Data as an Asset in Reverse Logistics:
A Recap with Page One Podcasts Presented By Retail Brand
November 2021 | Walter Santiago
“What sort of important data can a brand gain from working with a Reverse Logistics company? How can you lower your return rate and improve customer satisfaction? In this episode, you will hear about how Reverse Logistics can improve your business with help the environment with a focus on sustainability, getting products back into the market for second use or recycling.” – Page One Podcasts
This past October, our Chief Revenue Officer took on the opportunity of dissecting the industry of remanufacturing with Newair CEO Luke Peters. This 101st special episode discussed critical core values, customer facing communication, and the power of data in this new wave industry. Not only CEO but also founder of Page One Podcasts, Peters, inquired about the intricacies of America’s Remanufacturing Company manifesting it’s sustainability into the new decade of circular economy. Check out the full podcast here or read the cliffnotes below!
Having Trouble? LINK: https://podcasts.apple.com/us/podcast/reverse-logistics-returns-management-with-paul-adamson/id1478811133?i=1000538683082
Tell us about ARC and what you do to help out companies.
- Simply put, ARC is a diverse group of individuals that are passionate about reverse logistics and returns management. We are a company that is obsessively compelled to create value. The company is about to celebrate 20 years in the returns space, but we value the Bezos Day 1 philosophy about being constantly curious, nimble and experimental. We recognize the need to adapt quickly in order to serve our clients best.
- ARC operates nearly 1M sf in GA and has about 250 employees today. We have five facilities, one being a dedicated recycling center.
- The current employment challenges in the US have not impacted us in the same way as other companies. One of our core values is that we do not prejudge, so we are able to tap into some employment programs that other firms may avoid. We have seen great success in our efforts to reman product and reman people.
- We are the partner that brings order to chaos. Returns are messy. ARC creates programs for our clients that align with their corporate goals – typically a mix of process velocity, data that provides insights and allows for analytical discussions, converting returns into value and supporting corporate stewardship.
- To make this more concrete for the listeners, ARC partners with leading brands and retailers to act as the consolidated return point for consumer products. Our docks accept truckloads of returns from retailer warehouses as well as packages from end-consumers shipped UPS, FedEx or USPS. We receive, process, resell and recycle products, but more importantly we help our clients find ways to optimize returns. We test, repair, refurbish and remanufacture products so that our clients can better understand why their products are returned. We help answer the important questions – does the product have a quality issue? Do I need to better communicate with my consumers the use, benefits and/or maintenance of the product? How do I help the retailers reduce returns earlier in the process?
- ARC’s job is to help our clients along the Returns Maturity Curve.
- Explain the math here. At some point a product might not be worth repairing – can you give us an example where this makes sense and one where it does not?
- The number one question we have to address with every program we manage is “what is the goal?”
- Not every unit should be repaired, but every return offers insight into the design, packaging, functionality, and consumer experience of a product. Voice of the Customer data can be matched up with individual returns to create a holistic view of the customer’s return journey.
- Cost to serve or the total cost to receive, process, package and sell a unit may exceed the value of the product’s second sales channel, but the data ARC provides allows our clients to make near real-time design improvements and “claw-back” real dollars from manufacturing partners around the globe.
- A decision has to be made on every product received by ARC, but each product receipt is unique. We are looking at the received condition of the product, the reported product complaint, and the relative value of the product back in the marketplace. Of course in this crazy supply chain period we are experiencing, the value of renewed products has increased as demand has increased and supply is diminished.
- Many of the products we touch are best effort programs – we know that a certain percentage of products won’t be recovered (damaged, missing parts, etc.) and these are harvested to repair and refurbish other products. Using this model, ARC can efficiently and cost-effectively manage low MSRP products for our clients.
- Since ARC is the consolidated returns point we do receive product that makes no financial sense to renew or the product has exited its production and sales cycle, so creating new sales channels is not an option. These items are still received, good data is collected, and any useful parts are harvested, but they flow to our recycling center to be properly recycled and turned into useful commodities.
- Talk about the difference of how a rookie might handle returns and how you guys would handle. What steps and improvements are added – how does this extra data help?
- I love a good sports analogy and with my Red Sox surprising me with a win over the Rays, the baseball analogy for looking at Returns Management Maturity is even better.
- If we think about the various stages that a company can go through along the Returns Maturity Curve, most start as a Rookie or in the Cape Cod league. The goal is to make it to the big show and, better yet, become an All Star.
- The typical Rookie company has almost a universal challenge to overcome – lack of ownership for the returns process. I see this over and over again – startups and even some established companies experiencing fast growth focus every brain cell on developing, building and delivering an exceptional product to market. They forget that about 10% of everything they sell will be returned. There is no clear owner for returns and therefore returns are underserved and become a weight on the P&L. This lack of documented processes and clear ownership usually impacts customer crediting and that is where ARC starts.
- Customer crediting by a vetted 3rd party helps clients better manage retailer and end-user relationships. ARC is neutral like Switzerland – we are committed to providing good and accurate data so that our clients can process returns efficiently and only credit what is really returned. I can safely say that about 1% of everything ARC receives from a mass retailer for our clients is not their product. ARC provides the data necessary for brands to provide the right credit amount. To put this in perspective, we have clients who ship 40M units per year in the US – with simple math, 4M will be returned and 40,000 of those returns will belong to another brand. Returns crediting is important.
- Tell us about the various dispositions from scratch/dent to REM products. How is that decided upon and what does that mean on the sales side as far as how these are labeled?
