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Predator or Prey?

Best practices to get the most out of your Reverse Logistics program and avoid falling prey to current trends.

By Jim Schumacher

Introduction:

Times change, industries change (think Blockbuster Video), consumers at the end of supply chains are demanding more.  Driving much of this change is the effect e-commerce is having on the retail supply chain.  If factors like these are making you feel cornered when it comes to managing the cost and complexity of reverse logistics, then you are not alone.   Unfortunately, the axiom “survival of the fittest” also applies to reverse logistics.  As a person responsible for managing this for your company you are faced with choices like “adapt or perish”, “fight or flight” or becoming “predator or prey”.

 

No different than with other aspects of your business such as marketing and or operations, adaptation or evolution should also be present in your approach to reverse logistics.  With the fast pace of technology and impact of e-commerce almost everywhere today, companies must adapt if not embrace the changing forces present in reverse logistics to remain relevant and competitive.  Choosing to look the other way or ignoring these forces can become a costly mistake. Where prior to the impact of e-commerce on reverse logistics you could be dealing with a 1%-2% cost of goods sold, the multiplier effect we see today from e-commerce can easily double or triple this cost.

Fortunately, DRS is here to help you continue as king of the jungle in your industry. We have put together an assortment of best practices and actual business cases for you to reference.

Recommended best practices from the experts:

Here are some of our favorite best practices to illustrate the impact that a sound reverse logistics program can have in helping you make more profitable decisions in running your reverse supply chain:

  • When was the last time you updated your returns policy? Retailers have certainly been active updating their returns policies to reflect such changes as e-commerce and haz-mat. Policy best practices include:

    • Ensure policy is current and updated regularly
    • Accepted by your trading partners
    • Audited for accuracy
    • Comprehensive to cover all your product types and most likely scenarios
  • Are you in control of your product’s disposition? The ultimate disposition of your product should be your decision. 20 years ago, manufacturers were concerned with keeping their items out of 2 dozen flea markets.  Today, because of the proliferation of 3rd party resellers on sites like Amazon and eBay your product could be for resale out of thousands of garages and basements at any given time.  Best practices related to product disposition include:
    • Predetermine your items disposition beforehand by explicit direction in your policy, a prearranged return authorization or some other means
    • Avoid ambiguous dispositions like “destroy in field” or “donate”
  • Are you recovering as much residual value as possible? This is directly related to the best practice of controlling the disposition of your product. If there is residual value to be recovered most likely somebody is recovering that value.  Why not ensure through the control of your returned items that somebody is you and your company who benefits from any value recovery through liquidation, repurposing or recycling?  Best practices related to value recovery include:
    • Commit to a multifaceted disposition process that can positively impact your company’s bottom line
    • Don’t go at it alone – work with a trusted 3PL who can customize a program to meet all your needs and provide the expertise and experience you may be lacking
    • Understand that reverse logistics is a constant need to address and that you and your customers will both benefit from a disciplined, well-structured approach
  • Are you paying retailers claims with no questions asked? A longstanding paradox of reverse logistics has been that returns can be extremely transactional and these transactions can be highly inaccurate. Best practices related to claims processing include:
    • Validate quantities returned to quantities claimed
    • Audit claims to ensure correct item pricing and fees are included
    • Pay only on items returned and not just claimed
    • Get repaid for wrong items and fees claimed
  • Are you analyzing what is coming back, from where, and why? Analytics is your tool for adapting to survive in reverse logistics. What gets measured improves. If you are not learning from and adapting to this information you most likely don’t know your true cost of returns.  Often this blind spot can be a competitive disadvantage to your peer companies who have this information and understanding.  Best practices related to analyzing returns data include:
    • Limit the return of in-date, undamaged product that you are paying for
    • Identify and prevent the return of diverted product
    • Understand the root causes for the return (promotional, packaging, other) and preventing reoccurrence
    • Implement a continuous improvement mindset and philosophy and reinforce with cross functional teams
    • Collaborate both inside and outside of your organization with the information and knowledge gleaned from your program to reduce the incidence of returns
    • Use your improved understanding of the true costs related to your returns and the potential benefits directly tied to program improvements to secure senior management support for additional reverse logistics related projects

See our best practices in action:

Interested in learning more from specific examples?

