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In todays marketplace, many retailers treat merchandise returns as individual, disjointed transactions. "The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective collection and return of merchandise. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness. It's the logistic company's responsibility to shorten the link from return origination to the time of resell. By following returns management best practices, retailers can achieve a returns process that addresses both the operational and customer retention issues associated with merchandise returns. Further, because of the connection between reverse logistics and customer retention, it has become a key component within Service Lifecycle Management (SLM), aÂ business strategyÂ aimed at retaining customers by bundling even more coordination of a company's services data together to achieve greater efficiency in its operations.
Reverse logistics is more than just returns management, it is "activities related to returns avoidance, gatekeeping, disposal and all other after-market supply chain issues".Â Returns management - increasingly being recognized as affecting competitive positioning - provides an important link between marketing and logistics. The broad nature of its cross-functional impact suggests that firms would benefit by improving internal integration efforts. In particular, a firm's ability to react to and plan for the influence of external factors on the returns management process is improved by such internal integration. Third-party logisticsÂ providers see that up to 7% of an enterprise's gross sales are captured by return costs. Almost all reverse logistics contracts are customized to fit the size and type of company contracting. The 3PL's themselves realize 12% to 15% profits on this business.
"Studies have shown that an average of 4% to 6% of all retail purchases are returned, costing the industry about $40 billion per year." http://en.wikipedia.org/wiki/Reverse_logistics
RATIONALE OF THE STUDY:
Managing reverse logistics (returns) is complicated and expensive. Returns are a significant problem for companies in both business-to-consumer (B2C) and business-to-business (B2B) environments. U.S. reverse logistics cost estimates from as low as $35 billion to as high as $100 billion per year.
Clearly, returns are an issue ripe with potential, but we find that, short of using rudimentary functions in their ERP, few companies have attacked the reverse logistics problem with technology. Although a significant problem for many companies, returns remain a secondary consideration because companies continue to prioritize supply chain related IT investments on outbound projects (e.g., order management and fulfillment). Consequently, most organizations live with labour intensive, manual, often undisciplined and inefficient returns management processes. Without question we believe reverse logistics must, and we predict it will, become a higher priority for companies with large and complex returns problems.
A growing number of companies (especially in retail and high-tech) see competitive and strategic value in managing returns in house; however, they also recognize that they lack adequate systems to effectively do so.
Automating the returns process provides several areas of opportunity.
Cost reductionÂ - Returns cost savings can be found in people, processes and inventory. Better decision making at the point of authorization such as whether to accept a return and, if so, where best to route it, and having visibility to downstream functions will pull cost from the returns process
Customer ServiceÂ - Customers will continue to buy from companies that are easy to do business. Companies with effective and flexible returns programs, like an REI or Nordstrom, attract repeat buyers because their customers trust them, in part, because of their returns policies.
EfficiencyÂ - Returns are unpredictable and companies do not typically control a significant portion of the process, making manual returns processes highly inefficient and disruptive. Wasted freight and duplicate efforts kill efficiency
ControlÂ - Effectively controlling a manual returns process is near impossible. People make poor decisions if all they have is limited, if any, information and rudimentary tools to help guide the process and, without tools, the process degrades to near chaos. Tools that provide process discipline and guidance will go a long way to improving process control, which will drive the other benefits.
SCOPE OF THE STUDY:
Explore how tracking and tracing technology, such as GPS, bar codes and Radio Frequency Identification (RFID) tags can be used in reverse logistics operations for returns, recalls and recycling. Â A practitioner approach is used to explore and examine the management functions and the interrelationships regarding the use of technology to capture data for products flowing in the reverse logistics system.
1.4 LIMITATIONS OF THE STUDY:
The study was mostly restricted to a sample population who were easily accessible, predominantly Bangalore, Karnataka.
Personal Interviews were restricted to a few important questions and were intended to get the personal views and opinions of the respondents.
The lack of willingness to share the information on the part of the respondents.
2.1 RETAIL INDUSTRY IN INDIA:
The retail sector in India is growing at a phenomenal pace. According to the Global Retail Development Index 2012, India ranks fifth among the top 30 emerging markets for retail. The recent announcement by the Indian government with Foreign Direct Investment (FDI) in retail, especially allowing 100% FDI in single brands and multi-brand FDI has created positive sentiments in the retail sector.
There are many factors contributing to the boom in this sector. To name a few, increased consumerism with a capacity to spend on luxury items and increased spending power in the hands of Indians. More Indians are travelling abroad and are exposed to different cultures and way of life and thereby more brands. India's internal consumption is also high and the consumption pattern owning to diversity in culture, religion and the family values that encourage spending on specific occasions keep the retail business well oiled.
The size of India's retail sector is currently estimated at around $450 billion and organised retail accounts for around 5% of the total market share. Ratings agency Fitch has assigned a stable outlook to the retail sector for 2012 as factors like expected sales, growth-driven expansion and efficient working capital management are likely to benefit retail companies. It is estimated that the retail sector would continue to grow at 10-12 % per annum, which is extremely encouraging when the country's economy is only projected to grow at 6%.
2.2 GROWTH, OPPORTUNITIES & CHALLENGES OF INDIAN RETAIL INDUSTRY:
As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large-scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India are:
Low share of organized retailing
Falling real estate prices
Increase in disposable income and customer aspiration
Increase in expenditure for luxury itemsÂ
Another credible factor in the prospects of the retail sector in India is the increase in the young working population. In India, hefty pay packets, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector. These key factors have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the preferences of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more. With this the retail sector in India is witnessing rejuvenation as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores.Â
Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption.ITC is experimenting with retailing through its e-Choupal and Choupal Sagar - rural hypermarkets.
