Return to profit

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What happens when you discover, to your horror and great irritation, that your new mobile phone is faulty? Okay, it may be an inconvenience to you, the consumer, but for the retailer and for the manufacturer it’s not only an irritation, it’s a cost. And what’s more it’s a significant one.

According to the findings of a new report entitled ‘Reverse logistics practices in UK high street retailing’, commissioned by Royal Mail, the costs associated with handling returns of durable products are estimated to be four per cent of their sales value. As UK sales of durable products in 2002 amounted to e120 billion, a returns figure of four per cent translates into a returns value of e4.5 billion in that product area. What’s more the Waste Electrical and Electronic Equipment Directive (WEEE Directive), set to come into effect in August 2005, will make manufacturers of electrical equipment responsible for safe environmental disposal of their products at end-of-life.

The problem is, most supply chains are fairly well adept at getting product to the consumer in as an efficient way as possible, at the lowest unit cost per item moved. But, try moving faulty products, or excess stock, back through the supply chain and things start to look less smart, if not decidedly archaic.

What’s needed is technology enabled reverse logistics processes with increased sophistication at the stores level, increased use of backhauling to facilitate both economic and environmental gains along with a considered and coordinated returns management programme. This may sound daunting, but the associated cost savings through adopting a focused approach to this problem could be in the order of 20-40 per cent. And don’t worry, the 3PL sector and the consultancies are very willing to help.

In the US, far greater attention has been paid to this area, but looming legislation this side of the Atlantic will bring this issue sharply into focus at Board Room level – so, be prepared.

Nick Allen, Editor

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