If you are interested in looking to improve your returns management process, financial reconciliation, remarketing results, dealing with a recall or looking to assess your supply chain for areas of opportunities, take your pick from the links below.  DRS has been there assisting companies like yours for 25+ years and can customize a solution to meet your exact needs to help you save money and remove costs from your reverse supply chain.

Adaptation can keep your company’s supply chain from falling prey to these fast-moving developments in reverse logistics.   Now is not the time to be reducing and or even eliminating your focus on reverse logistics.  This is the best time to do just the opposite.  It’s not time to run, it’s time to attack this head on.  Don’t be prey, be the predator in this instance.  Trust me, you will like what your bottom line evolves into.

 

 

 

Is your brand equity a true concern of 3rd party resellers?

Is your brand equity a true concern of 3rd party resellers?

By Jim Schumacher 

How secure is your brand’s equity when it comes to your items finding their way onto the 3rd party reseller’s market via returns or product discontinuation? As we close the books on Q1 2018 and peak returns season, you may be thinking that The Amazon Effect has done its worst to your bottom line and now there is some time to shift your focus away from the process of returns.  Do not be fooled!  In today’s e-commerce environment, protecting your brand’s equity is a year-long process and you must constantly adapt to the shift it has developed around all aspects of buying, receiving and returning of your products.

 

With the continued growth of e-commerce companies like Amazon and Walmart have taken steps to better enforce product quality but is this really their biggest concern once your product is in the hands of the 3rd party resellers?  It is these resellers and not companies like Amazon who are doing the transacting with your products and they are finding ways to circumvent quality at the expense of remaining relevant in what is becoming a very cutthroat side of the business.   So even though you may feel some sense of relief that these companies have taken steps like enforcing gating on a variety of its more sensitive products, there are many factors that take precedence in the reseller market you may not be aware of.

 

Just like any other market there is a grapple between competitors fighting to be number one with your brand taking on the repercussions, risking your brand recognition and quality.

 

  1. Amazon has created more restrictions for their sellers but are you, the manufacturer a priority?

 

The Amazon marketplace is by far the leader and innovator in the space of e-commerce but extensive issues with fraudulent sellers and counterfeit products from China has forced them to tighten the reigns so to speak just in the last year. Efforts to ensure that an assortment of items have been regulated (gated) have helped galvanize quality but this is still a developing process.

 

Amazon makes it very clear that their priority is the customer and the gating they have created comes from the result of its customer base responding to the receiving of expired, false or obsolete products. The sellers take a second seat to Amazon’s focus. Sellers truly consider themselves as being “all alone” when it comes to selling through Amazon. This has led to competition figuring out ways to meddle with the opposition’s products by defamation of quality and service in several different ways.

 

  1. This battle between sellers being waged on Amazon has your product caught right in the middle.

 

Being a reverse logistics company, several concerns come to mind. Most prominent is the security of retailer’s reverse logistics operations to ensure goods are handled properly in relation to exiting the primary supply chain because of damages, discontinuation or expiration. For example, what happens to your item when packaging fails to survive the rigors of the supply chain?   Amazon does offer packaging options but states that this does not include excess actual packaging materials, such as hard plastic clamshell casings, plastic bindings, and wire ties which may be a necessity depending on the item.

 

With reseller’s operations ranging in size and capability it’s hard to say how items are being handled from the perspective of packaging triage, let alone temperature control or other aspects of your item’s quality that may or may not be adhered to.

 

Like the way that Google defines how articles are found in their searches, sellers on Amazon are having to learn (on their own) how to get their products and services listed on the first page of listings related to their products. This often leaves the sellers doing whatever it takes to be first including relying on price to improve their search results regardless of quality.  Monitoring the feedback of some online consumers is not unheard of for product that was once packaged in a carton or bottle to be delivered in a plastic baggie.

