supply chain

essay

22 S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 8 scmr.com

DEL

I

VERY RETURNS PACKAGING E-COMMERCE OUTSOURCING

THE
CIRCULAR
SUPPLY
CHAIN

t’s a law of gravity that what goes up must
come down. The corollary for e-commerce
is that much of what goes out will come

back—think of it as a circular supply chain.
Or, as the Wall Street Journal put it last Febru-
ary: “Retailers still celebrating their strongest
holiday sales in years now face the less-pleas-
ant task of disposing of billions of dollars in
returned merchandise.”

In the same article, Zac Rogers, an opera-
tions and supply chain professor at Colorado
State University, estimated that post-retail
sales, which includes returns and over-stock

BY JUDD ASCHENBRAND, MICHAEL MIKITKA,
TONY SCIARROTTA AND BOB TREBILCOCK

The boom in e-commerce has led
to a record number of returns. How
is that affecting supply chains and
what are the best practices amongst
industry leaders? To find out, SCMR
partnered with the Reverse Logistics
Association and WERC to survey our
readers and their members.

I

scmr.com S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 8 23

Judd Aschenbrand is the director of research for Peerless Research Group and can
be reached at jaschenbrand@peerlessmedia.com. Michael Mikitka is the CEO of the

Warehouse Education Research Council, or WERC, and can be reached at mmikitka@
werc.org. Tony Sciarrotta is the executive director of the Reverse Logistics Association and

can be reached at tony@ria.org. Bob Trebilcock is the editorial director of Supply Chain
Management Review and can be reached at btrebilcock@peerlessmedia.com.

24 S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 8 scmr.com

Reverse logistics

items, is growing at an estimated 7.5% a year. Mean-
while, Optoro, a third-party logistics provider, estimated
that roughly 13%, or $90 billion, of this year’s holiday
sales, would pass through the reverse supply chain by
the end of February.

While that estimate includes all verticals, in some
fashion categories, such as shoes, the returns rate is esti-
mated to be as high as 70%. Amy Augustine, the senior
manager of reverse logistics for U.S. Cellular, estimates
that her organization handled nearly 550,000 returned
electronic devices and accessories in 2017 (see sidebar).
Those devices all had to be shipped, received, inspected
and resold or disposed of in a way that delivers value to
the organization.

At U.S. Cellular, reverse logistics is a mature operation.
Augustine has been in her role for five years, with clear
lines of responsibility. Not only does she have a
team reporting directly to her, there is a line of
command to the C suite. “Our leadership is aware
that there is a cost associated with reverse logis-
tics,” says Augustine. “They want to understand
the holistic picture from soup to nuts.” Augustine
points out that reverse logistics was cash flow posi-
tive last year.

But is U.S. Cellular the exception or the rule?
Do most organizations have an executive who
owns the reverse logistics process? Have most
organizations implemented best practices for
handling and disposing of returns in a manner
that delivers value? Is the executive suite aware
of the costs and potential revenue to be gleaned
from returns? And, if not, are organizations pre-
paring for the future or just muddling through?

Those are among the questions the Reverse
Logistics Association, Supply Chain Management
Review and WERC set out to answer in a
recent survey of readers and members (see
“About our research”).

Our bottom line: Organizations like U.S. Cellular
that are paying attention to returns are realizing a ben-
efit that either adds to or minimizes the hit to their
bottom line. At the same time, the U.S. Cellulars of
the world are the exceptions and not the rule as too few
organizations are devoting sufficient resources to their
reverse logistics processes.

The who’s who of reverse logistics
One of the truisms of business, attributed to management
guru Peter Drucker, is that what gets measured gets man-
aged. Now, truth be told, Drucker went on to add that
the practice is true “even when it’s pointless to measure
and manage it …” We would argue that when it comes to
the sheer volume of returns coupled with the growth of
e-commerce, failing to measure the logistics, labor and
revenue associated with reverse logistics is far from point-
less—it’s no longer an option.

Survey respondents do recognize that when done right,
reverse logistics delivers value to the organization. Nearly
two-thirds, for instance, cited improved customer service
and satisfaction as a benefit of their reverse logistics pro-
cesses, followed by less waste (40%) and tangible cost
savings (36%) At the same time, just 60% said that reverse

logistics was extremely important (26%) or very important
(34%) to their company. You have to wonder why.

