SCM Customer Service Operations LB 4 Returns and Reverse Logistics

Learning Block Objectives Understand the key aspects of and employee responsibilities in the customer returns process Recognize what encompasses reverse logistics, why reverse logistics are important, why reverse logistics are needed, and which key metrics are used in customer returns Apply the key metrics used in customer returns functions Create good key practices for the customer returns process LO1

Understanding Reverse Flows in the Supply Chain Reverse logistics is the return of products by customers through the supply chain Companies now allow customers to return products for credit exchange LO1

Forward Flow Vs. Reverse Flow Forward flow is historically important because by filling customer orders, companies generate revenue Reverse flow was viewed as less favorable because it can result in negative cash flow and inventory restocking Today, firms see reverse flow as a potential area to show good customer service and ensure customer retention LO1

Reverse Logistics Companies are focused on cost reduction by making the returns management more efficient and effective Returns reduce net revenues, increase inventory costs, packaging costs, customer service costs, and processing Defective products impact the company negatively and cause a decline in future sales Globally, reverse logistics take on a more significant role due to distance, time and transportation costs LO2

Contributing Factors for Focus on Reverse Flow Increase in the quantity of returns Popularity of internet sales Many companies now allow returns if customers are dissatisfied with their purchase Companies now view reverse flow as a value stream LO2

Reasons for Returns Flow of returned products include: Repair Refurbishment Resale Disposal Reasons for returns include: Failed, defective, unwanted or damaged products Obsolete or expired products Products recalled due to quality or safety defects Apparel merchandise purchased online that does not fit LO3

The Customer Return Options Returns process typically occurs in the warehouse Returns process made easier through the issuance of return labels for customers Return labels have customer information in the barcode which triggers replacements to be manufactured, picked, or credit to be processed LO4

Return Material Authorization Form (RMA) RMA’s are used to authorize product replacements or refunds Many firms have automated the process by electronically providing a packing slip with an RMA number to be printed Warehouses have designated areas for return items and return processing LO4

Refund, Restock, & Refurbish Returned items are inspected to determine their quality and condition Based on the return policy, a replacement or credit is approved 3PL companies may refurbish the product for resale Sometimes the repair process takes place in a warehouse LO5

Recycling Different countries have different rules about reverse logistics and its impact on the environment Companies must pay attention to these regulations and manage their disposal & packaging processes effectively Many firms now offer recycling programs for toxic items such as batteries LO5

Returns Management Systems Returns involve complex processes as they impact physical inventory, electronic inventory, and accounting systems Once the product has been examined, decisions must be made regarding Returning the product as is to storage Repairing the product and returning it to storage or the customer, or scrapping the product Return Management Systems (RMS) support the return process

Return Management Systems Handheld scanners – radio frequency equipment Interface with warehouse management systems – Allows for real time inventory control, immediate inventory allocation, rapid picking, and cross-docking Interface with accounting systems – To decrease crediting errors

Stages in the Customer Return Process Return Authorization – Customers obtain an RMA from customer service with shipping and return instructions Receipt – Products are returned by customers and received by warehouses Sort and Stage – Products are sorted according to the nature of the returns and are staged for return processing Processing and Analysis – Reasons for the return are entered into the system and customers credited Disposition Activities – scrap, repair, or return

After-Sale Warranty Involves inspecting, sorting, handling disposition, and managing enforcement of the warranty program for returned products 3PL’s often perform all or some of these functions 3PL’s usually provide a range of services including warehousing and transportation Firms assign logistics functions to 3PL’s so that they can focus on their core competencies, reduce costs, and leverage logistics-related assets of 3PL’s

Industry Differences in Reverse Logistics Retail Fashion Industry – Returns are common and often relate to wrong sizes, or customers changing their minds Usually, products are placed back into stock In the Pharmaceutical Industry – Strict rules apply for batch control. Food Industry – Expiration or use dates apply

Best Practices in Reverse Logistics Best practices are the focus to achieve ultimate goals Good practices should be emphasized and used everyday Customer return best practices are: Reduction of cycle lead time Information systems and technology Organization for returns Layout Asset recovery Efficient returns processes and procedures

Key Metrics Used to Assess The Returns Process Length of time to process returned products Volume and value of products reclaimed and resold Percentage of materials recycled Waste produced in the returns process including wasted time, wasted effort, or wasted materials Percentage of costs recovered Handling cost per return or per item