Vanderbilt research shows centralized “reverse supply chain” may not be effective for electronics, fashion
Behind every retailer is a manufacturer bracing for the inevitable return of merchandise, particularly for the busy holiday season. But using a traditional, centralized returns process may result in those gifts creeping back through the reverse supply chain. Result: processing delays and significant product depreciation – especially with time-sensitive products like personal computers and fashion apparel.
This is due in large part on the Internet, which has resulted in more returns today as a percentage of sales than just 10 years ago.
Wringing precious time out of the returns process can significantly increase the retained value of a product, making a big difference on the manufacturer’s bottom line, according to a new study by the Owen Graduate School of Management at Vanderbilt University.[1] “A time-sensitive product can depreciate as much as one to three percent per week, depending on where the product is in its lifecycle,” said Joseph D. Blackburn, the James A. Speyer Professor of Production Management at Vanderbilt and lead author of the study.
“By the time a returned product is finally recycled back to the sales floor, it may have already been eclipsed by a newer model – or missed its ‘season’ entirely,” he added. Some large electronics manufacturers spend as much as $200 million annually processing returns of PCs, printers and other related items, he noted. Further, some returned fashion apparel can lose up to 50 percent of its value languishing on a shelf.
“Part of the problem is that more companies pay little attention to the returns process,” said Prof. Blackburn. “They view it as the ugly stepchild of the industry of their business.”
Advocating ‘Preponement’ Approach
Manufacturers have traditionally used a centralized returns process to maintain lower costs in what has been widely regarded as a money-losing effort. Rather than have a product sitting in a central warehouse for weeks or even months until its future use is decided, Prof. Blackburn – renowned for his expertise in supply-chain and “just-in-time” issues – advocates a new, streamlined approach, called “preponement,” meaning planning ahead for returns before shipment
A manufacturer using preponement identifies a product’s best use – resale, refurbish, salvage or write-off – much earlier in the returns process, sometimes even at the retailer level. This shortens the amount of time the product is out of circulation, thereby maximizing its retained value, he added.
“While long delays in processing returned merchandise isn’t as critical for products that don’t rapidly depreciate in value, like power tools or microwave ovens, it can be very costly for items that do lose their value quickly, such as electronics equipment or any seasonal merchandise,” he said.
Re-evaluate Reverse Supply Chain Process
While acknowledging that the preponement approach may not be the best solution for every manufacturer, Prof. Blackburn noted the standard, centralized reverse supply chain process should be re-evaluated for its effectiveness.
“Product returns can actually be a value stream, not just a waste stream,” said Prof. Blackburn. “Companies with time-sensitive products could benefit tremendously from a fresh look at the process.”
