Dr. Ron Lembke
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Flow of Retail Goods
 Retailer would like to stop it all at the red line
Reverse Logistics
 Logistics is the process of getting products from the
point of production to where someone wants to buy
them.
 Cell phone from manufacturer in China to US
distribution center
 Reverse logistics is products going the “wrong way” to
recapture value or proper disposal.
 Like Salmon spawning, swimming against the current
Reverse Logistics is:
The process of planning, implementing, and
controlling the efficient, cost effective flow of
raw materials, in-process inventory, finished
goods and related information from the point
of consumption to the point of origin for the
purpose of recapturing value or proper
disposal.
Things you don’t want
Packaging
Products
Reverse Logistics Materials
Supply Chain Partners
End Users
Stock Balancing Returns
Marketing Returns
End of Life/Season
Transit Damage
Defective/Unwanted
Products
Warranty Returns
Recalls
Environmental
Disposal Issues
Reusable Totes
Multi-Trip Packaging
Disposal Requirements
Reuse
Recycling
Disposal Restrictions
A Bunch of Junk
RL and Green Logistics
Reverse Logistics
 Product returns
 Marketing returns
 Secondary markets
“Green” Logistics
 Remanufacturing
 Air & noise emissions
 Recycling
 Environmental impact
 Reusable packaging of mode selection
 Disposal issues
 Packaging reduction
U.S. Reverse Logistics Costs
Total U.S. Logistics Costs
Approximate RL cost %
Estimated U.S. RL Costs
Source for U.S. total costs Bob Delaney, 13th Annual State of Logistics Report.
$970,000,000
4.00%
$38,800,000
Size of Reverse Logistics
 Logistics costs 9.5% U.S. economy.

(State of Logistics Report)
 Logistics costs were $1.2 trillion in 2005
 Reverse logistics costs 4-5% total
logistics costs or
 Roughly one-half percent of the total
U.S. gross domestic product (GDP).
 Reverse logistics costs approximately
$60 billion in 2006.
How much stuff comes back?
 We estimate 6% based on extensive interviews
 5.5% Shop.org
 6% was “typical” in 1958
 4-5% in 1929
 15% - Chicago (State St.) 1933
 12.5% - Boston 1933
How much stuff?
 $870b furniture, clothing, electronics, sporting goods,
general merchandise, catalog sales
 6% return rate
 $52b product returned annually
Productivity Press
Key RL Management Elements
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Gatekeeping
Compacting Disposition Cycle Time
Reverse Logistics Information Systems
Centralized Return Centers
Zero Returns
Remanufacture and Refurbishment
Asset Recovery
Negotiation
Financial Management
Outsourcing
Reverse is Different
Forward
Reverse
Product quality uniform
Product quality not uniform
Disposition options clear
Disposition not clear
Routing of product unambiguous
Routing of product ambiguous
Forward distribution costs more easily
understandable
Pricing of product uniform
Reverse costs less understandable
Inventory management consistent
Inventory management not consistent
Product life cycle manageable
Product lifecycle less manageable
Financial Management issues clearer
Financial Management issues unclear
Negotiation between parties more
straightforward
Type of customer easy to identify and market to
Negotiation less straightforward
Visibility of process more transparent
Pricing of product not uniform
Type of customer difficult to identify and market
to
Visibility of process less transparent
Cost Comparisons: Reverse vs. Forward
Cost
Comparison to Forward Logistics
Transportation
Higher
Inventory holding cost
Lower
Shrinkage (theft)
Much lower
Obsolescence
May be higher
Collection
Much higher -- less standardized
Sorting, quality diagnosis
Much greater
Handling
Much higher
Refurbishment / Repackaging
Significant for reverse logistics, very low for
forward
Change from book value
Significant for reverse logistics, nonexistent for
forward
CRCs: What do they do?
 Store sends to CRC – centralized return center,
which:
 Identifies the product
 Assesses its condition
 Sell as new
 Sell as is via outlet, retail
 RTV return to vendor if possible
 Sell to brokers
 Landfill / recycle
Typical Benefits from
Centralized Return Centers
 Simplified store procedures
 Improved supplier relationships
 Better returns inventory control
 Improved inventory turns
 Reduced administrative costs
 Reduced store level costs
 Reduced shrinkage
 Refocus on retailer core competencies
 Reduced landfill
 Improved management information
Centralized Return Centers
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Consistency - Impose procedures
Space Utilization
Labor Savings
Transportation Costs
Improved Customer Service
Compacting Disposition Time
Visibility of Quality Problems
Forward/Backward
Accounting Issues
Information system improvement
Bottom line impact
Key Reverse Logistics
Management Elements
 Improve return
“gatekeeping.”
 Compact
disposition cycle
time.
Information
systems
Disposition Options
 What are we going to do with it?
 Sell as new and make a profit
 Open box – discounted, smaller profit
 RTV – money back, but have to pay shipping, paid to
stock, repack, etc.
 Sell off for 10% of cost
 Recycle – less than 10% at best
 Landfill – pay to haul away
Compact Disposition Cycle
 Respondent firms that have very short reverse logistics
disposition cycle times have lower average reverse
logistics costs as a percentage of logistics costs.