- The challenge of returns is telling the story of the “renewed” product. Today there are so many words to describe a “renewed” good – remanufactured, refurbished, repaired, reconditioned, reprocessed and more, but only the term remanufactured is actually a defined term under an ANSI standard.
- The wonderful thing about renewed products is that Apple exists in the world. Apple helped people understand that if your product malfunctions during its warranty you don’t get a new item, you get a Factory Certified Refurbished product. This has helped the average consumer become more comfortable with refurbished or remanufactured products.
- ARC creates differentiation across the renewed goods based on the cosmetics of the item. As a reminder, most programs are best effort, meaning we may not have a new microwave hood to put on the unit, so the dent or scratch will remain with the product. BUT, every product is tested and certified to the same standard. The only difference is the cosmetic condition.
- For some clients we simply have one cosmetic grade – A. This is a like new standard that is referred to as Grade A or REM or Factory Certified. These are the types of product that your spouse would be fine having on the counter in the kitchen or you could give as a gift without feeling like a cheapskate.
- For other clients we have additional cosmetic standards – B (aka Scratch and Dent) and even a C or what I would call garage only.
- In each case, ARC creates a very pedantic set of cosmetic criteria and reviews it with the client. Our clients get to decide how their brand is represented in the new sales channels.
- What insights can brands learn from companies like ARC about their products regarding root cause analysis – tell us a success story
- Connecting what a call center hears to a product that is returned is the best way to understand the customer returns journey. ARC has programs today where we get access to the original customer complaint or reason for return connected to a serial number. When that serial number is received at ARC, the ERP system will tell the operator what specific complaint existed. We will perform all standard testing, but we will also investigate specific complaints, especially those related to safety or performance (think it shocked me or it wouldn’t do a function well).
- In late 2020 ARC was able to assist a client with a customer reported issue. Customers were returning a beverage cooler that would fail to cool after a certain period of time. ARC reviewed the customer complaints and extended the testing cycles for the reported models. We were able to identify not only the period of time to fail, but also the failed component. We documented the faulty part and worked with our client and their contracted manufacturer to immediately raise a corrective action and replace the faulty component with product from an alternate supplier. Further ARC helped identify a clear point for the manufacturing and put in place a rework schedule for all received models within a certain serial number range.
- In mid 2021, ARC identified an issue with a microwave where the internal light – date code change over
- Talk about what 3 key metrics companies should be focusing on that can better help their company long term on return rates and sourcing
- Metrics are always an interesting discussion topic. Good metrics focus on the metrics that matter to the business; can be easily explained and understood by the stakeholders and can have clear actions applied in order to drive improvement.
- Metrics that I am keenly interested in vary by my client, but without any hesitation I would recommend the following as a starting point:
- Average Time to Credit – what is the total life cycle (hours, days, weeks) from the time a return is requested until the credit is applied to the customer account? There are many impacts to this cycle, but some can be controlled. As a solutions partner my clients count on me to move product from my dock to my ERP system as fast as possible in order to reduce this cycle time.
- No Fault Found Rate – what percentage of processed units had no functional faults? This metric is important in order to negotiate with mass retailers. If a return can be avoided and the product retained in the store, that is the best possible diversion. If returns are inevitable, then knowing the percent of product that is fully functional at time of return will help make decisions on the potential selling channels for the renewed products.
- Average Age of Finished Goods – how long are your renewed items sitting in a warehouse before finding a new home? This is really a cash-cycle discussion – if your company uses renewed items to replace defective products for consumers, then this might not be a relevant metric. If your company resells renewed products, then aging inventory may be a sign that these products don’t get the same attention from sales, the pricing strategy may be wrong, or the sales channel may not support the product.
- What are the best sales channels for reman units?
- You always want to be direct to the consumer… until you don’t.
- Market differentiation for renewed products offers the best possible value, but our client makes the final decision. Tiered sales channels could offer the best total recovery of actual dollars from the program, but could undermine the brand goals. We believe that brand owners, like NewAir, want to limit the sales channels in order to protect the brand and assure the best consumer experience. Retailers on the other hand just want to capture more dollars and, since they don’t own the brand, don’t have to worry about the consumer experience at a brand level.
- I believe that all brands could differentiate across two grades with the Grade A product selling through their own branded website (like a KitchenAid) or through a site managed by a 3rd The Grade B products (think scratch and dent) should be sold through marketplaces like eBay where consumers are hunting for a deal and are not the primary target for the new or Grade A product.
- ARC is rolling out a solution for the Grade B product that will put the decision power in a consumer’s hands, at a serial number level. We have created middleware that utilizes the information in our ERP and an automated imaging system to create listings for exact models. Consumers will be able to make decisions at a unit level whether or not it meets their needs.
- In your world, Luke, a consumer may want a beverage cooler, but where they will place it the right side and top will be visible. They could search for beverage coolers with left side dents and save themselves money on the purchase. This is really a win-win for the consumers and our clients.
- What is next for ARC?
- ARC is evolving into a data and analytics company. We will never be a sexy unicorn, but our people heavy processes allow us to secure data that other returns enablement companies can’t provide to clients. We will continue to develop better, faster and (most importantly) smarter ways to manage the chaos of returns, but the focus will be on helping our clients reduce returns, improve their products, and understand the consumers better.
- The next big step for ARC is the classic “go west young man” scenario. We serve 70% of the US population by our strategic location in GA, but we will open a west coast facility within the next 6-12 months to serve our clients better.