In the home computer market, a single return can vaporize all the profits from the sale. No wonder consumer electronics manufacturers and retailers are so intent on avoiding them.
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
Every day, somewhere in America, an unsuspecting consumer wanders into an electronics store and leaves clutching the latest wireless networking device. Dazzled by the prospect of effortless access to files stored on his home or work computer from anywhere in the world—or the capacity to turn his computer on and off from just about anywhere, at any time—or the ability to keep up with the bills during next month's extended business trip to Hong Kong, he races home to set it up.
But once he gets home, buyer's remorse quickly sets in. Try as he might, he can't install and configure the wireless network. Aggravated by indecipherable error messages and despairing of ever getting the technical support he needs, he heads back to the store's returns counter.
In a day and age when Americans are deluged by ever more sophisticated consumer electronics, the sad truth is much of it gets returned by consumers who find themselves in over their heads. That's particularly true of wireless technology, which has pushed networking out of the average user's reach. "Only the leading-edge techno-geek people are playing with a lot of this new networking equipment," admits Intel executive Scott Lofgren, who is chairman of the Ease of Use/PC Quality Roundtable.
That collective consumer frustration is causing more than just headaches for the industry; it's costing them serious money. A study conducted by the Reverse Logistics Executive Council revealed that although the average profit for a PC sold at the retail level is $75, returns and support costs can run as high as $95 per unit. That's led some manufacturers to band together to form the Ease of Use/PC Quality Roundtable, which addresses—among other things—the problems users face when they attempt to link PCs and consumer electronics devices at home. "Our job as an industry has to be to figure out how to improve the consumer experience," says Lofgren.
Rage against the machines
The problem's not limited to computers. Companies that make and sell devices like DVD recorders are experiencing similar problems. "The things we're trying to do with devices in the home right now are much different than when we just slapped a record on a turntable," says Lofgren. Manufacturers have come to realize that they're partly to blame for the frustration. "DVD recorders have [excessively] high return rates and that seems driven — by ease of use issues," admits Tony Sciarrotta, director of returns management for Philips Consumer Electronics. "The consumer is genuinely frustrated by this. We don't make these products easy to use."
Nor are they easy to network. As anyone who's ever tried to hook up a new DVD recorder to a VCR or satellite TV receiver knows, you have to fight your way through a tangle of wires and navigate a dizzying array of output and input options. "The hookup aspect is the real nightmare," acknowledges Sciarrotta. "That's where we get the most calls [to customer service]. If we solve the problem—fine. But if we don't, it's our product the consumer will probably end up returning because it was the most recent purchase." In fact, return rates for DVD recorders run well above the 5 to 6 percent typical of the consumer electronics industry.
Still another problem is a lack of standardization. Manufacturers have made little attempt to standardize their formats. Bring home a Philips or Sony DVD recorder and you may be dismayed to find that it uses a different format disk from your old Panasonic unit. It's no wonder consumers are throwing up their hands in defeat.
The best return is no return
What can manufacturers do about mounting returns costs? Some have hired third-party returns specialists to manage reverse logistics for them. Others have invested in tracking software to help rein in costs.
But Sciarrotta thinks he has a better idea: He's concentrating on finding ways to keep returns from happening in the first place—or at least minimizing the number of items that need to be returned. So far, his company has been remarkably successful implementing this strategy, known in the industry as "avoidance." Though Philips' rate of returns once ran about double the industry standard, the company has sliced its rate in half, cutting annual returns from $200 million's worth of merchandise to well under $100 million.
So what does avoidance involve? Sometimes it's simply a matter of designing products better or making them easier to use. "Avoidance really starts right from the beginning of the product design stage," says Dale Rogers, professor of supply chain management at the University of Nevada and chairman of the Reverse Logistics Executive Council.
Other times, it's not so much the products as the ancillary items or services that are responsible for consumers' frustration. Some manufacturers have found that what they really need to do is improve their after-sales support—supplying better-written user manuals or making it easier for customers to get help. And needless to say, it's essential to work out any quality control issues to ensure that products are defect-free before they leave the plant.
Point of no return?
But even providing 100-percent defect-free DVD players or cell phones is no guarantee that consumers won't return them. Statistics show that for some consumer electronic product lines, seven in 10 items that are returned have nothing wrong with them.
It's partly a cultural issue, says Sciarrotta. "Over the years we've made it extremely easy for consumers to bring an item back to a retailer and get their money back—even if it's not defective." Blanket no-questions-asked returns policies have led to abuses like the college kid who scores backstage passes to a Lenny Kravitz concert, buys a digital camera to record the big event, downloads the photos to his PC, and returns the camera the next morning.
Other times, perfectly good products are returned simply because the manufacturer has recently introduced a newer, faster, more powerful model and the consumer feels entitled to an upgrade at no cost. That's a trend that Philips, for one, has been tracking for some time now, says Sciarrotta. "Every three to six months, a higher-speed CD burner comes out, and it's evident that consumers are bringing the old ones back and getting the new higher-speed ones as replacements."
Philips' response to that has been to establish better gatekeeping policies—refusing to accept items that should not have been returned in the first place or that have been returned to an inappropriate destination. "Instead of taking anything back anytime from anybody, you use entitlement controls to authorize models that are within a certain window," Sciarrotta explains.
For example, Philips now publishes "approved model lists" that spell out for retailers which products they're authorized to accept as returns. If a retailer grants an unauthorized return and ships the item back to Philips, the company will send it back with an invoice to cover the cost of the return. Philips has also set time limits, says Sciarrotta. "We shouldn't take things back that are five years old."
To flag items that aren't eligible for returns, retailers like Wal-Mart and Target have launched electronic product registration programs. When a bar code is scanned at the register, a Wal-Mart associate, for example, also scans a serial number that records information about the sale in the retailer's database. If a customer attempts to return the product later without a receipt, the store associate can simply scan the serial number to confirm when and where the product was purchased. "We have people try to return things at Wal-Mart that are five years old," says Sciarrotta. "Our retailers can avoid that now with this … validation process."
Some retailers have even come up with programs to discourage returns on their own. Wal-Mart, for example, has implemented a national warranty repair program. If a customer walks in with, say, a two-year-old CD burner (or any item purchased outside of its approved returns window—normally 30 to 90 days), Wal-Mart will no longer exchange it for a new one. Instead, it offers to ship the product to the manufacturer, which will repair or replace it and ship it back to Wal-Mart. Once customers realize that they won't get cash back for the return, many opt to keep the product.
Though he admits the program is expensive, Sciarrotta considers it well worth the cost. For one thing, Wal-Mart enjoys extremely competitive shipping rates with UPS, which keeps transportation costs down to reasonable levels. Second, the program helps manufacturers like Philips retain customers, which is a key goal. "If Wal-Mart granted a refund," he says, "the user would most likely go out and buy something [made by someone] else."
"The combination of electronic serial number registration, plus the national warranty repair program has put them in a tremendous position to minimize returns," says Sciarrotta, who reports that Philips has seen a 50-percent reduction in returns from Wal-Mart. "That's cash flow right out of the register. If a retailer can make even a 1-percent improvement there, [it is] looking at a huge improvement to the bottom line."
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."