Return Management

1
Return Management
An introduction and overview

• Prof. Rommert Dekker
• Erasmus University Rotterdam
• rdekker_at_few.eur.nl
• http//www.few.eur.nl/few/people/rdekker
• Contents
• Why 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 uds, 4 postdocs, 16 PhDs 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 Shells 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
  Rdam 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

5
Return management - examples

• Wehkamp - collection of returned items (e.g.
  fashion), inspect and resell. Essential is the
  time until item can be sold again
• VD - 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)

7
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

• Strategically
• Define 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
  skus)
• 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

17
Return handling

• Crucial question handling in own/ forward DCs
  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))

20
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 example
• actual stock 1, minimal and maximal stock level
  1, demand is 1 per year
• now there is a demand and one item is returned
  which may be repaired
• what to do? wait for repair - how long? hence we
  have a risk
• reorder one, but if the repair succeeds we have 2
  on stock!
• Main problem lies with slow movers - quite often
  with spare parts

21
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

22
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