Returns management in a supply chain as a revenue generator

This article about returns management talks of using returns as a revenue generator. And that seems to be an interesting part to concentrate on one of the not so important part of the supply chain. Just to summarize what the author mentions in the article:

  • From 6-35 % of a company’s revenue is sitting idle in the whse because of bad reverse logistics processes
  • Industrial grade returns (not the typical B2C or in this case C2B returns) add upto over 50 billion USD each year – that is a large market size
  • According to AMR Research, it takes 12 steps to process inventory inbounded through reverse logistics management for every one step required in forward logistics
  • It costs three times as much to process the reverse logistics of new items as it did to process the forward logistics to sell it
  • Some of the pain points in RLM
    • Mixing of batches, lots and product categories
    • Pallets can come back with only x% of their inventory used, yet the SKU initially assigned to that pallet does not allow for a quantity adjustment. Remember this is in the reverse path
  • Recovering returned good-as-new products can have a dramatic impact on a company’s bottom line
  • Current ways for companies to increase the profitability of the returns management
    • print the return-to-label alongside the good. The customer slaps this label to the item (may be SKU in some cases)
      • the problem – what if the customer is returning a part of the SKU ? What if there are multiple lots being returned
    • have humans in call centers fill the returns management details for the company
      • the problem – to err is human

A good option is to link your ERM and WMS with a good web interface, and web-services. Let the customer fill in the minimum of the details and then let that information flow into your system.

Another way to think of the problem is in a Bayesian way.Think in terms of Bayesian probability (precisely, apply Baye’s theorem), and there is even higher returns that one can derive from the forward supply chain. Put very simply, given that I have x SKUs that were returned, what is the probability that y is the reason for they getting returned. y here can mean many things, but for example sake, lets consider the expiration date as the factor.
We are out to calculate P(A | B) i.e. P(Expiration date being the problem | SKU x was returned)
Bayes theorem says:
P (A | B) = P(A) . P(B | A) / P(B) where
P(A) = the probability of any SKU in the whse being expired
P(B | A) = the conditional probability of a sku returned given that expiration is the cause
(obviously all the SKUs that get returned are not because of expiration date, and all the expiration date
crossed SKUs don’t get returned). So, P(B | A) != 1
P(B) = The probability of a SKU coming back to my whse
As stated above, using the above, Bayes will help me calculate:
P ( A | B) – what is the probability of expiration date being the problem for a SKU being returned
Armed with this number, one can work on the forward supply chain. One can try to mitigate the effect of the event A (above) being the problem in the forward chain. The effect on the forward chain will not be linear because of this variable, there will be a non-linear effect – but it will not be non-deterministic. May be constructing a mathematical model with the minimum number of variables effecting the forward chain should prove that.

Animal documentaries minus the music

Ever wondered how the documentaries, specifically the animal videos, either on Animal Planet or on National Geographic or even on Discovery channel, will feel without the background music ? For example, the male giraffe have a very subtle dance sequence to woo the females of their species. Now, imagine yourself watching a documentary on Animal Planet about giraffes and there is no music. Will it have the same impact ? Imagine watching David Attenborough’s videos minus the music. Steve Irwin’s documentaries generally have lesser background music, but not silent. So, I wonder, how much of an overall impact does background music have in an animal documentary ? According to me – it is a necessary condition to have. I wouldn’t enjoy a documentary minus the background music. What about you ?