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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