle, there are two sets of logistics – forward and reverse. Forward logistics refers to the supply chain from new product development and management of materials to the manufacturing and distribution of the product. After the product has made it to market (end users, retailers, distributors, etc.), there is the often an overlooked piece of the puzzle – the aftermarket supply route, “reverse logistics”, and its emphasis on bringing the product returns back to the manufacturer as efficiently as possible. Or, finding alternative solutions to avoid the costly handling and shipping of product.

Reverse Logistics is one of the places where staggering amounts of time and money can easily be wasted; from repairs, customer service, field service hours, warranty fulfillment, shipping and handling of product returns, and even recycling. Keeping products in service and customers happy is an expensive proposition. Developing and implementing a comprehensive Returns Reduction Strategy as part of your overall reverse logistics strategy is SMART! A properly developed and implemented product returns strategy can keep products out of the reverse logistics process in the first place -- so those costs are never incurred! Implemented properly, your returns come down, retailer relations are improved and customer loyalty actually goes UP! A nice win-win-win occurs!

Bill Stuart, CEO of Stuart & Associates, said “Our clients experience the greatest financial impact when our team is empowered to work across a client’s functional areas with the goal of reducing returns. For example, the president of a global appliance manufacturer was skeptical when we requested access to his product design and packaging team as part of our internal audit. However, he quickly realized that our recommendations would save his company millions a year. He later empowered our team to collaborate and partner with all functional areas with the goal of reducing returns. We ultimately saved his company approximately $20 million annually, which fell right to the bottom line. Talk about accelerating profitable growth!

Improving Reverse Logistics 

Improving reverse logistics and getting your product returns out of neutral is easier said than done for a manufacturer. Improvement requires expertise -- and then getting those experts involved throughout the organization -- developing a comprehensive product return strategy, collaborating and partnering with many functional areas, developing and implementing specialized employee training and leadership development. Improving reverse logistics also requires a high level of commitment throughout the supply chain to identify recurring reasons for returns (i.e. poor product quality, ineffective customer service, unclear product warranty, confusing product manuals, etc). 

World class electronics and appliance manufacturers with a proactive and comprehensive Returns Reduction Strategy in place typically provide aftermarket customer services, such as:

1) For retailers: product training, product selling skills, evolving RTV procedures, associate hotline, web conferences, semi-annual product returns meetings at return facilities, etc.

2) For end consumers: specialized 800 number, easy to access manuals with acceptable readability scores, quick start and troubleshooting guides -- and the most crucial -- an extended service plan program with a return procedure. 

These services are critical components for any manufacturer to implement in order to minimize product returns. The upside is millions of dollars of incremental profit via reverse logistics strategies that can be reinvested back into the growth of the company. Learn how to get your reverse logistics out of neutral.

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Bill Stuart

Bill Stuart is CEO of Stuart & Associates, a retail consulting firm specializing in Sales and Margin Growth Programs and Returns Reduction Programs.

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