 

More desperate sellers often report their competition for not having an authentic product which leads to the suspension of certain items until the quality can be investigated. As a manufacturer if your products are finding their way into this 3rd party market, their reputation is at the mercy of a system that is still far from being perfected. Which sellers are legitimate and which are illegitimate? At the moment it’s hard to define and the good name of your product could be caught in the middle.

 

 

  1. Amazon is improving its gating but what about their competitors?

 

Where it is encouraging to see that Amazon is working to ensure that its sellers are providing a better-quality product with gating what can be said about competitors like Walmart, eBay and Newegg?  It’s not likely that sellers who have found resistance from Amazon are giving up. Just because they have been removed from Amazon does not mean there is lack of opportunity elsewhere.  With companies like eBay, Walmart, and Newegg looking to stay competitive with Amazon, not much now is known about their specific efforts around gating currently.  What is known is that they are more than happy to coax a reseller away from Amazon and into their platform.   Knowing that there are additional avenues for this risk to your brands to perpetuate online only adds to the importance of securing your items and not leaving your brand’s good name to chance.

 

 

  1. What can be done?

 

Make certain that your reverse supply chain is secure so there is less opportunity for your items to find their way into the growing universe of independent 3rd party resellers using platforms like Amazon, eBay and others for the unauthorized reselling of your product.  E-commerce is changing the rules of reverse logistics.  If you are not keeping up with these changes you are putting the equity of your brands at risk.  A full service, reverse logistics solutions provider like DRS Product Returns can help you to assess any risk in your reverse supply chain and create a cost effective solution to address this increasing burden on manufacturer’s bottom lines.  Your brands are worth it so contact DRS today to learn what can be done to address this situation.

Unsaleables Management Program Competitive Benchmark Report

 

August 7th, 201x

 

Background

Benchmarking is a highly valued way to assess a company’s performance to identify opportunities and trends that currently exist. The following is a redacted benchmark report from one of our larger clients (Company X) as its related to their unsaleables management program and how DRS Product Returns identified opportunities to implement in their process to drive improvements and significantly lower this cost.

Call to Action

Before reviewing this report, ask yourself the following questions; are your unsaleables costs increasing and you are not sure why? Is your unsaleables management program on par with your competitive peer set?  If not, are you putting yourself at a competitive disadvantage?  Are you adapting to changing forces in the reverse logistics marketplace like the “Amazon effect” appropriately and fast enough to not lose more profitability than necessary?  A benchmark study from DRS could be the ideal place to begin your series of corrective actions to address any of these opportunities head on.

1       Objective

Compare Company X’s unsaleables management program (overall approach, practices, policies and rates) to other best-in-class CPG unsaleables management programs.  By identifying how your program measures up against other existing programs, this report will highlight any gaps in your current program and provide you with high level recommendations to address these opportunities.

2       Executive Summary

No-return Adjustable Rate Programs (ARP) based on a shared responsibility approach, pressure to deliver new item innovation, product stewardship, sustainability and disposal of potentially hazardous items at retail are just some of the forces being exerted on CPG unsaleables management programs today.  To have a best-in-class approach to the management of unsaleables, CPG manufacturers must continue to evolve and adapt to these forces, which are only becoming more and more complex over time.  As financial pressures and expectations mount, progressive CPG companies look towards their unsaleables management program as a means of establishing a sustainable, competitive advantage.

With your recent acquisition, it is a positive development for your organization that interest in, and visibility to unsaleables management has been increasing as of late.  With your larger size, scope and scale in the OTC landscape, upgrading your unsaleables management approach is necessary for Company X to address your current competitive disadvantage as it relates to unsaleables management.  Gaps identified below are compared to other best-in-class ARP manufacturers, with a focus on your Segment X competitive set.  Recommendations are provided as a means for Company X to close any gaps identified so that Company X’s unsaleables management program can move closer to best-in class during this strategic and pivotal time with the recent integration.  By improving your overall unsaleables management approach now, improved financial performance as it relates to your unsaleables management through a best-in-class program is highly attainable.

