Managing the Retail Return Nightmare

by David Cope, MGH Consulting

Reverse Logistics Magazine, Nov/Dec 2007

Consumer protection laws across the globe are tightening. Typically in Europe the consumer can return any defective product to the retailer within 14 days and request a replacement or a credit. With sales through the internet the product doesn't even have to be defective. These returned products then flow back through the retail supply channel back to the manufacturer where they are credited. This return process in itself is very expensive and difficult to manage, but the larger issue for the manufacturer is what to do with the returned material. If the box has been opened the material cannot be resold and so an alternative solution has to be found. The scale of this problem is increasing and we have seen increases of over 100% over the last two years and predict a similar trend for the next two years.

Add to this increasing product complexity and interoperability and it becomes very evident that the costs of retail returns cannot be ignored. This cost, whether taken as a straight warranty cost, or credited to sales is growing. With reducing product margins it needs to be managed carefully.

The three major principles for managing retail returns are:

• Control the volume of returns through sensible validation
• Maximise reutilisation of the accepted returns to minimise cost
• Allocating the costs correctly to drive the right behaviour

"Controlling the volume of returns through sensible validation" means assessing several factors including:

• Scope of material. The first decision that needs to be made is whether the value of the material warrants validation. Often with low value consumer electronics there is no business case for validation and the material should be sent straight for reuse or recycling
• Where to validate. This decision is a balance between transportation costs and centralisation economies of scale. Ideally the validation is done in as few places as possible as this drives consistency and lower costs. Typically, this means that heavy and bulky goods need to be validated in country. High value consumer goods are often best validated centrally.
• What to validate. The assessment of what to validate involves a good understanding of the validation process. Typically validating the return dates through Proof of Purchase and validating product completeness and damage are the basics. However, deep technical analysis of the customer problem can prove to be very difficult to come to a conclusive answer.

The maturity chart (Figure 1) should help in identifying where your organization is in it‘s understanding and management of retail returns.

Case study

Situation

A major consumer electronics company had a growing retail return issue. Volumes were growing and were validated at a country level. The validation role was outsourced to a number of local companies and the validation quality was generally poor. The validation rules were locally negotiated resulting in a bewildering variety of rules. There was some reutilisation of the main unit locally, but almost no reutilisation of the rest of the product accessories. The cost of retail returns was taken directly to warranty and so there was little incentive for the sales force to control retail returns as it had no detrimental financial effect on them.

Solution

After a full review of the current situation and options it was decided that a centralised validation in Eastern Europe would be the most effective solution. All retail returns are now consolidated in country and then sent back to the Retail Return Centre by a single carrier. Validation is completed in two weeks and rejected units returned directly to the retailer. Accepted units are credited on acceptance. For credited units all of the parts of the sales pack are inspected and fully tested / repaired. They are then returned to service stock for use in repairs and serviced exchanges.

The crediting process has been changed to spread the costs appropriately across warranty, local sales and product division to drive the right behaviour.

Results

• Increased customer satisfaction with the process as credit processes are quicker and easier to understand.
• Pan European and growing global visibility of the costs of retail returns.
• Maximised reutilisation of all material. Reutilisation across Europe and developing global optimisation.
• Developing standardisation of retail return rules.

Summary

Consumer laws globally are only moving one way. For all manufacturers of retail goods, the costs will increase. The art is in controlling this increasing costs and ensuring that your processes minimise the net costs of retail returns.

Reverse Logistics Magazine, Nov/Dec 2007