Product Returns Processing, Case Study Example

In the introduction to this analysis of the “reverse logistics” related product returns processing, Stock and Mulki (2009) establish some of the parameters related to the scope and scale of their study. According to the authors, “the value of products being returned exceeds an estimated $100 billion annually,” a figure which equates to approximately 6% of sales (Stock  & Mulki, 2009). For mass merchandisers the percentage of products being returned annually is approximately 15%; for e-commerce retailers that figure jumps to 35% (Stock & Mulki, 2009). It is, perhaps, unsurprising that e-commerce retailers face a much higher rate of returned products, as customers do not have the same opportunities to view, try on, or otherwise test or asses products before purchasing as do those customers in brick-and-mortar stores. For retailers in all sectors, however, it is clear that the reverse logistics involved in effective and efficient return processes is of significant concern, as the manner in which these processes are implemented determines the degree to which retailers can recover the value of these products when they are returned.

Just as there are overarching differences between the way mass merchandisers and e-commerce retailers are affected by product returns, there are also a number of other differences related to the relative size of any given retailer or merchandiser.  Smaller operations may see a benefit in harnessing economies of scale by outsourcing their product return process to organizations devoted to the task, while larger operations are more likely to maintain their own in-house return processes. In either instance, the reverse logistics applicable to product returns typically involves the dame basic steps: as products are returned, they must be assessed by workers to determine whether they will be repaired, refurbished, discarded, or dispatched in some other manner. The primary consideration in whatever process are involved and whatever decisions are made regarding product returns is the amount of value that can be salvaged. Underpinning this larger consideration, however, are concerns about establishing and maintaining customer loyalty, avoiding circumstances in which customers abuse return privileges, and finding ways to minimize the number of products that are returned by customers.

In an effort to shine a light on this complex arena of competing pressures and fluctuating variables, Stock and Mulki assert that there are two main themes they will address in their paper: the first is related to the acquisition and analysis of empirical data that will provide greater insight into the reverse logistics of product returns; the second is an examination of hypotheses and conjunctive theories that can make use of such data in practical, applicable ways. The authors begin by providing a review of literature related to the reverse logistics of product returns, a task which leads them to conclude that the available empirical data is both outdated and insufficient to serve the burgeoning global marketplace. Following this, Stock and Mulki move on to a discussion of several hypotheses they believe are applicable to the issues of product returns.

In their discussion of various hypotheses, Stock and Mulki assert that one of the primary arguments related to the issue of product returns is whether or not organizations should maintain “separate supply chain channels for forward and reverse logistics” (2009). Citing a dearth of empirical evidence and a wealth of anecdotal evidence, Stock and Mulki claim that no clear consensus can be reached, as the weight of anecdotal evidence falls more or less evenly on either side of this argument. Because there is little hard evidence to support either position, the authors note that it may be possible that both approaches could work, given the right circumstances. Among these circumstances mentioned by the authors is the suggestion that having a “specific person” (Stock & Mulki, 2009) responsible for oversight of product returns processes may be at least as, if not more, important than whether or not a separate supply chain is used for reverse logistics.

Stock and Mulki offer a number of hypotheses related to the issue of product returns and the possible need for separate supply chains. Among these are the idea that product returns are usually handled at the management level; that a single individual is responsible for product returns; in the absence of a single responsible person returns are outsourced; most companies offer inadequate training related to returns; and retailers have a higher recovery rate as a percentage of cost than do manufacturers.  Beyond these hypotheses, the authors offer several more hypothetical constructs, each designed to frame a specific issue or set of circumstances related to product returns. In order to test these hypotheses, the authors used a series of mail surveys targeting retailers, wholesalers/distributors, and manufactures. Among their findings was that few businesses in each of these three categories maintained separate reverse logistics chains; most either handled returns as a subset of their forward logistics operations or, in a small percentage of cases, they outsourced their returns processes.

Among the most notable conclusions reached by Stock and Mulki was that product returns “still have not assumed a widespread high level of importance within organizations” (2009).  What their findings seem to make clear is that the reverse logistics system needed to keep pace with the growth of commerce on a global are lagging, and that this has a deleterious effect across all sectors of commerce. There is virtually no way to recapture the entire value of a product once it enters the return chain, and businesses have largely focused on increasing the value acquired from products in the forward chain while ignoring some possibilities for salvaging more value in the reverse chain. With the highest percentage of returns found in e-commerce, it is this sector that stands to gain the most from developing reverse logistics systems for product returns. As e-commerce continues to grow, and to erode the market share of brick-and-mortar retailers, it seems inevitable that the e-commerce sector will have to develop stronger reverse logistics systems. With this in mind, the only remaining question is how quickly the business in this sector will move to make improvements in their product returns systems.

References

Stock, J., & Mulki, J. (2009). Product returns processing: an examination of practices of manufacturers, wholesalers/distributors, and retailers. Journal Of Business Logistics, 30(1), 33–62.