Returns have been regarded as a "necessary evil" in retail and CPG for long enough. Competing in today's rapidly evolving commerce requires seeing reverse logistics as more than just a cost of doing business. Top-performing retailers and manufacturers are realizing this and have begun connecting reverse logistics to the overall business as a performance factor that impacts profitability and marketplace success.
To accomplish that, there are some necessary fundamental elements: Connection to profitability, data collection and analysis, and shared responsibility across business units.
Connect Returns to Profitability
It's striking how many companies don't view reverse supply-chain metrics as product-performance factors.
Traditionally, forward logistics have been connected to sales and margin, with reverse tied in as a business cost. To be competitive in today's marketplace that will have to change.
Reverse supply chain must be seen as a product performance factor. From a cost perspective, realistic consistency in profit & loss accountability relies on a full depiction of all actual costs associated with sales. Charging that cost to the business and not directly linking it to cost of sale leaves an incomplete gross margin picture. Limiting the focus on causes of returns limits the ability to recognize and avoid issues that hinder product performance.
Consider these performance factors:
- Seasonal returns data should contribute to forward planning for next season
- A product could have a sales slump that has nothing to do with the product itself: Damage from handling or packaging deficiencies causes negative sales impact and generates returns costs and losses that have nothing to do with actual product performance.
- Slow movement of returns through distribution centers can block the flow of forward product, occupying space that could be used by marketplace-bound loads.
Responsibility and accountability for reverse-logistics-based business impacts can no longer be relegated only to supply chain. Acknowledging the impact of returns on other areas of the business means making relevant business units aware of the valuable information available to them.
One Fortune 500 CPG manufacturer, an Inmar client, created a cross-functional unsaleables advisory board including representatives from quality, product supply, research & development, sales and finance. Sharing information across the continuum provides those areas with constant, complete product performance visibility across the enterprise, including supply chain as a performance factor. The relationships built through the advisory board help to keep unsaleables top-of-mind across the enterprise.
Data Acquisition and Analytics
Collecting and analyzing returns data is building the agility to minimize or contain issues. More importantly to profitability, this allows you to plan ahead for improvements or even make mid-course adjustments during a launch, season or promotional period.
Connecting returns data to other parts of the business means you have to have good data collection capability. Gathering information on reason for return, damage assessment, packaging, etc., is essential to the clearest possible picture of what a product is doing in the marketplace.
There are some eye-opening examples of this in action. Through a new data-driven reclamation program, one top-20 grocer Inmar works with has cut the amount of returns going to destruction by 48% and has instituted a vendor score card through which they can evaluate specific vendors on common data points for reduction of unsaleables. Another one, a top-10 national retailer, projects as much as $450 million in annual savings from a major unsaleables initiative fueled by data gathered and benchmarked against their industry peers.
What are the data telling you? What does it mean to the whole product-performance continuum? Who knows about it? You need data and analysis to understand what the data tells you and to build the relevance to other areas of the business where changes may have to be made.
What are your challenges with making returns relevant to the rest of your company? Tell me about it in the comments section below.