Reverse Waltz

Apr 01, 2005 10:30 PM  By

What, you might wonder, does dancing have in common with reverse logistics? Perhaps not much at first glance, but as soon as you introduce the metaphor of dance as a partnership, it begins to be clear. Fred Astaire wowed the world with his moves throughout a stage, film, and TV career that made him synonymous with dance. Though his talent made dancing with a coat rack artful, Astaire’s best work came when he partnered with Ginger Rogers.

And there’s the reverse logistics analogy. Think of a classic Astaire — Rogers performance: It’s not enough for Fred to have all the right moves if Ginger is unable to keep up, for that will surely leave the audience disappointed. In the same way, if a company’s forward logistics operations are near-flawless and all it does with returns is pile them up in a corner of the DC, both customers seeking quick refunds and shareholders seeking to stop the red ink bath the company is taking may seek to do business elsewhere. However, companies that put as much care into optimizing their reverse logistics functions as they do with their outbound shipments can choreograph something nearly as beautiful as an Astaire — Rogers waltz across the dance floor.

“One of the big jokes has always been, ‘Who is the better dancer, Fred Astaire or Ginger Rogers?’” says Scott Szwast, sector marketing manager for UPS Supply Chain Solutions, a division of the Atlanta-based shipping giant. The answer, he says, “was always Ginger Rogers, because she did everything Fred Astaire did, backwards in high heels. And that’s exactly what reverse logistics is like. You have to do every single discrete process that you have in your forward distribution model in your reverse logistics, but you have do it backwards and in heels. It’s infinitely more complex.”

And the stakes are much higher. The cost of handling a return can be up to four times the cost of handling an outbound order, according to Jonathan Dampier, vice president of marketing at Austin, TX-based returns management provider Newgistics Inc. “Returns are extremely expensive for retailers, and to have a way to not quite turn it into a profit center but certainly offset a great deal of those costs and create revenue is certainly a whole different way to look at returns than they were looked at short of a couple of years ago.”

PROFIT FROM LOSS

So what should companies do to mitigate losses from returns and perhaps make some money from them? Accepting fewer returns may help the bottom line in the short run, but will surely lead to customer defections in the long term as shoppers flock to competitors with more liberal policies, according to a recent study conducted by Rochester, NY-based market research firm Harris Interactive. Commissioned by Newgistics, the study finds that 88% of U.S. adults who have shopped online or through catalogs state that a convenient return policy is a key factor in determining which merchant will get their business.

The study also reveals that convenient returns help customer retention immensely — 92% of adults who have shopped online or through catalogs are somewhat or very likely to shop again with a direct merchant if the return process is convenient, whereas 85% most likely won’t shop again with a direct retailer whose return process leaves something to be desired.

James R. Stock, Ph.D., a University of South Florida professor of marketing and logistics who researched a new book published by the Warehousing Education and Research Council titled Product Returns/Reverse Logistics in Warehousing, also believes that companies need to pay some of the same attention to detail to reverse logistics as they do to their forward logistics processes.

“One of the interesting things I found in that research was that it’s relatively rare that companies compute inventory carrying costs for returns,” says Stock. “We know that eighth decimal point every day and on every product on the forward side, yet we don’t do that on the reverse side. But even the very sophisticated companies don’t have that data. There are always things that companies can do — the real good ones are in a continuous improvement mode, whereas the ones that have done very little essentially have to reengineer.”

HORRIBLE HOLIDAYS

Stock says that retailers’ returns processes have improved dramatically in recent years, after the “horrible” holiday season of 1999. Companies like New York-based women’s apparel maker Liz Claiborne now report that reverse processes are running without a hitch. “We do a combination of things — some [returns] are outsourced, and for some we have our own facilities, but it’s not really a major issue for us,” says Joseph Giudice, Liz Claiborne’s vice president for distribution and logistics.

Knowing when to outsource and when to handle returns in-house is critical to optimizing reverse processes, Stock says. “You’ve got to have enough volume to do returns yourself. That’s one of the advantages of outsourcing to a third party — they’re going to get a better output. But a lot of companies choose to outsource that shouldn’t. If they’ve got sufficient volume and expertise in-house, they might as well keep the profits they can generate inside.”

The use of emerging technologies to optimize reverse functions is also critical. John B. Forbes, senior vice president for operations and administration at Citizen Watch Co. of America Inc., a unit of Tokyo-based Citizen Watch, says emerging technology has helped save the company one of its most precious commodities — time. “Some of the majors now send in via EDI what their returns will be instead of sending in a paper document. That speeds up the process a little bit.”

NO LONGER EVIL

One interesting development in the marketplace is how some companies that used to refer to returns processes as a “necessary evil” now call them a “marketing tool.” Firms with best-practice returns handling are touting it to their customers.

“Up until fairly recently, most companies tried to compete on the basis of their product — that’s largely gone away now,” says UPS’s Szwast. “If you buy a TiVo or any electronic computer, or any system like that, you’re really buying the same collection of parts. So what they’re doing is saying, ‘We are the service leader,’ and that way they’re commanding a premium in the market and driving more sales.”

Szwast adds that anything businesses can do to improve service links back to their supply chain — getting product in faster and doing more value-added services. Also, by promoting returns processes that guarantee a swift resolution of any returns issues, companies can “eliminate one of the biggest objections in the back of customers’ minds when they go out and buy.”

Newgistics’ Dampier also sees the marketing of best-practice returns processes as a trend. “I think that’s definitely a paradigm shift — to take returns information, something that before was kind of just an afterthought, and infuse it into marketing programs.”

Szwast notes that although companies may have been able to gloss over ugly returns numbers on the books in the past, those days are history: “The funny thing is, they say now in the post-Enron world, the only way to decrease your inventory is to sell it to your customers. Companies know they have no ability to play the shell games that used to be played. So returns shows up like a massive sore thumb if your returns process is not good.”

On average, 20% of all outbound goods make it back into the reverse logistics pipeline, Dampier says. “Now there are tools available to be proactive and embrace that 20%. I think as an executive you can’t ignore that.”

David Pluviose is a business and technical writer based in Nashville, TN. He can be contacted at dmanpl@yahoo.com.

QuickFix

I’m one of many people, I suspect, holding on to a malfunctioning laptop in need of service. I cringe at the prospect of either entrusting my computer to an uncertified local repair shop or sending my laptop to its manufacturer hoping I’ll get it back in a few weeks. A new laptop repair process announced by the U.S. Digital Products unit of Tokyo-based Toshiba Corp. and UPS not only caters to customers like me seeking a quick turnaround, but is also expected to save Toshiba millions of dollars by streamlining operations and providing better inventory visibility.

The program will employ UPS’s vast network of UPS Stores; Toshiba customers will get professional packaging and a plethora of drop-off locations. UPS Supply Chain Solutions will handle parts management and technical repair, and customers get the assurance that UPS repair technicians are Toshiba-trained and Toshiba-certified. Repairs will be conducted at a specially designed facility at UPS Supply Chain Solutions’ 2 million-sq.-ft. logistics and technology campus in Louisville, KY — conveniently located adjacent to the UPS Worldport global air hub. A laptop can be received, repaired, and shipped back to its owner in one day, thanks to the repair center’s proximity to the global hub.

“What we’re actually selling is [the understanding of] our entire supply chain from the components that come in, to the distribution of finished goods, to the post-sales piece which includes returns and reverse logistics,” says Scott Szwast, sector marketing manager for UPS Supply Chain Solutions. “If you can manage goods, funds, and information across all three of those broad [categories], you understand your total operational cost, and then you can create competitive advantage. And that really is the difference between the industry leaders and the companies that are having problems today.”
DP