Some companies are turning a tidy profit by reselling returned products that were once consigned to the scrap heap. The trick, they say, is figuring out what's junk and what's worth a second look.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
For years, Cisco Systems Inc.'s product returns operation was pretty straightforward stuff. The merchandise arrived, and with few exceptions, it was thrown out. From 1995 to 2005, Cisco discarded more than 95 percent of its returned goods. According to company estimates, the Web networking giant in 2005 dumped $500 million worth of returns, junking enough product to cover 12 football fields knee-deep. By 2005, Cisco's returns business was a bona fide cost center. That year, it spent $8 million more to process returns than it generated in revenue from selling some of the items at residual raw material value.
Dan Gilbert, Cisco's vice president, supply chain field operations, thought there was a better way. But he couldn't be sure until he instructed staffers to visit one of Cisco's receiving warehouses and pull a cross-section of returned goods off the conveyor belts. The employees were told to visually inspect the merchandise and dispatch those items that passed muster to company engineers for further testing.
The results were revealing: About 80 percent of the products analyzed were in good operating condition, with half needing some cosmetic work. If that sample reflected Cisco's total returns activity, Gilbert reasoned, most of its returns could gain what he called a "second or third life" before being tossed.
Gilbert embarked on what would become a three-year mission to rewrite Cisco's reverse logistics playbook. He started by exploding the myths that all returns were defective scrap, that the returns process was a "hairball" that could not be improved, and that the company's supply chain was good enough to manage what was in place.
Gilbert created a profit & loss statement to give the returns process financial accountability. He built collaborative relationships with Cisco's sales, marketing, and financial arms, and developed a plan to support Cisco's global network of 500 supply depots. He assembled channels to receive returns, which can be roughly classified as follows: products that can be repaired and consigned as spare parts for Cisco's supply network; products destined to be sold into secondary markets; products that can be reused as refurbishing gear in the company's laboratories or for customer demonstrations; and products that can be donated for philanthropic purposes. Under the new program, only those items that don't meet any of those criteria are tossed out.
Today, about 40 percent of Cisco's returns are reused, an eight-fold increase from three years ago. Operating expenses, measured as a percentage of recovered value, have been pared to 39 percent from 119 percent. For Cisco's 2008 fiscal year, which ended July 28, the returns process contributed $100 million in net profit to its bottom line. Most of the contribution, Gilbert notes, came from increased revenue streams rather than from deeper cost savings.
"One of the myths is that you should treat all returns the same," Gilbert told the Council of Supply Chain Management Professionals' annual global conference in October. "The reality is there is a huge variation in the products you receive. You really have to dig into the details."
"No trouble found"
Companies that dig are more than likely to find products worth reusing. As much as 80 percent of all returns are classified as "no trouble found," meaning they are functional in their existing condition or at most, just need to be refurbished, according to DEX Systems, a Camarillo, Calif.based company that inspects returns and develops software applications to analyze their value. Buyer's remorse is by far the primary factor influencing a return, DEX says.
The percentage is even higher in the consumer electronics category. Approximately 95 percent of all returned consumer electronics products worldwide are free of defects that would require some type of repair, according to data from consulting firm Accenture. Wireless handset returns, in particular, are almost always remanufactured or refurbished because of their high component value, the firm says.
Many challenges
In a world of heightened environmental awareness, separating the returns wheat from the chaff has taken on elevated prominence as a "green" issue. According to the U.S. Environmental Protection Agency, consumers got rid of about 372.7 million electronic items such as television sets, computer equipment, and cell phones in 2006 and 2007. Of those, 304.2 million units were thrown out; only 68.5 million units were recycled, according to EPA data.
Despite that, evaluating which returns have a profitable afterlife and which should be consigned to the scrap heap remains, in the view of many in the industry, a business issue. And it's not a particularly easy business issue to manage. Unlike the forward logistics process, returns are inherently unpredictable. Each shipment is often touched multiple times, with a flow of so-called "decision points" that can add cost at each juncture.
The challenges are compounded by the short shelf lives of many products. This is especially true in the high-tech and electronics sectors, where life cycles are now measured in months instead of years.
Another factor is the globalization of manufacturing, which has brought overseas producers—many of them Asian-based— into a loop they may not yet be ready to enter, some experts say. A strong returns process "starts with infrastructure, and companies in Asia do not have the physical returns programs in place" to connect the dots with their supply chain partners, says Ronald Kula, vice president of business development for DEX.
Terry Steger, senior executive for Accenture's electronics and high-tech group, says Asian producers may not fully understand the implications of product returns on current and future revenue streams. But the biggest problem is a lack of timely communication between intercontinental partners, Steger contends. The communication gap is keenly felt when there is a costly product defect requiring a significant change in future manufacturing processes, he adds.
