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Expert Insight: Sorting it Out
By Cliff Holste
Date: January 12, 2011

Logistics News: Returns Assets – Once A Supply Chain Afterthought, Now An Important Cost Savings Opportunity


For Logistics Executives, Managing Returns Is Just As Important As Managing Sales

While returns trickle in throughout the year, for many consumer goods retailers the annual holiday season is characterized by an avalanche of returns. Their business is comprised of two distinctive parts – sales and returns. They are both important parts of the profit picture. Companies that depend on catalog and internet sales would not be able to stay in business without offering their customers the opportunity to easily return merchandise. It is a fact that many customers prefer to shop at stores that offer the best returns policy along with bargain pricing.


Achieving this competitive advantage, along with the high cost of processing returns, points to a simple fact: managing returns is just as important as managing sales. Industry analysts estimate that manufacturers and distributors lose 7-13% of sales revenues handling returns each year. The challenge for these companies is to minimize returns processing and handling costs through the adoption of appropriate IS technologies along with accurate, fast and efficient handling and management techniques.

Processing Returns – Key Lessons Learned

A few years ago I helped design and implement an automated reverse logistics sorting and processing system for QVC’s operation in Lancaster, PA. At QVC managing and accurately processing returns is a year round high priority. Their success as a retailer depends to a large extent on offering and maintaining a robust, highly accurate, customer friendly returns program.


QVC knows that managing returns is a significant factor in whether or not customers will continue to buy from them. For QVC, a fast, accurate and efficient returns processing system is not optional – it is essential in remaining competitive in today’s increasingly demanding consumer driven environment and in establishing a consistent good experience for the consumer.


The following are key factors in accomplishing a competitive returns capability:


  • Customer-Crediting Process: The focus is on speed and accuracy. Crediting the customer’s account after a return is made is critical to maintaining a strong customer relationship. Achieving a crediting period of 48 to 72 hours from the point of mailing the return to crediting the customer’s account is the objective. Advanced information systems must be put in place to support this short cycle time while insuring the highest possible degree of accuracy.


  • Product Quality and Control: Efficiently handling the products returned is essential for controlling costs and product quality. The goal is to maximize the value of the goods that are returned. Quickly and accurately determining the quality of goods returned, repairing damaged items, and repackaging destroyed packages are all labor intensive processes and major factors in controlling the quality of returned goods while adding to the company’s bottom line. Establishing a network of aftermarket dealers and recycling services are also critical components of maximizing the value of returned goods.

  • Applying Technology: The automated material handling systems and storage equipment utilized in the returns area must be modular, flexible and easily scalable to handle anticipated peak volumes and growth. Material handling equipment, controls and software systems must support the transaction volumes and quick crediting requirements. Integrating RF and voice systems provides maximum flexibility while streamlining system operations.

How To Get Value Out Of Your Returns

Derek Singleton, ERP Market Analysis for Software Advice has some interesting thoughts and ideas.


In a recent blog ( ) Singleton said that when the concept of reverse logistics first surfaced in the 1980’s, it received little attention from the business community. The general perception among businesses at the time was that returns carried little to no economic value.


Today, however, a laggard economy and narrowing profit margins has drawn attention to reverse logistics. Singleton believes that efficient returns strategies are now being viewed as essential to an overall supply chain management solution. When used properly, reverse logistics can increase customer satisfaction, reduce waste, and recover lost revenue.


Singleton offers the following list of best practices for reverse logistics:


  • Investing in Reverse Logistics Systems

When quality management decisions are combined with an optimal IT infrastructure, reverse logistics operations run at maximum efficiency.


To fully understand the benefits of reverse logistics software, consider the case study of Tellabs, the world’s largest provider of telecommunication services and equipment. Tellabs implemented Click Commerce’s return management software and now processes over 90% of returns requests automatically. Implementing the system led to an 88% reduction in return cycle times and decreased in-transit inventory by $1.76 million per month. Clearly, a software solution can deliver tremendous cost savings and streamline reverse logistics operations.


  • Outsourcing Logistics Operations

The auto parts giant Mopar, the service wing of Chrysler, was able to improve their logistics operations by working with UPS. To enhance Mopar’s logistics operations, UPS used barcode technology to track returns in a centralized database. This allowed Mopar to plan ahead for inbound products and respond with staffing changes to manage the influx. It also significantly reduced travel times, enabling faster resale of the product. Today, the average shipping time for a return from China to their Michigan headquarters is only 3-4 days.


  • Accessing Secondary Markets

The secondary market, valued at $300 billion, is where products wind up after businesses sell liquidated inventory to resellers.


Electronics companies have been quick to tap in to the secondary market by offering repaired and refurbished products at steep discounts. Dell features a Dell Outlet center on their website that offers shoppers the option buy used. By offering used computers at a fraction of the cost of new products, Dell recovers value from a returned item and taps in to the vast secondary market. Online retail is an easy way for retailers and manufacturers to gain access to this market. Reselling products online is easy and nets more revenue than liquidating.


  • Offering Recycling Services

When the product cannot be reused or resold, disposal may be the only option. Any time that a product is disposed of, it is critical to minimize the environmental impact of disposal. This means responsibly disposing of hazardous materials and salvaging raw materials for reuse when possible. Today, its no secret that socially responsible business practices are good for company image and the environment. In this day and age, going green can bring in cash as well.


Singleton goes on to say that businesses that approach returns through the lens of asset recovery are able to maximize resource use. In order to realize the full benefits of a reverse logistics operation, it is critical to make quality management decisions and use software capabilities.

“From Black Hole to Untapped Revenue Stream”

In a recent white paper published by Ryder ( under the above title, they reported that in 2009 retail returns in the USA amounted to $185 billion – equal to about 8 percent of the estimated $2.3 trillion in retail products sold by the members of the National Retail Federation (NRF).


Note for SCD subscribers: See Dan Gilmore’s NRF “Big Show” video review and report from the Javits Center Floor in New York City this week.


Ryder’s report points out that unlike forward logistics, reverse logistics is characterized by uncertainty of supply; no one can easily predict which products are coming back, when they’re coming back or in what condition they’ll arrive in. Adding to the complexity is the customized nature of reverse logistics supply chains, which operate under company-specific rules that can vary for thousands of different SKUs.


The report goes on to say that effective reverse logistics management requires a broad range of operational, technical and strategic capabilities including:


• scale and flexibility to meet changing business needs

• industry and geographic expertise

• visibility into the full product life cycle

• refurbishment/distribution center management

• web-based technologies and data integration

Final Thoughts


No doubt there are growth and profit opportunities in a well managed returns program. The trick is to adopt technology and a management strategy that streamlines the return, repair and product reallocation processes. Going forward it would not be surprising to find that many companies, both large and small, simply do not have the facilities or the internal capabilities to develop and properly manage this highly specialized area of their logistics operation. For them, the best strategy may include some level of outsourcing.

Agree or disagree with Holste's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.

You can also contact Holste directly to discuss your material handling or distribution challenges at the Feedback button below.

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profile About the Author
Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.
Visit SCDigest's New Distribution Digest web page for the best in distribution management and material handling news and insight.

Holste Says:

Achieving this competitive advantage, along with the high cost of processing returns, points to a simple fact: managing returns is just as important as managing sales.

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