The first step in raising the visibility of returns is having
someone responsible for the process. Yet, based on survey
responses, in many respects returns and reverse logistics
is an orphaned function, with no one clearly claiming
parental responsibility. Only 17% reported that they
had a department dedicated to reverse logistics and

FIGURE 1

How important is reverse logistics
to your organization?

Extremely important 26%

Very important 34%

Somewhat important 28%

Not very/Not at all important 12%

63%

40%

36%

33%

32%

27%

20%

15%

Improved customer service/satisfaction

Less waste

Tangible cost savings

We’ve improved inventory tracking

We’ve improved product quality/design

We’ve improved packaging

A reduction in labor/man-hours

Other

scmr.com S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 8 25

another 16% responded that reverse logistics was organized
under a single group or department—which might have other
priorities. The latter ranged from logistics (31%) to distribu-
tion (16%) to supply chain (14%) to sales (7%). Nearly 60%
responded that reverse logistics is handled across more than one
department, ranging from logistics (55%) to sales (30%) to finance
(14%) to product marketing (7%).

The titles of respondents, which ranged from corporate
directors to operations managers to purchasing manag-
ers, reflects that diversity. Indeed, only 9% of respondents
were managers or directors of reverse logistics. You can read
more about the breakdown of respondents in the “About our
research” sidebar.

Perhaps the most telling response was that more than two-
thirds of respondents (68%) said that no one at the corporate
level in their company was responsible for reverse logistics. Nor
are senior leaders overseeing the process as a rule: Only 15%
of the reverse logistics managers reported to a vice president of
operations while only 13% each reported to the CEO or presi-
dent and only 9% reported to a vice president of supply chain.

Rather, the responsibility for reverse logistics was largely
doled out to department managers (44%) or supervisors (13%)
in logistics, warehousing, inventory management and other

departments associated with traditional supply chain manage-
ment functions. Senior leaders at the president/CEO (16%) or
vice president (18%) level accounted for just over one-third of
respondents. The list of titles to whom the individual in charge
of reverse logistics reported was equally diverse, with some 26
titles; the question of who else was involved in reverse logis-

FIGURE 2

Does your company have someone
on a corporate/C-level who is
responsible for reverse logistics?

Peerless Research Group (PRG)

Yes 32%

No 68%

About our research

This research was conducted in January 2018 by Peerless
Research Group on behalf of the
Reverse Logistics Association,
Supply Chain Management Review
and the Warehousing Education
and Research Council. The study
was conducted to better under-
stand how organizations are han-
dling their reverse logistics opera-
tions. The results are based on 272
qualified respondents and has a
margin of error of +/- 6.1%.

R e s p o n d e n t s re p re s e n t e d a
broad range of titles, including cor-
porate/divisional director (11%),
VP/general manager (14%), logis-
tics/distribution director/manager
(19%), warehouse/DC director/
manager (8%), supply chain direc-
tor/manager (7%), operations direc-
tor/manager (7%), reverse logistics/
returns director/manager (9%) and
purchasing director/manager (2%).
An additional 23% of respondents
listed their title as engineer, inven-
tory control manager, logistics su-
pervisor, owner, product engineer,
purchasing and logistics manager,
sales or shipping supervisor.

More than one-third of respon-
dents were manufacturers (34%),
followed by 3PLs and transporta-
tion/warehousing service providers
(33%), wholesale distributors (12%),
retailers (7%), e-tailers (6%) and
consultants (6%). More than one-
third (34%) listed their primary busi-
ness as business-to-business while
11% noted that they primarily sold
directly to consumers; the remaining
55% sold into both channels. The
average revenue of respondents was
$862.7 million, with 27% indicating
revenues of more than $1 billion; at
the other end of the scale, 37% indi-
cated revenues of less than $50,000.

26 S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 8 scmr.com

Reverse logistics

tics operations produced a list of 50 other titles.
The impression is that while the number of returns

continues to grow, reverse logistics is largely in the hands
of mid-level managers, with responsibility spread across a
multitude of departments and with little oversight at the
senior level.

Returns basics
The “make or buy” decision could be one of the most
important decisions related to any logistics or distribution
function. In the case of reverse logistics, more than two-
thirds of respondents (68%) are handling their returns
operations in-house and another 2% indicated that they
outsource now but plan to pull those tasks back under
their control. Meanwhile, 13% responded that they out-
source all of their reverse logistics operations and an
equal percentage outsource some tasks but keep others
in-house. Only 4% of those who currently do it in-house
plan to outsource to a 3PL in the future.

