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Return Management An introduction and overview
Prof. Rommert DekkerErasmus University Rotterdam
rdekker@few.eur.nlhttp://www.few.eur.nl/few/people/rdekker
ContentsWhy Return Management - examples
The steps in Return Management:- Know what is returned and why
- Administration, collection, handling and recovery of returns
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Rommert Dekker - Logistics at Erasmus
Erasmus - centre of excellence in Logistics / SCM research (ERIM/TRAIL) - education (RSM/EED) - consultancy (ERBS)
7 profs, 5 ud’s, 4 postdocs, 16 PhD’s + project employees
themes: supply chain management, inventory control, reverse logistics, maintenance, transportation, warehouse management and harbour logistics
Recent projects:- tuning of SAP R/3 for Shell’s spare parts inventory control- optimising order picking and storage locations in a warehouse (Ankor)- support to IBM on reverse logistics- advice to Vopak on computerised barge scheduling- analysis of a web-platform for info exchange in R’dam harbour
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Return management
definition:“The management of all logistic operations related to returns of products from their original user to their supplier with the intention of a cost-effective recovery, while meeting all legal obligations”
Levels• strategic - defining your policies• tactical - tuning policies, setting capacities • operations - execution of policies, monitoring quality
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Returns
Sales - happy when a sale is made
Logistics - happy when products are delivered
However, “Some day you will see your products back, whether you want it or not, because of economical, marketing or legal reasons”
So be prepared
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Return management - examples
• Wehkamp - collection of returned items (e.g. fashion), inspect and resell. Essential is the time until item can be sold again
• V&D - repair process, structured, monitored. Shorter lead times and increased customer satisfaction
• IBM - returns of old computers to EU DC. Recovery of valuable spare parts
• Xerox and Oce recovery of used photo-copiers. Disassembly, use of recovered parts in manufacturing new copiers.
• Kodak - recovery of parts of their single use cameras• Sears - complete outsourcing of returns from her shops
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Return management - IBM case
IBM computers collects discarded computers (for which she has a take-back obligation) from whole EU in her EU return and parts centre in Amsterdam
Valuable spare parts are retrieved from these old computers which supplements the inventories of those spare parts which are no longer manufactured and for which products IBM still has service agreements
This parts recovery is very cost-effective
Problems: IBM does not always exactly know what is in her computers. She has problems with managing the control flow (information system not suited)
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Return management - Xerox case
Many photocopiers are leased and come back in a reasonable state after some time.
Several components do not really wear out in the copier, like lenses, etc.
Xerox collects the old copiers, sends them to a central remanufacturing plant where they are disassembled and the parts are re-used in the manufacturing of new copiers.
To facilitate this operation, Xerox and many others have changed their product design for re-usability
Without remanufacturing copiers would be much more costly!
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Why return management?
Returns are characterised by- much uncertainty in timing when they come back, - much uncertainty in product status, quality- much uncertainty on administrative aspects (refunds, VAT) - large variety in handling
However, most management is occupied with optimising the standard forward logistics. Hence they have little time for managing the returns!
As a result millions are lost (Gus Pagonis, Exec VP Sears)
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What does return management entail
Structuring return organisation, standardising handling and treatment in order to reduce costs, increase product recovery and enhance customer satisfaction
Structuring:- investigating return patterns- simplifying return administration- structuring return collection process- structuring return information process (tracking and tracing)- structuring and shortening return handling process- increasing product recovery options
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Return decision making
StrategicallyDefine customer policy (if applicable)
Decide upon follow up actions after returns collection, handling, administration
Decide on recovery policyre-use, remanufacture, recycle, dispose
Organise product recovery:• central / decentral• using forward infrastructure / set-up return centres• own / outsourcing
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Types of Returns
Returns:
From where- own (service) organisation- customers
Which products- products you sell- MRO supplies
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Types of Returns - reasons
As good as new products- commercial returns (overstocks) - wrong or too late deliveries - unused or outdated spare parts (from maintenance engineers)
Aged products- warranty returns- repairs of failed items (incl. rotables)- rented or leased products- exchanged old products for new ones- end-of-use/life products with a legal take-back obligation
Packaging and containers
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Number of returns
Commercial returns vary per product and seller (Tibben-Lemke)- regular sales (5%)- mail order companies (18-35%)- e-tailers (25-50%)
All leased, rented products are returned, All rotables at some day as well
Unused, outdated spares (guess: 10 % of nr. of sku’s)
Repairs (many), warranty returns (few %)
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Return administration - returns from customers
Customer contact via- call centre, fax or websites
Return policy entails (depending on the type of return):- written procedures to collect necessary information- do simple checks for gate-keeping returns- give return collection options- give written returns instructions- check whether return was done rightfully- refund money in some cases- monitor repair process- register own costs- check VAT- check up communication network for returns policy updates
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Administration - returns from own organisation
Contact via- call centre, fax or websites
Return policy entails:- options for collection- instructions for packaging- instructions for accounting- instructions for destination of return
depending on type (repairable, remanufacturable, disposable)- monitor repair process- internal communication (inform inventory mgmt)
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Return collection process
Collect returns from customer- give customer return options- ensure right packaging- provide transportation labels- organise transport at the right time
In case from own organisation- organise transport- decide on destination return and arrange further transport
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Return handling
Crucial question: handling in own/ forward DC’s or use a specific Return Centre
Advantage Return Centre:• no mix between bulk forward and individual & chaotic returns• centre specialises on returns and has specific knowledge
Disadvantages• no combination of logistics possible• no combination with own repair centres• extra costs of erecting facility
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Recovery options
• Direct reuse after inspection, cleaninge.g. packaging, commercial returns, unused spare parts
• Remanufacturing: disassembly into parts, which are used in manufacturing of the same or different products or are used as spare parts
• Recyclingfor old products in order to recapture material value
• Disposal as waste
Decision made on residual value of return (quality and demand)
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Recovery - use of internet intermediairies
• Returns aggregators - bring together supply and demand, but little more than thate.g. qxl.com, eBay.com, metalsite.com
• Specialty locators - vertical portals aimed at specific segment and providing a full set of servicee.g. find-a-part.com, bigmachines.com
• Integrated solution providers - use IT to offer matching of demand and supply of returns and other target-specific servicese.g. returnlogistics.com, pharmacyreturns.com, milpro.com
(after Kokkinaki, Dekker et al (2001))
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Returns and inventory management of parts
All returned parts not handled so far form a large pipeline stock which is unusable
Shortening the return lag - time from initiation of return until incorporation into serviceable inventory - is important!
Why? Consider the following exampleactual stock = 1, minimal and maximal stock level = 1, demand
is 1 per yearnow there is a demand and one item is returned which may be
repairedwhat to do? wait for repair - how long? hence we have a riskreorder one, but if the repair succeeds we have 2 on stock!
Main problem lies with slow movers - quite often with spare parts
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Outsourcing trends
There are many successful cases showing that outsourcing saves a lot of money. Several firms are now specialising in returns
Options:• total outsourcing (handling, transportation, repair and
recovery)• partial outsourcing (handling and transportation)
Total outsourcing is specifically useful if there is no integration with forward activities, e.g. no repairs, no direct re-use
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Conclusions
• returns are usually an unorganised affair within companiesin which much money is lost
• well structured return management seems to be profitable in many cases and yielding much money
• outsourcing seems to be a logical step to achieve well organised return management, because- LSPs have specific expertise in this respect- LSPs have full attention on these matters- original firms can concentrate on their core business
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