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Halfords is an FTSE 250 company operating as a leading retailer of car parts, car enhancements and bicycles. With over 460 stores across the UK, their product range is supplied from two central distribution centres and covers a wide selection of merchandise including: automotive, cycling, leisure, in-car technology, car servicing and repairs. In a presentation by Peter Cobden, Returns Manager for Halfords, it was revealed the company sold 70 million units in the 2009/10 financial year. Currently, around 40% of these products are sourced from the Far East.

Retail returns – experiences at HalfordsFive years ago, Halfords started to focus strongly on returns management, a system to manage the return of faulty products. This was in response to:

• returns avoidance strategies not being fully developed

• poor visibility of returns and management reporting

• a lack of accountability for faulty goods cost management

• an increase in the sale of higher value technology products, which were new to Halfords at the same time as UK retailing was new to the suppliers.

As a result, the following overarching objectives were identified:

• reduce in-car technology returns

• reduce the number of units processed in the distribution centre

• improve the quality of returns

• reduce Far East cost of returns

• avoid returns through intervention in the supply chain

• reduce overall cost of returns and enhance the customer experience.

To meet these objectives, Halfords initial actions involved engaging with the key stakeholders within the business – finance, store operations, logistics, trading – see figure 1 – suppliers and the Department for Transport (DfT) /CIMA funded reverse logistics research project. All had a part to play. The internal departments helped to define the processes and provide an overview of where the problems were arising. Suppliers shared their issues of products being returned and checked as ‘no fault found’. The DfT research project provided access to other retailers and third party logistics providers (3PLs), who were experiencing similar problems, their solutions for dealing with them as well as the opportunity to work directly with the research team.

Reverse logistics: Halfords

Casestudy

… Halfords initial actions involved engaging with the key stakeholders within the business – finance, store operations, logistics, trading suppliers and the Department for Transport…

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Under the new scheme, providing appropriate procedures were followed and supplier agreement was obtained, customers were provided with a new product immediately.

Over the past few years Halfords adopted a number of strategies to address the different areas of their retail returns.

Within the technology area, Halfords established various methods for dealing with returns, which they developed over a number of years. They initially introduced a charge back to store for non-compliance on in-car technology returns. Halfords were also experiencing high rates of returns on satellite navigation equipment, which when returned to the manufacturer were designated ‘no fault found’. Halfords then introduced the ‘we-fit’ service to demonstrate/install satellite navigation systems into customer’s cars and this led to a significant reduction on the number of returns.

As another innovation, Halfords introduced the ‘swap out’ scheme with suppliers for satellite navigation systems where customers returned products between 28 days and one year after purchase. Previously these products would be sent away for repair and then returned to the customer. Under the new scheme, providing appropriate procedures were followed and supplier agreement was obtained, customers were provided with a new product immediately. Initially, this scheme was introduced through one supplier’s products but was rolled out across all suppliers of satellite navigation systems. This both enhanced the customer experience and reduced overall costs to Halfords and its supply chain.

With regards to Far East products, intervention strategies were implemented in order to reduce the costs of direct-sourced returns by 40% over a two year period and reduce the risk of exposure to the business. The fundamental issue was that Far East suppliers naturally built the cost of returns into the cost price, however this meant there was no visibility in terms of the actual cost of these

returns. An intervention strategy was put in place and followed these steps:

• Introduced an agreed visible returns allowance with key direct source suppliers in the Far East.

• Encouraged suppliers to improve the quality of their products through the introduction of penalties where the visible returns allowance was exceeded.

• Increased the level of information exchanged between Halfords and the suppliers in order to improve customer satisfaction.

In practical terms this meant:

• 90% of total value was covered by 17 suppliers. Initially Halfords targeted the top 12 suppliers.

• Historical data on returns by product group, coupled with quality assurance manager’s knowledge and experience, was used to arrive at Halfords desired target for returns rates.

• A mechanism was introduced to:

- agree on an acceptable returns levels for suppliers within a trading year

- monitor and feedback to suppliers on monthly returns rates

- suspend charge back if at end of trading year, the rolling annual returns rate was below target. If the annual returns rate was above target, then a charge back would only be applied on the amount over target.

• Feedback was provided to suppliers using transparent performance management techniques such as the use of a variety of monthly graphs and tables.

Reverse logistics: Halfords

Casestudy

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As a result of these actions, the initial 12 suppliers signed up and a 40% reduction in direct-sourced returns was achieved.

To conclude, the involvement of management accountants in the management of reverse logistics processes was crucial to the success achieved by Halfords. Figure 1 contextualises the important place of finance professionals within the stakeholder group.

This case study has been completed as part of a wider research project into reverse logistics. The project team comprises of:

Professor John Cullen, University of Sheffield, Mike Bernon, Cranfield University and Dr Jonathan Gorst, Sheffield Hallam University.

For further information please contact Professor John Cullen: john.cullen@sheffield.ac.uk

To meet these objectives, Halford initial actions involved engaging with the key stakeholders within the business – finance, store operations, logistics, trading (see Figure 1) – suppliers and the DfT/CIMA funded reverse logistics research project.

... the involvement of management accountants in the management of reverse logistics processes was crucial to the success achieved by Halfords.

Figure1: Interdisciplinary reverse logistics management

Finance• Commercial finance• Accounts payable• Finance directors• Financial reporting

Returns

Suppliers• Accounts• Account managers• Operations managers• Customer services

Store operations• Store managers• Ops director• Store colleagues• Area managers• Divisional managers• Customer services

Logistics• DC management• Supply team

Trading• Category managers• Trading directors• Buyers• Quality assurance

Reverse logistics: Halfords

Casestudy