Why do it yourself? More than half (54%) said it
allows them to keep better control, while 51% said they
can be more responsive to customers, 47% have the
resources to handle in-house and 45% believe they can
do it for less expense.

Of those currently outsourcing, 60% said it is not their
core competency and an equal percentage believe it’s more
cost-effective to outsource. Interestingly, 38% believe that
a 3PL can be more responsive to customers, 33% said they
just don’t have the resources or labor to do it in house, and
25% are limited by space in their facilities.

Regardless of who handles returns, a surprising 39%
of respondents said they have no visibility into returns—
they just show up. A similar number (38%) receive sched-
uled reports and 32% track point of sale information at
their returns center.

More surprising, 40% of respondents couldn’t deter-
mine how much reverse logistics is saving their company
and another 36% aren’t sure. Only 24% said they were
able to determine how much their reverse logistics opera-
tion is saving their company, with an estimated average
annual revenue savings of 16.5%.

Some 44% of respondents accept returned items at a ful-
fillment or returns center, and another 15% of respondents
said they were 3PLs who handle reverse logistics tasks for
their customers, presumably at the 3PLs distribution center.

Three-fourths of respondents don’t expect that to change in
the next two years.

More than 70% of respondents are collecting information
regarding returned items, and another 15% say they some-
times collect information. In fact, only 11% said that they
never collect information about returned items. The most
common collected data among retailers (R) and manufactur-
ers (M) included who is returning the item (81% – R, 92%
– M), the model number (79% – R, 81% – M) and the date
sold (60% – R, 64% – M). Retailers were also collecting if the
customer is a repeat returner (60%), where the item was pur-
chased (44%) and how the item was purchased (35%), while
57% of manufacturers were also collecting the serial number.

The number one reason for returns, noted by 59% of
respondents, was defective merchandise, estimated to
account for 16.3% of returns. Forty-two percent of respon-
dents identified buyer’s remorse as a reason for returns while
29% noted that the product wasn’t what the customers was
expecting or that the product had been misrepresented as a
reason for returns.

The most common challenges associated with process-
ing returns: Damaged goods (52%), no reason given for a
return (40%), missing parts (38%), incorrect or inaccurate
manifests (36%), and a reverse logistics process that needs
improvement (33%).

Last, respondents are utilizing a multitude of channels
for the disposition of returned items that are in re-sellable
condition, ranging from putting the item back on the shelf
or a liquidation sale (both at 56%), selling to a discount
retail chain such as Big Lots (21%), auctioning off inventory
(18%) and utilizing a dedicated page on the company web-

FIGURE 3

Are you able to determine how
much your reverse logistics
operation is saving your company?

Peerless Research Group (PRG)

24%*

Yes

40%

No

36%

Not sure

* These companies claim their reverse
logistics operation is yielding, on average,
revenue savings of 16.5% annually.

scmr.com S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 8 27

site (9%). Other channels mentioned included charitable
donations, outlet stores, refurbished and discounted, sell-
ing or giving away to employees and destroying.

Digital returns
Few of us would challenge the notion that e-commerce
is affecting the way we do business and order fulfillment.
Given easy return policies, there is certainly the perception

that e-commerce is having an impact on reverse logistics
processes. That is borne out by the 75% of respondents who
said that the number of returns they are dealing with has
increased and that e-commerce has affected their ability to
manage their reverse logistics operations (39%). Only 28%
of respondents indicated that their reverse logistics platform
is very prepared to handle a growing e-commerce business,
while 53% said they are
somewhat prepared.

At the same time, 62%
of respondents said that
e-commerce is not chang-
ing the way they process
returns at all or not very
much. Another 22% said
that it is only changing
their processes to some
extent. Only 16% said that
e-commerce is changing
their reverse logistics pro-
cesses to a great extent.

Of those who believe that e-commerce will affect their overall
business operations in the next two years, 57% believe they
will improve while only 3% believe they will deteriorate.

Of those respondents making plans to deal with more
returns in the future, 26% are increasing their ware-
house space, 22% are adding part-time labor and 16%
are adding full-time labor, 22% have set up a dedicated
department to handle e-commerce returns and 11% are

outsourcing the function.
Given that e-commerce fulfillment has had

a tremendous impact on order fulfillment and
transportation strategies, we believe that it is only
a matter of time before reverse logistics organiza-
tions will need to rethink their operations.

