DAMAGE REDUCTION FOR APPLIANCE RETURNS
Damage Reduction White Paper
by Wayne Burgess & Craig Stevens
If one of the main aims of Reverse Logistics is to maximize recovery value of returned
products, then reducing “post-consumer” damage is paramount in ensuring this value.
Organizations without dedicated reverse logistics or returns management experience
significantly higher rates of damage. Because of this, 33% of surveyed companies report
having damage management programs, while another 23% plan to add them within the
coming two years.
1
This study is intended to examine the causes of post-consumer damage, and propose
mechanisms and programs to minimize the losses.
The prime focus of this paper is the appliance industry. Whereas best-in-class
companies on average reclaim 64.3% of initial value from returns, appliance
manufacturers without damage reduction processes on average experience a negative
reclamation value.
2
There are three main areas in which damage to
returned goods occurs:
1. Transportation
2. Receiving and handling
Organizations without
dedicated reverse logistics
or returns management
experience significantly
higher rates of damage.
3. Storage
While it may seem that these should have separate underlying problems, the causes
for additional damage to returned goods are consistent throughout these three areas:
packaging, returns personnel and management inattention. These causes are
examined below.
Packaging
A seventeen-month study of over 10,000 returned appliances (case study follows) found
that between twenty and thirty per cent of all returned products are typically further
damaged in transport. A primary reason for this is that the majority of returned goods
are brought in without protective packaging, or are poorly packaged.
While return policies typically state that goods should be returned in their original
packaging, the practicality of consumers retaining large empty boxes for several weeks
1 Reverse Logistics Association – April 2009
2 Revisiting Reverse Logistics – Aberdeen Group, September 2006
Damage Reduction for Appliance Returns
or months after purchasing appliances is problematic. Most consumers dispose of
original packaging same-day as the purchase. If they do retain packaging, the box is
typically all they are concerned about, and packing braces and foam - if retained - are
seldom deployed as intended. The boxes themselves have typically been opened in a
manner that weakens them structurally. Even so, boxed returns remain the exception
rather than the rule.
Without packaging, further damage is inevitable in all areas above.
Implementing a packaging-upon returns program for receivers will result in significant
damage reduction across the board.
This damage reduction will have its greatest effect on the 24% of returns which are
found to have no fault or defect.
3
Implementing a packagingupon-returns program
for receivers will result
in significant damage
reduction across the board.
Returns personnel
Both transport and warehouse staff are typically trained
in handling of forward moving products. Shipping loads
are designed to take the maximum amount of outbound
product in a trailer, in a pre-defined configuration.
Braces and straps are configured to hold packaged
goods. Lifts and transporters are designed to handle balanced, configured loads. Clamps
are generally designed to handle packaged goods and may need to be repositioned,
cushioned or replaced with straps.
The randomness of returned goods takes its toll in two ways here:
1. Returns are generally unexpected, and dealt with ad hoc. They are fitted into
existing warehouse space, or transport trailers without planning.
2. Uncertain condition of the returned goods means that handling techniques,
and hardware may not be suitable for unpackaged, unbalanced materials. It is
not uncommon to see a lift placed directly under a returned appliance, or to see
appliances topple from pallets when lifted.
3. Preparation for handling returns can greatly reduce routine handling and shipping
damage.
Management Inattention
Apart from this lack of preparedness, there is a psychological aspect of returns which
merits further attention. Returns are never a company’s main business. They are an
3 Revisiting Reverse Logistics – Aberdeen Group, September 2006
Damage Reduction for Appliance Returns | 2
unwanted afterthought. There is a tendency for staff to mentally dismiss returns as junk
– even when returned in as-new condition.
The result of this dismissal is lack of attention and care to maintaining the condition of
returns. This is greatly exacerbated if returns are routinely placed in an otherwise unaccessed storage location, or if staff do not perceive that returns are regularly moved
from this holding area in a timely fashion.
Management inattention to the value of returns
erodes this value in the eyes of the workers who
routinely handle returns.
Remedial Actions
Management inattention to
the value of returns erodes
this value in the eyes of
the workers who routinely
handle returns.
1. The most important single factor is to have
management focus on returns, measuring
key performance indicators to maintain this focus. When a management team fully
realizes that they can control the recovery value of goods, they are usually quick to
respond to situations where needless damage occurs.
2. Communication to warehouse and shipping staff of this focus is a critical
secondary point. If these workers are aware of the management focus, their attitude
changes to encompass returns as a normal part of the job rather than an unwanted
afterthought.
3. Training in specific returns handling procedures avoids having these less ‘regular’
materials treated the same as factory packaged goods.
4. Adjustment to receiving, storage and transport hardware to better accommodate
unpackaged and unbalanced goods.
5. Packaging procedures upon receipt of returns. This will likely be dependent upon
enforced dealer and retail policies, to ensure that goods received from the consumer
are immediately dealt with in a manner to best preserve their value.
6. Implementing returns metrics and data tracking. This allows for accountability,
and close monitoring of any incidents in which recovery value from returned goods
erodes.
