1. Commercial Returns 8803 Business and the Environment Beril Toktay College of Management Georgia Institute of Technology

2. Growing Problem of Commercial Returns  The value of commercial product returns now exceeds $100 billion annually in the US (Stock, Speck and Shear, 2002)  Commercial product returns: Products returned for any reason within 90 days of purchase.  Policy of most US retailers: Full returns no question asked!!  Return rates: 6% to 15% (Dekker and Van der Laan, 2003)  Mail order companies and e-tailers: as high as 35%

3. Time Value of Product Returns  Loss in asset value significant  Downgraded to a lower value product Refurbished/remanufactured/parts/scrapped  Losses due to time delays Deterioration of value in time Forced downgrading due to obsolescence

4. Time Value of Product Returns Low MVT (e.g. power tools) High MVT (e.g. PCs, fashion apparel, cell phones) Marginal value of time: How much value is lost per unit time?

5. Reverse Supply Chain Design  Most reverse supply chains are designed for efficiency  There is a trade-off between speed and efficiency

6. Efficient Reverse Chain Centralizes credit issuance, testing, sorting and grading.

7. Responsive Reverse Chain Preliminary testing and sorting is done in a decentralized fashion

8. Reverse Supply Chain Design MatchNo match Match Efficient chain Responsive chain Low MVT High MVT

9. Managerial recommendations  Treat returns as perishable assets  Elevate priority of reverse chain  Make time a performance metric  Make the product’s time-value a key design variable  Use technology to achieve speed at lower cost