 Shorter reverse logistics disposition cycle times result
in reverse logistics costs having a smaller impact
on profitability.
Outsourcing:
Bottom-Line Impact
By what percentage did reverse logistics costs
reduce your profits?
In-House Outsourced
Central Return Center 4.8%
3.7%
Companies that outsourced Central Return Centers
saw profits reduced by smaller about due to returns.
RL Service Providers-2002
 Contacted 135 3PLs offering RL services
 Inbound Logistics, Google
 52.4% response rate (9 wouldn’t respond)
 55 actually provide some kind of reverse logistics
services (10 don’t)
 38 actually touch the product
 17 sell a software product
 35 manage transportation of RL
Does your firm have reverse logistics IT
system capabilities?
no
10%
yes
90%
What type of systems?
 Return tracking, RMA
 Dispositioning
 WMS
 Retail
 Manufacturing
33%
9%
24%
3%
2%
Do you expect reverse logistics activities to
increase?
no
17%
yes
83%
Zero Returns
 Reduces the variability of returns costs.
 Retailer has to take responsibility for minimizing
returns.
 Enables the firm to avoid the problem of
physically dealing with returns altogether.
 Does not reduce much of the physical burden
placed on downstream channel participants.
 Cannibalization of “A” channel concerns.
 2%/6% Problem
Marshall
Field’s
1861 ad
“Give the
Lady What
She Wants”
Return Percentages
 Book Publishers
 Book Distributors
 Greeting Cards
 Catalog Retailers
 Electronic Distributors
 Computer Manufacturers
 CD-ROMS
 Printers
 Mail Order Computer Manufacturers
 Mass Merchandisers
 Auto Industry (Parts)
 Consumer Electronics
 Household Chemicals
20-51%
10-20%
20-30%
18-35%
10-12%
10-20%
18-25%
4-8%
2-5%
4-15%
4-6%
4-5%
2-3%
Efforts to Reduce Returns
 Shorter Returns windows
 Restocking fees
 Mandatory Receipts, Identification
 Look up purchase
 Gift cards
 instead of refunds w/o receipt
 Sell instead of gifts – nothing to return!
Customers Accepting Changes
“Regifting”
Elaine: Hey. Oh, is that a label maker?
Jerry: Yes it is. I got it as a gift, it's a Label Baby Junior.
Elaine: Love the Label Baby, baby. You know those things make
great gifts, I just got one of those for Tim Whatley for Christmas.
Jerry: Tim Whatley?
Elaine: Yeah. Who sent you that one?
Jerry: One Tim Whatley!
Elaine. No, my Tim Whatley? I think this is the same one I gave
him. He recycled this gift. He's a regifter!
Copyright © 2005 Reverse Logistics Trends, Inc.
Regifting?
Copyright © 2005 Reverse Logistics Trends, Inc.
Harris Interactive Poll
 Have done it
 Think it’s OK
By Age:
 Plan to do it
Men
39%
70%
Women
64%
86%
25-34
46%
Copyright © 2005 Reverse Logistics Trends, Inc.
35-44
36%
Total
52%
78%
45-54
28%
Giftcards?
 Gift cards estimated at $60b
 10-15% go unused
 CardAvenue 5,000/mo
Copyright © 2005 Reverse Logistics Trends, Inc.
Consumer Returns Focus Groups
 Consumer Electronics Association
 Focus Groups:
 Half men, half women
 10 online, 2 in-person groups
 All across US
 eBrain market research
 Recruited through SurveySavvy.com
 Returned consumer electronics product recently.
Focus Groups
What if you could never return?
 not buy any thing
 I sometimes make bad purchase decisions..
 I wouldnt shop there
 I’d be very reluctant to buy with a no returns policy.
Stuff happens.
 I won't buy nothing at a store with such policy
 “Tuck the Tags”
 Receipts? Look me up
How choose a store
 “It's the closes electronics store to where I live, not that

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much thought really”
“the cheapest cost or closest location or sale”
“looked up ads for a couple of weeks, found the cheapest
price”
“FREINDS FAMILY”
“long relationship”
“COOL”
“Price and location”
No one mentioned returns policy
Shifting Policies
 Returns Avoidance
 Customer behavior
adapting
Even The Almighty is Confused
Who is in it?
How big is it?
Research Motivation
 Companies typically sell to secondary market as last




resort
First, mark down 50 or 75%, to roughly 50% of cost,
still didn’t sell in stores
Broker buys for 10% of cost
A 1 percentage point increase gives a 10% in revenues
For a large retailers, that’s millions of $
Secondary Market Flow
We want to understand the total dollars flowing through
the secondary market
Key Decision Factors
 Price secondary to trust in choosing whom to sell
to
 Brand equity protection
 Who are you? Why do you want to know?