7. Communication of metrics, especially increased recovery value. This is positive
reinforcement to staff of the value of their efforts in maintaining the condition of
returned goods.
Damage Reduction for Appliance Returns | 3
Case Study in Damage Reduction
Initial situation
A major appliance manufacturer received an average of 7500 returned large appliances
annually. After receiving and storage, when preparing for resale, these were graded for
condition using the following guidelines:
4
Case Study
in Damage
Reduction
C l ass D e f i n iti o n s
P r o du ct D e f i n iti o n s
A
Brand new product
Scratch 'n' Dent
Product damaged before it gets to customer’s home
Recrate
Brand new product-damaged box only
FGR
Used product
B+
Minor hidden cosmetic flaws
Scrap
Product not sellable in its current state. Too much physical damage.
B
Minor visible cosmetic flaws
C
Major visible cosmetic damage-sellable
D
Major visible cosmetic damage-unsellable
G
No salvage value
Definition of Surfaces
A
Readily visible surface on front, top, or inside of appliance when viewed from 3 to 5 feet
B
Sides of appliance
C
Surfaces not readily visible on front, top, or inside of appliance when viewed from 3 to 5 feet
D
Bottom and back of appliance not visible in a normal installation
Baseline Determination
Because existing stock had already been sorted and sold out to some extent, it was
impossible to use inventory as a baseline for typical condition. In order to establish a
baseline, condition was graded for each lot received at the beginning of the project.
While damage reduction processes were implemented immediately, the lag between
training, initial implementation and routine, allowed use of first quarter results as a
baseline for metrics. This provided a conservative estimate of overall graded condition,
including transportation, handling and storage. The differential between this and same
quarter results the following year indicated the amount of damage reduction in these
areas, as opposed to original condition.
Project duration: 17 months
5
4 Annualized from 10,531 appliances over 17 months
5 01/2009 to 05/2010
Damage Reduction for Appliance Returns | 4
Total # of appliances graded: 10,531
The extended scope, and considerable volume render this sampling
statistically relevant, as it represents 35% of the estimated
national total.
6
Quarterly baseline: (taken from 01-03/2009)
Units B+
B
C
D
G
Total
2469 11.9% 44.8% 17.7% 24.8% 0.9% 100.0%
Case Study
in Damage
Reduction
In order to account for seasonal variation in volume and condition,
the same three month period was selected to chart condition after
implementation of the damage reduction program.
One year later results: (taken from 01-03/2010)
Units B+
B
C
D
2194 18.9% 43.1% 28.9% 9.1%
G
Total
0.0% 100.0%
The most statistically important changes take place at the extreme
ends of the scale.
Results
The combined D&G categories with almost no reclamation value were
reduced from 25.7% of the total to 9.1%.
This marks an order of magnitude improvement of 2.82, with an increase in resalable
goods of 16.6%. This shift is clearly reflected in C grade products which increased by
11.2%. Additionally all higher categories received a
This marks an order of
portion of this “bump” as well.
The other significant increase was in B+ goods, which
saw an order of magnitude increase of 1.59.
This resulted in 7% more products in this highest
reclamation value class.
Shift Year over Year:
B+
B
C
D
G
7.0% -1.6% 11.3% -15.7% -0.9%
6 CANSIM - Table 080-0019
Damage Reduction for Appliance Returns | 5
magnitude improvement
of 2.82, with an increase
in resalable goods of
16.6%. This shift is clearly
reflected in C grade
products which increased
by 11.2%.Additionally all
higher categories received
a portion of this “bump” as
well.
Waste Diversion
All of the G class and D class returns were previously destined for landfill. A combination
of initiatives saw the radical decrease in these grades combined with harvesting parts
from the remaining D class appliances. These high volume parts were placed into service
inventory. The combined tonnage of returns to landfill was decreased over this time
span by 85% .
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Case Study
in Damage
Reduction
Prior to these damage reduction and waste diversion initiatives, an average of 1910
appliances annually went to landfill. This represented 189 tons of waste.
Following the damage reduction and parts harvesting, the annual number of appliances
(or parts thereof) sent to landfill was reduced to 286. The weight of the waste was
reduced to 28 tons.
Conclusion
Implementing changes to internal
transportation, handling and storage
techniques for returned appliances had the
effect of:
• adding resale value to more than 25%
of returns, which previously had no
reclamation value
• a 59% increase in resale value of the top
This analysis indicated that
damage prior to return was
consistently over-reported.
Understanding this offers
potential further gains
by more closely enforcing
returns policies from field
level sales outlets.
grade of returned goods
• an 85% increase in waste diversion.
Without the addition of extensive damage in the receipt & storage of returned
appliances, it became possible to compare receiving manifests to final grade of goods.
This allowed a comparison of received product to the condition stated by the consumer
upon return.
This analysis indicated that damage prior to return was consistently over-reported.
Understanding this offers potential further gains by more closely enforcing returns
policies from field level sales outlets.
7 ReturnTrax Waste Diversion Study – 01-12/2009
Damage Reduction for Appliance Returns | 6