Returns Management:

How to Convert

Trash to Treasure

BY KATHLEEN HICKEY

Some companies are adopting new returns management processes to gain competitiveness and reduce

costs. It isn’t magic, but most organizations still haven't caught on.

More than 50 percent of companies are not managing their returns because they lack a strategic focus on the issue and can’t see how such a focus would help their bottom line, says Jeff Woods, research vice president of the Gartner Group, Stamford, Conn.

“Generally there is room for huge improvements in returns,” says Woods. “The problem is, for most people it’s a small enough issue that they are not intensely focused on it. That’s the odd difficulty of the whole thing and it’s frustrating.”

Moreover, measuring a company’s returns process, determining how it affects the bottom line and achieving quantifiable results, are difficult tasks. “The cost of a return doesn’t just fit into one spot—you’ve got marketing, sales and inventory,” says Dale Rogers, chair of the Reverse Logistics

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Executive Council at the University of Nevada, Reno. “Most accounting systems can’t handle that, so it gets folded into the cost of doing business.” Rogers also is professor of supply chain management and director of the Center for Logistics Management at the university.

There also are status issues involved. “It’s not the proudest thing the company does,” says Rogers.

In addition, companies must plan for the physical flow of returns. “Product distribution centers usually are made to flow product forward,” he says. “There is a huge difference between backward and forward flow. The distribution center manager, the inventory manager—their job is to get the good stuff out, not the crummy stuff back.”

Joan Starkowsky, president of Roadway Reverse Logistics, now a part of Yellow Roadway Corp., Overland Park, Kan., cites

several barriers to a good returns program: the lack of an owner or overseer of the process, an inability to quantify the cost, inadequate information and process visibility, little or no technology to handle the returns process and limited personnel resources.

“It is a hard sale for companies like us to find the person who owns the returns process,” she says.

As a result of these issues, “most companies don’t realize how valuable their trash is,” says Rogers. “Look at eBay. Who would have thought?” While returns may not seem like a key part of a strategic offering, they can be, he says. “Remanufactured, reused product sometimes is more profitable than new product. An example is used cars, which often have a higher margin that newly manufactured vehicles.

Indeed, a well-managed returns