Reverse Logistics: Every Department’s Challenge

More than 75% of all returned products are not defective, according to Gailen Vick, founder/president of the Reverse Logistics Association. Instead the primary cause of returns is “misinformation at the time of purchase,” due perhaps to misleading marketing materials or an ill-informed sales staff. The secondary factor is related: The product did not meet expectations.

Which demonstrates why reverse logistics is a challenge that needs to be addressed by the company as a whole.

Most companies, however, do not have any one individual who “owns” reverse logistics, Vick said during his NCOF session, “What’s New in Reverse Logistics.” Job titles such as “reverse logistics director” are rare, though he added that he is starting to see more companies dedicate people to the function. And that’s as it should be, Vick said, given that reverse logistics typically eats away 30%-35% of potential profit.

Vick defined reverse logistics as “anytime money is taken away from your logistics budget.” In addition to merchandise returns, it can include product repairs, help-desk calls, and asset management. He noted that the cost of processing a return can be two to three times the cost of an outbound shipment of the same item.

Focusing on asset recovery, on the other hand, can compensate for some of the lost funds. Vick cited a statistic from A.T. Kearney stating that 70%-90% of every dollar generated through asset recovery goes straight to the bottom line. He likened asset recovery to clearing out the assets — a.k.a. the stuff taking up space — in your garage so that you could actually park your car in it.

“The best way to manage reverse logistics,” Vick said, “is to go to all the department heads and then create a virtual P&L.” But don’t create a real P&L, because “then you’ll be pulling headcount from them, and you know what happens then: The department heads are no longer your friends.” And to manage reverse logistics, he said, “you need them as friends.”

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