Lauro Diazzesati, Olivia Kussoy, Mike Lee, Datra Oliver, Felipe Caro.
As shelf space is a valuable, yet limited resource, products that retailers cannot sell (unsaleables) are an issue that need to be dealt with constantly. It is estimated that over $260 billion worth of products cannot be sold by retailers every year due to various reasons [1]. The leading causes of unsaleables are damages, discontinued or seasonal products, expired products, failed product launches, recalls, and excess inventory. Retailers that effectively manage their product returns to manufacturers can drive significant savings.
Neither retailers nor manufacturers have the specialization or bandwidth to deal with product returns (manufacturers deal with many retailers, and vice versa). Therefore, both outsource these tasks to specialized reverse logistics providers to assist with examining, categorizing, sorting, and finally disposing the product returns. For instance, Inmar (headquartered in Winston-Salem, NC, and the US’s most prominent player in reverse logistics) has 30 facilities across the country, each having approximately 300,000 square feet of floor space to handle returned consumer packaged goods, pharmaceuticals, automotive parts, and electronics. This type of arrangement is a win-win as it supports both sides (retailer and outsourced provider) to focus on what they each do best, while also keeping environmental safety and sustainability in mind.
For proper disposal, goods are aggregated at local retailers, often with a bin or collecting item on each site. These bins have nominal sorting requirements and they function as a repository for the retailer. After being locally filled, bins are consolidated at larger facilities. This process remains the same across seasons, but seasonal sales cycles greatly affect the items collected. Once at the vendor site, goods are sorted, inspected, and designated for repurposing (e.g., food products converted to animal feed products) or destruction (e.g., pharmaceuticals). During sorting, retailers may receive store credits for inventory returns. The entire process can be labor intensive.
A key opportunity in reverse logistics stems from the data that can be collected. Some vendors trace stock keeping units (SKUs) to see if certain stores are having higher than average damaged items, identify trends in packaging design that need to be addressed, and share trends in local demand. This data is captured and reported to manufacturers that, depending on the vendor, may even be able to access results in real time. Manufactures then use the data to improve decisions on product design, labelling, promotion, packaging, placement, and distribution. It is a way to extract information at a level of detail retailers cannot do independently, while also providing convenience and safe destruction. All of these efforts directly affect retailer and manufacturing profitability, and with increased competition for traditional retail margins, gleaning data from the reverse supply chain will be critical to staying in-step with the marketplace.
A number of challenges exist with this outsourcing model for reverse logistics. From the outsourced provider’s perspective, the vast quantities of products (SKUs), multiple disposition options, ever-changing inventory mix, and peak seasonality periods can lead to operational inefficiencies. For facilities that lack automation capabilities, some process steps must be done manually. Staffing the operations can also be challenging, especially during peak periods when overtime and borrowed resources from other facilities are necessary to keep up with the high volumes. Storage of inventory can pose additional logistical issues when capacity is close to full utilization. From the retailer’s perspective, getting real-time data may not be easy or possible at all, particularly for companies that do not have compatible platforms to access the outsourced provider’s systems. Investments in integration and standardization is paramount so retailers and manufacturers can learn from their failed products.
[1] Consumer Returns in the Retail Industry, NRF 2015 (accessed July 20, 2017)
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