Post-Holiday Logistics

Post-Holiday Logistics

Copyright 2002, Traffic World, Inc.

For many the holidays mean watching timeless Christmas specials like "Rudolph the Red-Nosed Reindeer." We all know in the end that Rudolph saves the day, but did you ever stop to think of how this holiday classic is actually a supply-chain story in the making? In the same way Santa swings by the "Island of Misfit Toys" to redistribute unwanted gifts to children around the world, today's manufacturers and retailers are faced with the equally daunting global task of dealing with holiday returns.

Consider for a moment the fate of unwanted gifts. For consumers, they return their items and that's the end of the story. But for retailers and manufacturers, that's just the beginning.

The process is complicated. Returned goods can be readied for resale on auction sites such as eBay, repackaged and put back on the shelves where they were sold in the first place, or even shipped overseas in an effort to tap into new markets. Often, returned goods are dismantled and their parts reused to make new products.

Whatever their destiny, industry analysts agree that simplifying this returned-goods process now can be thought of as a means to boost profit margins. Just look at the numbers.

Recent Gartner Group calculations indicate the retail value of returned goods approaches $60 billion annually. That's the cost of the goods, but how much revenue is lost in inventory handling and opportunity costs while returned items flow backwards for these merchandisers? Web returns alone last year cost companies $1.8 billion to $2.5 billion. According to Gartner, the cost of processing web returns equates to twice the value of the merchandise itself.

Overall, U.S. companies are spending more than $40 billion annually on their reverse-logistics processes and industry estimates for returned packages hit the 500 million package mark by 2004.

Obviously, companies that simply maintain status quo returns processes are losing the battle as well as the war. The problem is the answer: it requires dealing with inconsistent inventory loads, nonuniform product quality, ambiguous routing costs and confusing pricing scales. The undertaking is daunting. Fortunately, they need not go it alone.

A proper supply-chain network that includes a Grade A reverse-logistics process can cut losses and improve customer service as well as profit margins, but a well-executed 360-degree program requires optimization, visibility and flexibility.

Optimization, a somewhat heady word, can be achieved by adjusting processes based on the answers to fairly simple questions. How close is inventory to the customer? Does the upfront returns process map out next-step instructions?

Essentially, optimization involves being open to finding the best solution. Then you can address constraints such as existing infrastructure, fragmented data systems and transportation network limitations, among others. Once the optimal solution is designed, priorities and options to work around any obstacles can be considered.

Technology considerations for data management, warehouse management systems, tracking and tracing and IT integration can be overwhelming, but they all lead to one basic premise: visibility. Knowing exactly where your product is - whether on the store shelf or in the returns center - leads to planning and execution. And that requires accessibility, flexibility and flow.

Optimized processes enable smooth planning - they don't take the place of it. With multiple retail seasons leading to peaks and valleys in demand, planning is a continual process. Wherever the product is scheduled to land, it needs to be accessible.

Operating in a global environment requires businesses to be flexible in order to overcome the unexpected. Contingency plans keep commerce flowing, which is actually more important than speed.

A successful full-circle program can help manufacturers guard against the possible post-holiday headaches. Third-party logistics companies have solutions that range from creating electronically generated shipping labels to handling the entire process that includes shipping, product triage to determine disposition, repairs and refurbishment, repackaging and returning to inventory for resale.

For instance, an apparel/footwear manufacturer found that outsourcing its returns process reduced its inventory overhead and improved customer satisfaction, particularly during the holiday rush. The manufacturer's customers are able to manage returns via phone, in part through a customer service call center managed transparently by their logistics provider where a representative initiates a pickup of the unwanted product. Once the return is processed, distribution of a gift voucher or new item occurs simultaneously.

The process is working for our retailer customers and other businesses can find success too. After all, did we not learn anything from "Rudolph?" If Santa can help find new homes for misfit toys, so can an efficient reverse-logistics process turn those unwanted gifts into incremental sales opportunities.

-- Enright is vice president of national sales for UPS Supply Chain Solutions.