Optimizing the B2B Reverse Supply Chain
by Akshay Hegde
Overview
Today’s e-commerce landscape has brought to light certain trends which can have grave repercussions not only for the operations of marketplaces, but also to a brand’s residual value recovery in the event of returns and refunds. The over-indulgence of e-commerce platforms in accepting customer returns, with platform-wide “easy return” policies has caused them much financial heartache. In pursuit of providing the best customer experience through returns and replacements, these firms have managed to allow inefficiencies to creep into the reverse arms of their supply chains.
The Trade-Off
One of the largest contributing factors to the escalating costs with reverse logistics is the operations model followed by many such e-commerce players. Aiming to drive up customer adoption and other sought after vanity metrics, we have seen return policies being made as liberal as possible, which ultimately doesn’t buy customer loyalty to the extent expected by such companies. One such operations model that limits the scope of hassle free returns is the just in time (JIT), zero inventory led model, where the platform takes a product on its books when an order drops for the same. In such a model, since there are two levels of transactions, return to vendor (RTV) policies are all the more complicated to implement. This leads to the marketplace having unsold inventory, and as it cannot be returned to vendors, leads to a huge amount of capital being held up.
Why continue having such inconsistent return/replacement policies that do not align with their own vendors and who is to recover the cost for such vendors if the RTV policies are heavily skewed towards customer experience?
Well, for starters, many of these firms have begun to realize the mistakes in such liberal return policies, that go the distance in protecting customers but fall short in protecting brands. Just recently, we’ve witnessed a major policy correction, with one of the largest e-commerce firms revising their return policies to shorten the window from 30-days to 10-days. This is a direct consequence of the existing gap in vendor-platform policies and in a frantic effort to improve efficiencies, such measures have finally sprung up. Interestingly, the distinction between return and replacement policies are never given due attention. This happens largely because of the failure of e-commerce platforms in making such nuances in vendor policies well known to their customers.
Trends Requiring Attention
There are numerous such trends in reverse logistics which mandate a deeper assessment into solving issues such as customer returns (where RTV is not an option), damages during transit, warranty replacement, etc. Furthermore, in case an RTV process is already initiated (because of any of the aforementioned reasons), the returned inventory may be unsellable with little residual value or may be one of those discontinued items with no market for it. When it comes to B2B e-commerce, the policies and operational models need to be even more refined so as to mitigate the necessity of dealing with the reverse logistics problems. In B2B e-commerce, returns are very tricky because of the large volumes of materials that are fulfilled; and when this is coupled with restrictive return to vendor policies of large national brands, it seems to suggest there might not be a single answer to such problems. Although the customer experience in secondary markets needs to match up to that in traditional markets, and easy return/replacement policies could help bridge this gap, having a ubiquitous return and replacement policy over an entire platform can prove to be quite detrimental.
Among other factors that would influence the reverse supply chain in times to come, some of the most impactful are “green” corporate and government policies, product Innovation life cycles, and fuel prices & transportation. Technology can be a big benefactor in bringing efficiencies to the reverse supply chains by providing capabilities to optimize over multiple channels, using secondary markets to boost brand growth, concentrating on net recovery optimization, and using real time data to influence supply chain decision making. When using secondary markets such as an online B2B marketplace like ShakeDeal, a structured and organized reverse supply chain will safeguard brand integrity of manufacturers and channel partners.
Case Study
A large distributor was disposing off/writing off a large portion of his inventory annually due to restrictive RTV policies. Here, the inventory has limited perceived value once returned since the products were either private label, made to order (MTO), or had exhausted shelf lives.
Solution
ShakeDeal proposed an added channel of sales approach to resell the inventory on an online marketplace. This solution enabled the business to liquidate such inventory directly to other businesses for reselling the residual value of inventory, and to those businesses who still perceive value in the inventory for end consumption.
Improvements
The use of technology has enabled multi-channel opportunities to increase lifetime value of products over an online marketplace. In this case, inventory will not be disposed off to land fills without realizing its intrinsic residual value. A huge percentage of this inventory has now gained recovery value. A renewed company outlook toward regulatory compliance and sustainability will improve its image, while profits will be added to the bottom line.
Conclusion
Technology can bring about radical improvements to the reverse logistics processes by improving visibility and real time decision making ability, net recovery optimization, and utilization of backhauls with RTV inventory, all the while lowering costs and building efficiencies into the system. In the end, a reverse supply chain pundit will have to focus on brand protection, streamlining the reverse supply chain, sustainability, and adequate material handling practices.
