Studies show that smart companies can significantly boost revenue.
High-tech companies invest a lot of time, energy and emotion in product innovations that will drive sales. Many look for opportunities to cut costs or reduce risks as well. But handling returned products or defective components feels more like a necessary evil – and not much fun to think about, compared to that exciting new gadget or software.
Improving reverse logistics can increase revenue up to 5 percent of total sales.
As a result, reverse logistics – returned products or components that can be plumbed for value – doesn't get the attention it deserves, even though it offers many opportunities for additional revenue. A recent Aberdeen Group study reports that the average manufacturer spends 9 to 15 percent of total revenue on returns. And improving reverse logistics can increase revenue up to 5 percent of total sales, according to the reverse-logistics consulting firm Greve-Davis.
If you handle reverse logistics properly, you can achieve the following:
- Capture revenue. Processing and preparing returned products for resale is important to your bottom line. The secondary market is more robust than ever, estimated at $15 billion in the United States alone. Reclaiming parts and even recycling can become new revenue sources as well. According to the Environmental Protection Agency (EPA), the metal reclaimed from 1 million cellphones (copper, silver, gold and palladium) is worth nearly $3 million (at 2011 metal prices), and it can be reused or resold to other companies.
- Avoid fines and penalties. State and federal agencies, such as the EPA, the Food and Drug Administration and the Consumer Product Safety Commission, can levy fines and penalties on firms that do not handle returns and e-waste disposal properly. Some 35 states have laws that affect returns management. Eleven of those states have banned laptop or desktop computer disposal in landfills and levied fines on manufacturers for computers tossed by their customers, even without the manufacturer's knowledge.
- Boost customer loyalty. A bad returns experience can trigger customer backlash, and companies are particularly vulnerable, given the digital weapons available to an irate customer. In contrast, best-in-class companies in reverse logistics enjoy a 12 percent advantage in customer satisfaction, according to the Aberdeen Group study.
Truly defective products represent just under 20 percent of the totals processed at a returns center, Greve-Davis says. Several other categories must flow through the supply chain in reverse: product recalls, end-of-life products (often trade-ins) and parts. Any one of these categories can be larger than customer returns and, perhaps more important, carry much higher potential liability for the company:
- Product recalls. While automakers and toymakers get the most media coverage, high-tech companies can face costly and damaging product recalls. Two of the most common issues facing the electronics industry are batteries that pose a health risk and potential fire hazards from faulty wiring or construction. A comprehensive reverse-logistics program can mitigate the potential financial and reputation risk.
- End-of-life programs. Some manufacturers offer trade-ins or other incentives for customers to return older, out-of-date products. This helps maintain brand image and gives the maker greater control over obsolete goods and their final disposition. Many companies reclaim spare parts or resell refurbished goods in the secondary market channels.
- Repair parts. Many global high-tech companies maintain field repair operations and forward stocking locations close to the customer. At companies with field repair operations, 16 percent of all parts are returned, says the Aberdeen study, and 25 percent are quickly inspected, repaired and sent back out to the field. Best-in-class reverse-logistics operations thus reduce the overall investment in parts inventory while maintaining top-notch customer-pleasing service.
For more about how high-tech companies can leverage reverse logistics and extract hidden values, download this white paper.