 Very thin margins
 Buy for 10-15% of cost typically
 Mark up by 1%
 Try to sell before taking possession, buyer takes it
straight from retailer’s dock
Secondary Market Goods
 New product:
 Overproduction
 Shelf pulls
 Lifts
 Marketing returns
 Second quality
 End of life/season
closeouts
 Salvage / returns:
 Customer returns
 Freight damage
 Defective
 Recalls
 Gray market
 Black market
 Knockoffs
Secondary Market Buyers
 New vs. Salvage:
 New: Close-outs, job-outs, surplus
 Diverters
 Deal in salvage, deal in both
 Primary brokers
 Buy large quantities (truckload) from retail
 Sell TL or pallet quantity to secondary brokers
 Brokers want to resell before possession
 “Direct from retailer”
Selling Process
 Pricing
 Per pallet, per pound, per item
 “Cherry picking” despised
 Buyers’ belief less information is better
 Caveat emptor: Good & bad loads even out
Structure of Selling
 No standardization, automation
 Phone, fax often still primary tools
 Retailers sell same things at same times
 Brokers call and request
 Some quasi-auctions, some FCFS
 Trust: Relationship-based processes
 Often Invitation only
 Gordon Brothers exchange
Information availability and
Risk to Buyer
Low
High
Variabilty of product
Low risk to buyer
Predictable profits
for buyer
Brokers unwilling to risk
High trust required
Maximize revenue
Low
Information availability to broker
High
Secondary Market value (% of cost) as
Condition improves
100%
Repaired
“As is”
0%
Damaged
Used
New
Brokers
 Overstock Brokers: new product
 seasonal
 package change
 product change
 Overruns
 Salvage Brokers: not new condition
 Returned goods
 Shelf damage
 Acts of God
Size of Secondary Market
Secondary Market:
$329B
US GDP:
$ 14,440B
2.28% US GDP
Salvage
Dealer?
Highway 61 = eBay?
Well Mack the Finger said to Louie the King
“I got forty red white and blue shoe strings
And a thousand telephones that don't ring
Do you know where I can get rid of these things?”
And Louie the King said, “Let me think for a
minute son.”
And he said, “Yes I think it can be easily done.
Just take everything down to Highway 61.”
Who buys from the brokers?
 Sold directly on eBay
 Buy a pallet, open a shop
 Flea markets
 Websites
 Dollar / Bargain stores
Returns to Secondary Market Flow
Methodology
 Delphi Panel Methodology
 Lack of data, inability to measure directly
 Panel
 4 mass merchandisers (RL and returns)
 4 3PLs specializing in RL
 5 RL managers at CE firms
 2 contract manufacturers
 3 industry association executive directors
Auctions
 eBay, amazon, nobetterdeal, alibris
 eBay goods sold 2008 $59.7b
 Not including autos
 Market share estimated at 60%
 Total market $99.4b
Pawn Shops
 3 Largest Publicly Traded:
 EZ Pawn
 Cash America International
 First Cash Financial Services
 10% of total market
 Combined CoGS * 10:
 $5,655 m
Dollar Stores
 Dollar Tree (40% of US stores)
 Dollar General
 Family Dollar
 80% of goods estimated to be from asset recovery process
 $17,669 m
 Underestimate
 American consumers much more willing to purchase from
secondary outlets.
 Can be difficult to manage.
 Fastest growing retail sector
Charities
Flea Markets
 Salvation Army
 $30 billion estimate,
 Goodwill Industries
2006
 10-15% increase since
then
 $33 billion
 $2.7b combined revenues
 Clear underestimate
Reuse
Friends of Multiple Sclerosis will pick it up, sell it at Savers’
Washoe ARC pick up
Salvation Army, Goodwill
Value Retailers
 Often returned to retail, or bought on secondary
market
 1-2 seasons behind current retail
 Big Lots, TJ Maxx, Marshall’s, Ross
 Combined revenues $30,013 m
 clear underestimate
Factory Outlets
 Factory Outlet Stores:
 Goal often 70% of retail price
 80% of goods non-secondary market
 Factory Outlet Sales
 58,579,379 SF
 95% typical occupancy rate
 $301 revenue/SF
 $13,400 m
Salvage Dealers-2007 Econ Census
$m of Cust
$m Mktg
Avg Cust % to
Returns to
Returns to
Returns Secondar Secondary Marketin Secondary
%
y Mkt
Mkt
g Returns
Mkt
Computers &
Consumer
Electronics
Clothing Stores
Department
Stores
General
Merchandise
Electronic
Shipping & Mail
Order
Total
87,664
6%
75%
3,945
7%
6,136
157,715
10%
75%
11,829
7%
11,040
210,142
6%
75%
9,456
7%
14,710
367,865
6%
75%
16,554
7%
25,751
215,963
8%
75%
12,958
7%
15,117
1,039,349
54,742
72,754
Salvage Dealer Market Flow
Size of Secondary Market
Sector
Auctions
Outlets
Dollar Stores
Flea Markets
Pawn Shops
Charity
Value Retailers
Retail Salvage Goods
Total Size of Secondary Market
2008 US GDP
Secondary Market as % US GDP:
Size
99,416
14,105
17,669
33,000
565
2,691
30,031
127,496
324,973
14,440,000
2.25%
Security is Sometimes Key
 288 t-shirts & caps
 Sewickley, PA: World
Vision
 Remote villages in Africa
 Antithesis of revenue
maximization