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Returns Management Can Also Return Investment

March 7, 2014
The reverse supply chain should encompass refurbishment and remarketing to achieve a higher return on investment in the forward chain.

Many retailers and product manufacturers consider managing returns and the reverse supply chain a headache. Employee bandwidth limitations, profit loss, vendor/retailer frustration, and negative impacts on sustainability metrics have largely defined this process.

However, in the new retail supply chain, an organization's reverse supply chain adds value to its reputation and financial bottom line. To extract this value, retailers and consumer product manufacturers should consider how they can develop their refurbishment and remarketing skills.

Efficient Returns Management

Many retailers and manufacturers are not speaking the same language when it comes to handling returns in the reverse supply chain. Therefore, an efficient returns management process starts with alignment at key levels within the organization. By operating from the same set of guidelines, companies can streamline the process.

To start, a successful returns management process should properly address the following questions:

What are the Company's Goals?

Returns management should be in alignment with the company's larger strategic goals. If a company's goals are primarily directed at profitability or cost reductions, then the management team can improve their bottom line through achieving higher recovery on returned and overstock goods.

A company seeking to improve their brand position can further protect and enhance their brand by increasing channel control for their "B" stock products in the reverse supply chain, reducing the number of non-approved sellers and closely monitoring how product is represented in secondary markets. Or, many management teams today are focused on achieving a triple bottom line, striving to benefit the company, its customers and the environment alike. An efficient returns process that detours product from landfills can actually boost sustainability metrics to support the company's larger corporate social responsibility efforts.

Who Owns the Process?

This may seem like a simple question to answer, but it is an important one. If returns are being handled at the store level, then valuable time is redirected from customer interaction and sales for "A" stock product on the shelves. Some retailers or vendors have opted instead to have a single returns center for product. This can be a feasible solution, unless the cost of maintaining the facility, staff and additional transportation fees outweighs the benefits.

Are Return-to-Vendor (RTV) Agreements Mutually Aligned?

The RTV process has been an historic area of strain for retailers and manufacturers, but there are opportunities for mutually beneficial outcomes. Vendors need to limit any negative perception of their brand and retailers need to move surplus product from their stores. Neither party wants the hassle of managing the returned product yet both have an interest in safeguarding their brand and customer experience.

RTV agreements can be restructured with a shared partner to be mutually aligned with a common set of objectives to:

  • Reduce the number of product touches in the reverse supply chain
  • Increase profitability for both retailers and vendors in the secondary markets
  • Protect the respective brands.

An additional benefit of this arrangement is an overall reduction in product going to landfills, helping both retailers and manufacturers to achieve their respective sustainability goals.

Refurbishment and Remarketing

Refurbished product used to be perceived as a lesser quality product. This outlook is often derived from gaps in customer support in secondary markets and unmet expectations on the product purchased. The advent of controlled, online marketplaces where buyers have an end-to-end designed customer experience ensures trust in the refurbished products they purchase.

Strategic remarketing for both refurbished and other returned and overstock product can fuel value in the reverse supply chain, expanding the brand's customer base and driving higher recovery.

Rather than approaching refurbishment as an obligatory process for second-rate quality product, manufacturers can set guidelines for refurbishment to more closely match standards for refurbished product with their "A" stock product.

These guidelines might include:

  • Ensuring that all marked accessories are included in the packaging
  • Properly grading and testing consumer electronics to ensure they are described accordingly in secondary markets
  • Wiping any identifiable consumer data from consumer electronics through proven techniques.

Setting guidelines for refurbishment minimizes risk to the company brand. Establishing accurate expectations for consumers on the product's condition by ensuring product is sold through appropriate online channels with correct descriptions will drive positive consumer perceptions of the overall brand.

Conversely, a negative experience with refurbished product could leave customers with a sour impression and may ultimately steer them away from purchasing from the manufacturer again.

Remarketing or "re-commercing" product through the right channels is central to achieving company goals for the reverse supply chain. The use of established, online marketplaces where a large buyer base for a product already exists will support the efficient movement of the product to engaged customers. In addition, rather than allowing a manufacturer's brand to be represented by a variety of sellers online, a manufacturer can work with providers to engage a multi-channel solution.

In addition to selling product through a provider's online marketplace(s), an established vendor can also set up official, online stores or online outlets on other e-commerce sites with customer service and support for refurbished and "B" stock product. A solution designed around the consumer experience in secondary markets encourages positive consumer engagement with the overall brand and positions product in front of the appropriate potential buyers.

Case in Point

A leading consumer electronics manufacturer worked with a provider to apply this multi-channel strategy in the secondary markets for their surplus and refurbished product. The solution included online B2B and B2C strategies that directed product to approved online channels on existing e-commerce sites and through the provider's online marketplace.

Within the first six months, recovery increased by 20% and the overall time to market for the reverse supply chain was greatly reduced. In the first year of the program, consumers were surveyed and customer loyalty had significantly increased with more than 83% of the respondents stating they would recommend the brand to a friend.

In addition, when consumers were asked to rank their favorite computer brands before and after their purchase of the refurbished product, there was a nearly 20% increase in the brand ranking against competitors.


Retailers and manufacturers can no longer afford to ignore their reverse supply chains.  A well-designed returns management process incorporating refurbishment and augmenting sustainability efforts can lead to financial and efficiency gains in several areas of one's business.

Jim Rallo is president of the Retail Supply Chain Group, Liquidity Services, Inc.

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