Supply Chain Resiliency – the 6 Considerations of Return

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Supply Chain Resiliency – A series of short articles – Return

By Robert Benny & Missan Eido

The 6 Considerations of “Return”

The supply chain is made up of a sequence of highly inter related serial and parallel dependent activities. The “return” portion of the supply chain is a non-value added cost impact to your bottom line. If you have done the perfect job through the supply chain up to this point, returns should be zero.

ReturnsAreas of potential risk are poor demand planning and collaboration, poor sourcing and/or manufacturing (quality or capacity issues), lack of proper security, lack of data quality, improper paperwork, lack of automation, and fraud among other concerns. Since we have already discussed all these issues in previous articles, let’s look at some smaller yet still important issues with returns – poor quality product and paperwork, poor customer quality, poor credit, poor contract language and the lack of engagement rules with your customers.

One at a time:

1.  Poor quality (yours)

a.  The most frequent issue for returns is poor quality. This can occur because your sourcing process was not robust enough to catch incoming defects or your manufacturing process caused the defect.

Placing appropriate screening and testing processes to eliminate these defects can help, and driving your inspection and manufacturing processes to higher standards is absolutely necessary. The cost of poor quality not only means you have to build it twice for one sale but if this continually happens you will drive your customers to other suppliers. Again, the risk can be geopolitical and or geo economical. The lowest cost region may not be the highest quality supplier or the most stable environment in some cases. This should be factored into your Supply Chain network design. Also, what is your backup plan if you don’t?

2.  Poor quality (your customers)

a.  This is a very interesting and controversial area. What if your product meets all the specs provided by your customer but when inserted into the final product (assuming of course that your product is a sub assembly of the final product), your customer’s product does not work as needed. A great deal of engineering time and detailed testing on both sides occurs and without very clear-cut rules of engagement in these circumstances, resources will be spent and wasted for no revenue or profit. In this case, having your design team close to your customer location may be a benefit, but it may also be an inhibitor for cultural or political reasons. Careful thought must to go into this decision.

3.  Lack of credit

a.  This appears to be somewhat easy but continually comes up as an issue; a process should be in place that continuously monitors customer credit at point of order, point of manufacturing start (product customization if you have a postponement process), and at time of shipping / invoicing). With these three points you should be able to stop order entry, manufacturing or shipment if bad credit exists thereby minimizing your exposure.

b.  Credit problems and issues are not geopolitical / economic in nature necessarily; however, by keeping good electronic records you can measure your returns in terms of timing / frequency, company, and location. This creates a robust database that should help you determine areas of concern and put in place rules of engagement to minimize excess returns.

4.  Improper return information / location

a.  The proper return information must be on the invoice in case of a return so you can eliminate redundant transportation by receiving it at the wrong location.

b.  All return information must be correct and you can insure this electronically by pre authorization invoices that contain all the accurate shipping and invoice information along with a pre authorized shipping label.

Returns25.  Lack of automation – As this problem is pervasive across the supply chain we are going to address it in our next article on “enablement”.

6.  Fraud

The National Retail Federation estimates retailer fraud related loss at $8.9 Billion in 2012, ith 30% of fraudulent returns occurring at the end of the holiday season.

Often, retailers are unable or cannot resell returned merchandise and the cost is passed along the value chain – either to the customer or manufacturer – particularly when the merchandise is returned as defective.

As retailers deploy more sophisticated data analysis tools to help identify fraud practitioners, the risk of confrontation and possible workplace violence increases significantly at the customer service counter when a refund is delayed or declined. For online retailers, the physical risk is replaced by social media, brand and reputation, vulnerability. In the absence of a robust mitigation protocol, the risk to the business is significantly magnified well beyond the cost of a fraudulent transaction. It is very important to predict the unintended consequences of a fraud prevention-oriented return policy; plan well in advance how to manage a related event and perform well to prevent escalation.

Risks in this area are very high because it is all cost to your company, people and the customer’s perception. There is no value to a company’s bottom line due to a product return and the risks involved can be significant. These can be reduced by your network and crisis prevention design which in turn is a function of geopolitical, geoeconomic and geoenvironmental issues and concerns.

Review Parts I – V in this series:

The supply chain is made up of a sequence of highly inter-related serial and parallel dependent activities. The delivery portion of the supply chain is the last link

Supply Chain Resiliency – A series of short articles – Part IV: Make

Friday, August 16, 2013 – The supply chain is made up of a series of highly inter related and dependent activities. The decision to manufacture is a complex area, especially due to the make vs. buy component of manufacturing. You can now take all the supply chain resiliency issues involved in our previous sourcing articles and add them to this discussi…

Supply Chain Resiliency – A series of short articles – Part III: Source

July 12 2013 – The supply chain is made up of a series of highly interrelated and dependent activities. Sourcing is complex due to geo-economic and geopolitical risks, and climate challenges along with country specific rules, laws and regulations. Sourcing challenges also exist due to single supplier issues, poor vendor compliance and lead time issues.

Demand Planning – Part II of IV in Supply Chain Resiliency
Jun 27 2013 – Demand Planning – Part II of IV in Supply Chain Resiliency – By Robert Benny & Missan Eido – The supply chain is made up of a sequence of highly interrelated, serial and parallel dependent activities. Demand planni…

Supply Chain Resiliency – A series of short articles – Part I: Where to Look is a Critical Success Factor – Jun 19 2013 – Supply Chain Resiliency – A series of short articles By Robert Benny & Missan Eido From Jim Satterfield: As the President of Firestorm, I am pleased to introduce this Series Introduction and first article, …

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