Irv Grossman, VP of Supply Chain Operations in Chainalytics, wrote a very interesting article regarding the similarities between fishing and Reverse Logistics. If you haven’t had a chance to read it, go ahead and take the time to read it first (here) and then come back.
What I’ve seen, as has much of the industry, is a growing focus on the Reverse Logistics side of the supply chain. Reverse Logistics (RL) is the inverse of Forward Logistics (FL) where RL encompasses products from the consumer back upstream. In contrast to FL, RL can embody much more complexity as it’s dependent on potential failures (think: general buyer’s remorse, warranty, insurance, etc.) in addition to the lead time associated after new product launches. (FYI, there’s more reason it’s very complex — I’m being kind and simplifying to a couple main points.)
As Mr. Grossman points out, cycle times from receipt to disposition of assets once the assets have re-entered the supply chain are extremely critical. In fishing, the longer you hold onto fish, the less valuable and stronger the scent. Similarly, especially in high tech industries, product sitting in inventories start to lose value — and fast. (In all my experience, I haven’t noticed these products starting to smell, yet.)
Consider this: in the fast-paced world of cell phones, devices can lose at least 1% per week. Let’s do some back-of-the-napkin math and extrapolate what this may mean… You accept 20,000 devices per week through your returns process. The blended cost of a phone is roughly $350 (Nielsen estimates 2/3 of sales are smartphones with average smartphone COGS of $550, feature phones representing 1/3 of sales at $250 COGS) (see source 2). Extrapolating, you can be losing $70K per week! Aghast! What can you do?!
Fear not! There are ways to maximize value and create a leaner RL supply chain!
One of the most crucial areas companies are targeting is “simply” stopping returns from even occurring. In the consumer electronics world, the key area of opportunity is tackling No Trouble Found (NTF), No Fault Found (NFF) or Cannot-Duplicate (CND) devices (NTF, NFF, and CND are by and large synonymous). Accenture estimates 68% of returns are NTF (see source 3). Indeed in my own experience, I’ve seen NTF rates reach as high as 60-65% including 30-35% purely software-related. Addressing NTF devices not only reduces costs from the point-of-return and further up the supply chain, but it also increases customer satisfaction as he/ she is able to keep the device. Happy customers make loyal customers, right? Just watch the Genius Bar at any Apple store…
Once the product has entered the supply chain, however, companies are tackling the dispositioning problem. That is, how can we, the company, now maximize value recovery? I know several companies (carrier, OEMs, retailers) are choosing one or a combination of the below solutions:
- Speed up cycle times from receipt to disposition. Depending on how many touchpoints of companies’ RL supply chain, companies can significantly inventory and maximize recovery by consolidating touch-points.
- Maximize value recovery through optimal liquidation channels. That sounds good, right? What does that mean? Optimal channel management is being able to select the RIGHT secondary channels to disposition through bulk sales, auctions, or otherwise. Maximization of value includes the balance of capturing the most value per device while also clearing inventory of more obsolete products. This may include the use of auctions and bulk sales.
- Maximize value recovery through redeployment through channel/ program management. Different from the preceding bullet as I wanted to highlight the liquidation aspect of cell phones above. This solution is more related to redeploying returned assets into the company’s other programs (i.e. insurance, warranty, loaner phone, etc. programs). If you’ve ever returned your computer for a warranty claim with an OEM, for example, you most likely received a refurbished unit back. The key for the OEMs and companies performing the returns is, again, maximization of value. Companies must understand the back-end value and determine necessary refurbishment costs to bring a returned asset to a quality level acceptable for redeployment.
3. King, Joe. Carving Out a Path to Aftermarket Service Profitability Starts with the Basics. [PDF] Retrieved from http://www.cscmpsfrt.org/resources/Documents/Value%20Recovery.pdf