The Internet of Things (IoT) is also heavy in the
supply chain discussion about the future. When
it comes to return rates, only 20% of respondents
believed that IoT is a driver to a great extent (7%) or
to some extent (13%). The vast majority, 70%, said
that it is not having much, if any, impact and 10%
don’t yet have an IoT strategy.

Those who do think that IoT is affecting their
business said they are getting more analytics and
data about sales, that IoT is providing more trans-
parency and that they are using IoT data to predict

and resolve failure events before they become an issue,
reducing the need for returns.

Looking forward
Whether your organization is a manufacturer, wholesale
distributor, retailer or e-tailer, returns are ingrained in the
customer experience. Whether it’s the ease of doing a

return with Amazon, lib-
eral return policies from
fashion and apparel com-
panies or the fact that
service on electronics
and appliances is often
done by third parties,
business customers and
consumers alike judge
the companies they do
business with by their
returns experience.

Our survey respon-
dents clearly recognize

FIGURE 4

How do you handle refurbished and returned
items that are in re-sellable condition?

Peerless Research Group (PRG)

Liquidation sales 56%

Goes back on the shelf 56%

Sell to a discount retail chain
(such as Job Lot, Big Lots, BLINQ, etc.)

21%

Auction off 18%

We have a dedicated website/page
on our website for these items

9%

Other* 38%

* Charitable donations, clearance/outlet stores, destroy,
employee sale/giveaway, refurbished and discounted

FIGURE 5

How well prepared is your
reverse logistics platform to handle
a growing e-commerce business?

Peerless Research Group (PRG)

Very prepared 28%

Somewhat prepared 53%

Not very/Not at all prepared 19%

scmr.com S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 8 29

that fact: 75% agreed that reverse logistics is a key com-
ponent to a streamlined supply chain and only 3% stated
that reverse logistics is a waste of time. At the same time,
there was a complacency among respondents, where
only 24% disagreed with the statement that their reverse
logistics process needs to be re-engineered and only 39%
disagreed that their process for handling returns lacks
focus. Many more were in the middle—they didn’t know.
In an earlier question, only 33% indicated that their pro-
cesses needed improvement. Clearly—or maybe not so
clearly—it is a mixed bag.

When we asked what had changed in their reverse

logistics operations over the last two years, 56% said
that they had improved, but 41% said there had been
no change at all with the remainder saying they had
deteriorated. Driving those changes was a need to
improve efficiencies (53%), more demanding custom-
ers (44%), the volume of returns (38%), and the vol-
ume of sales (23%).

When we asked how their processes will change
over the next two years, we received almost identical
responses: 57% expect them to improve, through better
tools to forecast, track and manage returns. At the same
time, 40% expect no change at all, and the rest expect
them to deteriorate.

In reviewing the results, we came to two important con-
clusions. The first is that, as with U.S. Cellular, those respon-
dents with a focus on reverse logistics are realizing benefits
that have an impact on their bottom lines. Yet, too many
respondents indicate that they aren’t paying close enough
attention or don’t have enough resources. One example:
Liquidation was the second most common way of handling
returned items in a re-salable condition. While that might be
a simple solution, it’s leaving money on the table.

Those findings are consistent with the experiences of
the two organizations that co-sponsored this research,

WERC and the Reverse Logistics Association.
Tony Sciarrotta, the executive director of the Reverse

Logistics Association and a former reverse logistics
executive at Philips Electronics, was struck that more
than two-thirds of respondents (68%) said that no one at
the corporate level in their company was responsible for
reverse logistics. “During my 15 years at Philips, every-
one knew that I was accountable for returns,” says Sciar-
rotta. “If no one knows who is responsible, it doesn’t get
fixed.” He also noted that 42% of respondents said that
reverse logistics was somewhat or not very important to
their organizations. “What we do matters to your organi-

zation’s bottom line, and not enough respondents said it
was important.”

Michael Mikitka, the CEO of the Warehouse Educa-
tion Research Council, similarly noted the number of
respondents that said they lacked resources for their
reverse logistics operations. “Those who are paying
attention are experiencing a benefit, but not enough
organizations are putting resources into their opera-
tions,” he said. He also noted that 70% of respondents
said they were somewhat or not prepared to handle a
growing e-commerce channel. Yet, we all know that
e-commerce is only going to grow as a sales chan-
nel, resulting in even more returns. At the same time,
Mikitka saw the glass half full. “When those companies
that are doing it right see improvements in key areas
that affect their bottom lines, such as reducing costs
and waste, those are opportunities,” he said.

