Are there ever any happy returns? (page 2)

-- Logistics Management, 6/1/2005

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The reason, he says, is that handling returns requires employees to make a series of decisions that are unique to reverse logistics and take time to learn properly. The returns processors must understand company policy, know the product thoroughly, and possess a basic sense of fairness and good judgment, adds Mann.

Here's why: After an item has been received at a warehouse or distribution center and has been accurately recorded, it must move through the processing and separation stages based on its ultimate disposition.

During this part of the process, returns management staff need to ask such key questions as:

• Is the product damaged and unsaleable, or can it be refurbished and resold?
• Was it returned as part of an overstock agreement arrangement with a retailer?
• Is it a product that is being recalled?
• Is it in an unopened package that can go back into inventory for immediate resale?
• Does the product need to undergo special testing?
• What is the item's worth?
• Should the customer be credited for this item?
• How do the company's returned- goods policies apply to this particular product?

The complex nature of these questions reinforces the argument in favor of a dedicated, well-trained staff. "The company has to realize that the people who do the analyzing and processing of returns are making a determination of recovery value, so you have to have people who are knowledgeable enough to make these kinds of decisions," says Stock. Compensation is a related issue, he adds, noting that when a company has a superior returned-goods operation, that staff may be paid more than those working in forward logistics.

Make the Right Decision

Managing returns processing in-house isn't the only option. After conducting a feasibility and cost analysis, some shippers decide that it would be less trouble and more cost-effective to outsource returns management to a third-party logistics company (3PL).

Over the past few years, most sources agree, there has been a growing trend in this direction. "We have been conducting a study of manufacturers across a wide spectrum of industries for some years," says Accenture's Mann. "In 2001 and 2002, companies using 3PLs for reverse logistics weren't even on the radar screen. Then in 2003, 25 percent said they were outsourcing returns. Last year that number had grown to roughly 33 percent. But two-thirds are still trying to do it themselves," he reports.

That trend is beginning to taper off, in Tracy's estimation. Reasons for this vary and may include customers' confusion regarding where they should send returns, problems with instructing the 3PL about the company's returns policies, and the need to audit the 3PL's processes from time to time, which in effect amounts to periodically managing an outside operation.

So how can a shipper make the right decision to manage reverse logistics in-house or outsource it?

If a shipper has an efficient, cost-effective returns management system in place, then outsourcing may not provide any additional benefits. GENCO Inc., a Pittsburgh-based 3PL that has been providing reverse logistics services to shippers in a wide range of industries since the late 1980s, zeroes in on this question when interviewing potential customers.

"We ask prospects about their returns volume and their disposition channels," explains Steven South, president of the company's Reverse Logistics Solutions business unit. "A highly disciplined organization will give an answer in terms of percentages of total returns, asset recovery, auctions on the Web, and [merchandise] destruction with credit. If we don't get this kind of answer, the chances are the company should be outsourcing its returns operation."

If a shipper is uncertain as to whether it should tackle returns management internally, managers should analyze their company's internal skill sets and expertise, advises Thomas Marcellino, vice president of sales and marketing at Carolina Logistics Services Inc. (CLS). Winston-Salem, N.C.-based CLS has specialized for two decades in reverse logistics in the grocery and pharmaceuticals industries and recently acquired competitor USF Processors Inc. of Dallas, Texas. Continued...

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