Cultural turf wars also come into play. Marketing folks are in business to push the newest generation of products and often have little incentive to focus on older merchandise, Kula says. In addition, top management may choose to scrap returns because it's too costly and timeconsuming to explore alternatives. "It's not like they are taking the easy way out," he adds. "It is the only way they know."
No more failure to communicate
The ideal solution is to dissuade buyers from returning the product at all. However, once the companies have returned goods in hand, they must play the cards they're dealt. The general rule is that a remanufactured or refurbished product must be resold for 70 to 80 cents for each dollar of current value to justify the cost of the work. Many older products have fallen to such low price points that it makes more economic sense to junk them than spend the time to even inspect them for their fitness.
As is often the case, IT tools can ease the decision-making process. RedPrairie Corp., a leading supply chain software provider, has integrated a reverse logistics module into what it calls its execution management platform. RedPrairie says its integrated model gives the recipient a companywide window on the return rather than treating the process in isolation. This enables broader visibility and better advance planning since the recipient sees how the return affects the entire organization, according to Tom Kozneski, vice president, product strategy.
For example, if the recipient of a returned product is unaware it has been discontinued or is out of warranty, that item may be labeled a good product and stored for processing, Kozneski says. As a result, labor and space are unproductively allocated, and a credit would be mistakenly issued, he says. "The returns system is based on integration with all other aspects of your business systems, so your returns staff gets current detail on whether the item should be processed at all or discarded," Kozneski says. "If there is information in your main database about the latest updates on SKU status, that detail is reflected at the returns processing station and it guides the subsequent action. It eliminates a lot of confusion and wasted effort up front when the returned items are checked in."
At DEX Systems, "economic triage," in Kula's words, is performed on returned products. DEX will visually inspect the product to determine its general condition and then conduct diagnostic tests to gauge the work that would be required—if any—and assess its monetary value.
Kula says DEX is guided by what he calls the "clip level," a pre-set ceiling on what will be spent to repair or refurbish a returned product. Products whose repair costs exceed the clip level are usually disposed of; Kula notes that many returns don't make the first cut.
"The first question that's often asked is 'Do we want to do anything?'" he says. "If the answer is yes, we will push the product down the line. If not, it may be disposed of."
ClearOrbit Corp., another company that supplies reverse logistics solutions, has developed software that separates returned components during the intake process and then asks the recipient a series of questions to help determine how the components can be disposed of. Based on the information derived from the responses, the company can repackage, reship, or reconfigure those items that have value, and the products then can be shipped or scrapped. "The recovery process now becomes a revenue source for resale of products that otherwise would have been thrown away," says Pat Anderson, senior solutions architect for ClearOrbit.
One ClearOrbit customer, a major manufacturer of automated teller machines, uses the software to refurbish older machines by evaluating the components on returned units that have been placed out of service. Instead of tossing the parts, the company has been able to update some of the components and resell products that might have been junked, Anderson says.
The ClearOrbit example underscores the notion of returns processes and technology converging on one goal: to assign a value to each return rather than lumping them together as a homogenous mass. As more manufacturers embrace this mindset, they may be pleasantly surprised to find there's gold in that junk pile.
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Two European companies are among the most recent firms to put autonomous last-mile delivery to the test with a project in Bern, Switzerland, that debuted this month.
Swiss transportation and logistics company Planzer has teamed up with fellow Swiss firm Loxo, which develops autonomous driving software solutions, for a two-year pilot project in which a Loxo-equipped, Planzer parcel delivery van will handle last-mile logistics in Bern’s city center.
The project coincides with Swiss regulations on autonomous driving that are expected to take effect next spring.
Referred to as “Planzer–Dynamic Micro-Hub w LOXO,” the project aims to address both sustainability issues and traffic congestion in urban areas.
The delivery vehicle, a Volkswagen ID. Buzz battery-electric minivan, will feature Loxo’s Level 4 Digital Driver navigation software, a highly automated solution that allows driverless operation. The van was retrofitted to include space for two swap boxes for parcel storage.
During the two-year pilot phase, Loxo’s Digital Driver will navigate a commercial vehicle several times a day from Planzer’s railway center to various logistics points in Bern's city center. There, the parcels will be reloaded onto small electric vehicles and delivered to end customers by Planzer’s parcel delivery staff.
Following the completion of the pilot phase, Planzer and Loxo will build on the program for rollout in other Swiss cities, the companies said.
The partners said the project addresses the increasing requirements of urban supply chains and aims to ensure the “scalability of their disruptive solution.” With largely emission-free delivery, it contributes to greater levels of sustainability for the city as a living space, they also said.
“The uniqueness of this project lies in the fact that it will have a direct impact on society,” Planzer’s CEO and Chairman Nils Planzer said in a statement announcing the project. “We didn't just want to integrate automated technology into existing systems, we wanted to develop a completely new concept and a new business model.”
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.