Company X’s first opportunity to bring its program towards a best-in class status is to xxxxxxxxx. The rationale for xxxxxxxxx is that it will ensure that your program remains xxxxxxxxx.

As a by-product of your xxxxxxxxx, implementing and embracing an ongoing xxxxxxxxx related to your unsaleable management strategy is your next opportunity as it relates to your unsaleables management program.  This xxxxxxxxx should be the means to xxxxxxxxx, and what impact this has on your unsalable rates.

Building upon this specific opportunity, Company X should look to leverage xxxxxxxxx to reduce your incidence of unsaleables.

In many instances, a well-managed and executed unsaleables program that contains these elements can deliver year over year bottom line profit improvement in the $x00,000 – $x,000,000 range or greater, for a company similar in size and scope to Company X.  Many times, this reduction to your cost of doing business is the equivalent to the profit contribution that would be associated with the addition of a new small to mid-size customer or brand extension / acquisition!

This should then set the stage for Company X to complete xxxxxxxxx, and so on.  Most well developed xxxxxxxxx programs will support the statement that xxxxxxxxx.

As you constantly xxxxxxxxx and are also xxxxxxxxx with your retailer partners on many of these improvement opportunities, their overall unsaleables incidence with your products is also decreasing over time.  This in turn will make you a more valued partner as your focus and resources (funding) can be shifted away from processing returns, reconciling deductions and redeployed towards an enhanced, customer centric operating model.  In this new model, Company X can support driving more profitable sales growth because of your new approach to unsaleables management, putting you on par with other leading CPG ARP manufacturers and giving you a competitive advantage over those manufacturers who still choose not to participate in such a strategic approach to managing their unsaleables related expenses.

3       Unsaleables Management Program Benchmarking

3.1       Overall Approach & Practices Related To Unsaleables Management Overview

Factoring in your previous, xxxxxxxxx with your xxxxxxxxx, we would have to grade your unsaleables management program xxxxxxxxx.  When we narrow our focus to your competitive set in the Segment X space, you are operating at a distinct competitive disadvantage.  The recent activity around xxxxxxxxx, and including the integration of the Acquired Company Y’s business units into this new environment are all positive steps in the right direction to bringing your program up to par in 201x.

3.1.1         Highlights

  • Updating your xxxxxxxxx
  • Company X’s decision to xxxxxxxxx

3.1.2         Gaps

  • Historical xxxxxxxxx
  • Lack of xxxxxxxxx
  • Company X’s lack of xxxxxxxxx for xxxxxxxxx
  • Using xxxxxxxxx and xxxxxxxxx towards lowering your incidence of unsaleables

 

3.1.3         Recommendations

  • At a minimum, continue xxxxxxxxx so that you bring it up to par with your competitive set to help reduce your annual unsaleables expenses
  • To further maximize the benefit (cost reductions) to Company X, you can xxxxxxxxx could reduce your unsaleables expense during this span more than $x,000,000.
  • Xxxxxxxxx to have more latitude in their Brand’s P&L for investment in top line sales growth
  • Implement xxxxxxxxx to provide greater xxxxxxxxx, both inside and outside of your organization
  • To assist in further integrating xxxxxxxxx, utilize xxxxxxxxx
  • Where not limited to, this is especially important in the X Class-of-Trade given your product line and go to market strategies, as most leading retailers in this class are willing to engage in xxxxxxxxx in your end to end supply chain.  Many best-in-class programs are xxxxxxxxx with at least 6 different retail partners annually.  Additionally, many best-in-class manufacturers will xxxxxxxxx

 

3.2       Unsaleables Management Policies Overview

Considering the recent xxxxxxxxx.  All indications are that Company X is xxxxxxxxx to be in line with other best in class CPG/OTC manufacturers.