The second is to repeat the axiom that what gets
measured gets managed. When only 27% said they
could quantify the impact on annual revenues, that
means that most don’t understand their end-to-end
costs. That makes it difficult to justify investments that
can improve operations. jjj

* You can read the complete survey results on scmr.com.

When we asked what had changed in their reverse logistics operations over the
last two years, 56% said that they had improved, but 41% said there had been

no change at all with the remainder saying they had deteriorated. Driving those
changes was a need to improve efficiencies (53%), more demanding customers

(44%), the volume of returns (38%), and the volume of sales (23%).

Copyright of Supply Chain Management Review is the property of Peerless Media and its
content may not be copied or emailed to multiple sites or posted to a listserv without the
copyright holder’s express written permission. However, users may print, download, or email
articles for individual use.

IN-FOCUS

Linking Supply-Chain Improvements
t o Enhanced Financial Performance

Management consulting and technology services company
Accenture in conjunction with research universities Stanford
and INSEAD has released giobai research that iinks supply-chain
performance with a company’s enhanced financial performance.

Accenture, Stanford and INSEAD analysed financial data
from more than 600 global companies and applied statistical
models to assess supply-chain performance relative to
market-capitalisation growth. The results confirm that supply-chain
excellence is rewarded. Supply-chain leaders – companies with
frequent inventory turns, low cost of goods soid as a
percentage of revenue and high return on assets – were
shown to have a market capitalisation compound annual
growth rate (CAGR) 7-26 percentage points higher than their industry
averages. At the same time, the market cap CAGRs of companies
with poorly performing supply-chains trailed the industry
average growth rate by up to five percentage points. These results
were consistent across nearly all of the 24 industries studied.

“The supply-chain is an area of tremendous growth
opportunity and an increasingly frequent target of senior
executive attention,” says William Copacino, Managing
Partner of the Accenture giobai supply-chain management
practice. “A growing number of companies are iooking to the
supply-chain to help transform their cost structures, open new
channels and fundamentally improve their lousiness. This
study validates those choices with clear evidence that superior
supply-chains enhance companies’ ability to grow.”

Additionally Accenture, Stanford and INSEAD consulted
industry analysts and academic experts, and conducted
in-depth interviews with more than 75 executives from 60
companies to identify and document the success factors that
lead to supply-chain dominance. They developed a
Web-based survey to capture the supply-chain insights and
experiences of leading executives from more than 100
companies across North America and Europe.

Results in this area indicate that executives universally
recognise the value and impact of supply-chain management.
In fact, nearly 90% of respondents stated that the
supply-chain is very important, or critical, to their business.
Overall assessments of supply-chain importance to North

American and European respondents received similar ratings.
However, the research also revealed that executives from
North America were significantly more likely than their
European counterparts to designate supply-chain
management as critical – 57% versus 32%.

The enquiry also focused on supply-chain transformation:
how leading companies incorporate supply-chains into their
business strategies; how supply-chain innovation is reflected
in companies’ operating models; how supply-chain leaders
execute against their strategies and capabilities and adapt
them to changing market needs. The report analyses and
discusses the operating strategies of more than 20 leading
companies, including: 7-Eleven, Coca-Cola, Dell, DuPont, U & Fung
and Nokia. The document also introduces a template for
suppiy-chain transformation, identifies key success factors
that are common to all supply-chain transformation efforts
and looks into the future to project the influence of
supply-chain transformation on the evolving business landscape.

About the research

Accenture began with a detailed analysis of public
disclosure data from selected Global 3000 corporations,
classifying companies into supply-chain leaders, transformers,
decliners and laggards based on their supply-chain
performance profiles over time. It then statistically related
these supply-chain categories to shareholder value growth
rates and pattems over time. Accenture also conducted more
than 60 in-depth interviews with executives responsible for
supply-chain strategy and operations. The interviews
complemented an online survey of 104 additional
supply-chain executives in North America and Europe
representing companies in more than 25 industries.

The report includes case studies on a number of
companies including Thames Water, Nokia and Spanish
clothing manufacturer/retailer Zara.

Further information and a free copy of the report,
contact: Sarah Jones, Accenture.
Email: 5arah.c.jones@accenture.com
Web site:www.accenture.com * ^

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