How an OEM was able to increase cash recovered from retail returns by 1,000%!
Every major OEM brand selling to big box retailers such as Walmart, Target and Costco must accept customer returns- this is a challenge that all companies in today’s marketplace face. Time is your worst enemy when it comes to handling inventory returns and deadstock. Poor return management practices can easily eat up your bottom line as well as damage a brand’s reputation.
Inventory management is the lifeblood of supply chain operations. However, returned inventory management is easily one of the most overlooked, undervalued aspects of the product lifecycle. Top management must give close attention to ensure that efficient processes are in place for proper disposition of returned merchandise. Many OEM’s are apprehensive about liquidating products due to fear of channel conflict, interference with sales of new products and dilution to the brand’s reputation. In fact, top-tier branded products that are being sold within online channels deeply discounted as “new open-box” often are the result of ineffective return procedures. This suggests that some brands have little regard as to how this type of selling may affect a brand’s primary stream of revenue in the long run.
When these “at-risk” and returned inventory stocks that are liquidated for 10 cents on a dollar show up on Amazon and eBay, it opens the door for the end-user to claim warranty for a product that you already liquidated! Consequently, many OEMs are left in a position where they may issue return credit on the same item twice!
How do you efficiently manage the product return cycle if you are a major brand selling thousands of products and multiple categories across the USA? How can you best handle returns without having to spend more capital just trying to control your exposure in the market?
THE MILLION DOLLAR PROBLEM
This was the million-dollar question one of our OEM clients was facing in managing their returns. Prior to becoming our client, this OEM was offering advance return allowance to retailers, which in-turn allows the retailer to chargeback a certain percentage to the OEM on every invoice to cover returns. This also covered the cost of the retailer destroying the product through a recycling company so that product did not have to be shipped back to the OEM for destruction. This seems like an economically feasible solution because the OEM was able to cut costs, but companies concerned with brand reputation and channel conflict must be cautious to handle and dispose of returns in a controlled manner. Retailers constantly need space and by receiving advance return allowance, they have the right to dispose of your unwanted returns anywhere they choose. In many cases, the returned merchandise ends up at liquidators or recycling sites, and somehow will find its way back within online sales channels. That was the case with our OEM customer as they realized they were digging a deep hole by offering advance return allowance as their product kept popping up everywhere at extremely low prices. They were constantly competing against themselves, and they were being double-dipped on the warranty side as well.
Our client was facing a huge challenge - they noticed that there were some products being returned that had already come through their return center once, meaning that the OEM issued a refund or exchange twice for the same unit. Their legal team did some research and found that returned products were starting to show up online as “new open box” products with prices below market value. Thus, the OEM’s warranty center started receiving phone calls from customers who were misled into buying a used product as new. Because of today’s rigid “customer satisfaction guaranteed” policies, our client had no choice but to honor the customers’ requests. Our client’s first reaction was to immediately stop the bleeding – so they stop offering advance allowance and asked all their customers to start shipping the product back to the OEM’s distribution center. The OEM would audit the RMA’s to ensure accuracy, and then destroy the units - allocating additional time, labor and financial resources to ensure that returned products were being properly reported and disposed of. Our client quickly realized that this process was not financially feasible, and was directly cutting into their profit margin. As pressure started building for our OEM client, top management was scrambling to find a creative solution.
THE MILLION DOLLAR SOLUTION
We met with the OEM client to discuss their challenges and analyzed their procedures to see how we could best optimize our services to create a reverse logistics platform for them, and what we designed for them was a completely transparent end-to-end solution of managing returns. The OEM appointed us as their exclusive National Return Center, and started to direct all shipments from their retailers directly to our facility in Los Angeles to receive and audit on their behalf. Because of the large volume and wide assortment of products, we proposed a data-driven approach which would allow us to conduct analyses of the product, costs, and market prices, to see how we could best triage the assortment to achieve the highest return by refurbishment and servicing. We also offered to help the OEM sell these factory-serviced goods in secondary channels and smaller retailers, to further assist them in preventing channel conflict and protecting their primary product line. For us to undertake this major initiative of factory servicing return products for such a large OEM, we gave extra attention to the quality, packaging, and labor costs throughout the entire process.
THE MULTI-MILLION DOLLAR RESULT
At first, the OEM was apprehensive about our proposal as it gave us complete control over the entire RL process. But after three years, they could not be more pleased with the performance of the program that we designed for them. Our client was once spending six figures annually just to handle the logistics of the return process, only to end up destroying these products in landfills afterwards. Now just a few years later, they have off-loaded the hassle and process of maintaining a department just to handle returns which has significantly reduced overhead costs, and they now they are benefiting annually from a seven-figure secondary source of revenue.
The result o far has been phenomenal. We essentially created a secondary market and constant revenue stream for our OEM partner. Our OEM’s own sales team & outside reps are now offering and selling our “factory-serviced” products to customers as second-chance discounted products. Best of all, we have complete live and historical data available on all the returned product in our RL cloud portal, which gives our client full access to the return data so they can run ad-hoc reports at any time. Something that was once depleting their profit margin now allows the OEM to achieve higher ROI, higher profit margin, and constant revenue stream. This has truly been a win-win for both companies.
Another value-added benefit of utilizing better reverse logistics practices, and perhaps our most prideful accomplishment, has been our ability to expand the average life cycle of the products we work with that would have otherwise ended up accumulating in landfills. We estimate that over the past 3 years, we have recycled over 2 million pounds of plastic and metal, just a small dent in the 254 million tons of garbage that is produced by Americans annually (www.epa.gov). We believe in giving the highest regard to our planet, and creating processes that can best balance the economy and the environment to support future generations.
Vivitech Solutions, Inc. (http://www.vivitech-solutions.com) is a major player in Reverse Logistics, closeout, excess and obsolete products marketplace.
Over the years, we have worked with brands like Shark-Ninja, Polaroid, Olympus & Vivitar. Corporation to provide Reverse Logistic services.
We are headquartered in Los Angeles, and have a repair facility in Otay Mesa (Tijuana), Mexico, less than 10 minutes from the US/Mexico border. We have all the necessary regulatory permits in Mexico to import/export products to our facility as needed. We have strong global sales channels in Latin America and also have sales office in Dubai, UAE
We have spent the past few years strategizing and perfecting our Reverse Logistics & cross border refurbishing business model. Success of any business model depends on data management, which is why we utilize a highly specialized cloud based Reverse Logistics Software. This enables us to provide cutting edge RL service to our major OEM clientele and provide them with access to real time online tracking & custom reporting.
We are a self-funded, profitable company that has what it takes to do the job correctly. We would love the opportunity to work with you. Let us show you how we can better handle your customer returns and achieve you better ROI and brand protection.
For further information, please visit www.Vivitech-Solutions.com for more information or feel free to contact me at email@example.com.
Fizah Jadhavji is a graduate of Pepperdine’s Graziadio School of Business & Management and the CEO of Vivitech Solutions, Inc. Her experience and involvement in various positions throughout her professional career have contributed to her hands-on approach to the daily operation and overall management of the company. Since its start in 2013, Vivitech has grown from a small 12 employee operation to a multi-million dollar enterprise with over 50 employees.