3.2.1         Highlights

  • Xxxxxxxxx

3.2.2         Gaps

  • Xxxxxxxxx

3.2.3         Recommendations

  • Utilize xxxxxxxxx
  • Include xxxxxxxxx
  • Reconsider xxxxxxxxx

 

3.3       Unsaleables Management Rate Overview

After xxxxxxxxx your xxxxxxxxx rate is above the average in this benchmark study (see table below).  When we focus on your direct competitive set, you are xxxxxxxxx.

3.3.1         Highlights

  • The fact that Company X has xxxxxxxxx is a step towards getting your program xxxxxxxxx
  • Incorporating the xxxxxxxxx

3.3.2         Gaps

  • The fact that xxxxxxxxx is questionable as this indicates that xxxxxxxxx you are xxxxxxxxx
    • In the period since xxxxxxxxx, more of your items are xxxxxxxxx which should translate to xxxxxxxxx
  • Recent consultation revealed that Company X is taking an approach where you are xxxxxxxxx and doing so under a potentially flawed approach when compared to industry best practices. Best-in-class ARP rate calculation will take into xxxxxxxxx.  In the shared responsibility model, if xxxxxxxxx is reflected as such in your rate calculation.  Conversely, if the data indicated that there was xxxxxxxxx would be less favorable to Company X as you would xxxxxxxxx within the industry standard modeling
  • Lumping all other categories outside of your Nutritional business unit into one rate is not a recommended best practice
    • Even if your current data supports xxxxxxxxx, I would suggest that you xxxxxxxxx, leaving the door open for xxxxxxxxx moving forward, with xxxxxxxxx as warranted
    • DRS is only aware of xxxxxxxxx. Their program is xxxxxxxxx, they xxxxxxxxx and their rate is roughly xx% lower than your current rate of xx%
  • Below is a table reflecting current ARP rates across numerous ARP manufacturers and their corresponding category rates (Note – actual table redacted from sample report)
    • Rates listed with a “bold” font Comp are for categories that are direct competitors of Company X categories
    • Rates listed with an “un-bolded” Comp are similar to some of your categories
    • Rates with no “Comp” designation are for additional xxxxxxxxx categories not directly related to Company X’s categories but are provided as an additional point of reference
  • If we compare your current ARP rate of xxx to the overall average, you are approximately xx% higher
  • Compared to your more direct competitive set, you are roughly xx% higher than the average

3.3.3         Recommendations

  • Company X should consider xxxxxxxxx (refer to section 3.1 for more specifics), rooted in xxxxxxxxx, to enable Company X to benefit from the reduction in this expense.
  • Doing so would be a step in the right direction to not only bringing your program in line with best-in-class programs but would also enable Company X to bring their reimbursement rates more in line with other best-in-class programs

 

4       Conclusion

Unsaleables management continues to evolve over time, bringing forth new challenges and opportunities that need to be addressed.  A well-defined unsaleables management strategy allows a CPG manufacturer to better understand the forces in their end-to-end supply chain that are adding to their unsaleables liability and react to these forces in such a way that they are controlling, and in many instances, reducing these costs over time.    The fact that Company X has engaged DRS Product Returns in this exercise is a great next step in your overall approach to unsaleables management, however, you are only scratching the surface of what a well-managed ARP based unsaleables management can deliver to Company X in the way of significant annual savings through a reduction to you unsaleables expenses.

Company X has a unique opportunity at hand where it can xxxxxxxxx, at a time when your business is dramatically changing with the integration of the acquired company’s business.  For several years now, Company X has xxxxxxxxx.    Now is the time to xxxxxxxxx with a well-developed unsaleables management strategy that can add hundreds of thousands of dollars to your bottom line with no top line sales risk each year with the proper management and oversight.

___________________________________________________________________________________________

Contact DRS Product Returns to schedule your custom benchmark study today.

jschumacher@drsreturns.com

(610) 327-1133

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