The Hidden Challenges:
Modern retailing is all about directly having "first hand experience" with customers, giving them such a satiable experience that they would like to enjoy again and again. Providing great experience to customers can easily be said than done. Thus challenges like retail differentiation, merchandising mix, supply chain management and competition from supplier's brands are the talk of the day. In India, as we are moving to the next phase of retail development, each endeavor to offer experiential shopping.Â One of the key observations by customers is that it is very difficult to find the uniqueness of retail stores. The problem:retail differentiation.
The next problem in setting up organized retail operations is that of supply chain logistics. India lacks a strong supply chain when compared to Europe or the USA. The existing supply chain has too many intermediaries: Typical supply chain looks like:- Manufacturer - National distributor - Regional distributor - Local wholesaler - Retailer - Consumer. This implies that global retail chains will have to build a supply chain network from scratch. This might run foul with the existing supply chain operators. In addition to fragmented supply chain, the trucking and transportation system is antiquated. The concept of container trucks, automated warehousing is yet to take root in India. The result:Â significant losses/damages during shipping.
Merchandising planning is one of the biggest challenges that any multi store retailer faces. Getting the right mix of product, which is store specific across organization, is a combination ofÂ customer insight, allocation and assortment techniques.
The private label will continue to compete with brand leaders. So supplier's brand wiil take their own way because they have a established brand image from last decades and the reasons can be attributed to betterÂ customer experience, value vs. price, aspiration, innovation, accessibility of supplier's brand.
2.3 SUPPLY CHAIN MANAGEMENT IN INDIAN RETAIL INDUSTRY:
One of the most important challenge in organized retail in India is faced by poor supply chain and logistics management. The importance can be understood by the fact that the logistics management cost component in India is as high as 7% -10% against the global average of 4% - 5% of the total retail price. Therefore, the margins in the retail sector can be improved by 3% - 5% by just improving the supply chain and logistics management.
The supply chain management is logistics aspect of a value delivery chain. It comprises all of the parties that participate in the retail logistics process: Manufacturers, Wholesalers, Third Party Specialists like Shippers, Order Fulfillment House etc. and the Retailer. Here, logistics is the total process of planning, implementing and coordinating the physical movement of merchandise from manufacturer to retailer to customer in the most timely, effective and cost efficient manner possible. Logistics regards order processing and fulfillment, transportation, warehousing, customer service and inventory management as interdependent functions in the value delivery chain. It oversees inventory management decisions as items travel through a retail supply chain. If a logistics system works well, the retail firm reduces stock outs, hold down inventories and improve customer service - all at the same time. Logistics and Supply Chain enables an organized retailer to move or store products more effectively. Efficient logistics management not only prevents needless movement of goods, vehicles transferring products back and forth; but also frees up storage space for more productive use. Retail analysts say on-time order replenishments will become even more critical once the Wal-Mart/ Bharti combine begins operations - the American retailer works almost entirely on cross-docking and is likely to demand higher service levels, including potential levies for delays in shipment.
The efficiency and effectiveness of supply chain and logistics management can also be understood by the fact that modern retail stores maintain lower inventories than traditional retail. In India, generally in the traditional kirana stores, three weeks inventories are kept; while in a modern retail store like Hypercity, it's nine days and it'sÂ under two weeks for Food Bazaar. Now, it is beneficial for both the manufacturer as well as the retailer. If we go through the following food supply chain in India, we find that a lot can be improved by maintaining the supply chain and logistics.
2.4 Reverse Logistics & SCM:
Reverse Logistics offers several advantages to the company in terms of both tangible and intangible benefits. In the first instance, companies are able to retrieve defective equipments and parts which are either salvaged or refurbished and thus reclaims value out of the defective parts. Secondly, the packaging and defective materials are collected and recycled thereby generating scrap value back for the company. Thirdly unsold and obsolete equipments are collected back from point of sale which encourages the distributors and stockists to confidently buy stocks from the company knowing that he can always return unused inventory and not stand to loose in the bargain. Distributors are more likely to be open to stocking all fast moving as well as slow moving stocks.
Reverse logistics has been successfully adapted as marketing strategy. Refurbished computers are sold at cheaper prices by all leading brands and the demand for such laptops seems to be growing. The spare parts used by the computer manufacturers to service the laptops and computers on warranty or on sale, include refurbished parts.
Literature Review is the process of reading, analyzing, evaluating and summarizing research articles. The findings of a literature review may be compiled in a report as part of a thesis. A literature review may be purely descriptive or it can give a critical assessment of the literature in a particular field to identify where the gaps are contrasting the views of a particular researcher. It also helps in evaluating and display relationships between the different concepts, so that we can state our objective and form our hypothesis for study.
3.2 IMPORTANCE OF LITERATURE REVIEW
Literature review is the most important part of any dissertation or research paper due to several reasons. Literature review helps in strengthening the dissertation to establish the objectives for our study by considering the perspectives of other authors. This proves a point that a significant amount of literature has been developed by researchers which helps in extending our research by reviewing it and establishing our objectives for study. Literature review is about getting aware of the work done by researchers in the past, which helps in hypothesis formulation for the thesis.
3.3 HOW THE LITERATURE REVIEW HAS BEEN DONE
The literature review is done in the following manner:
Identifying the relevant research articles related to our area of research
Reading the research article thoroughly
Analyzing the facts, concepts in the research article
Evaluation of the research article
Summarizing the research article in a brief manner
1. Reverse Logistics: RFID the key to optimality, Journal of Industrial Engg and Mgmt
Linköping University (SWEDEN)
This paper explains that Reverse Logistics generally give efforts on activities surrounding the return and processing of returned products. They are at first usually collected at the point of sale and also in collection points, then inspected and sorted by employees to the best of their knowledge. Moreover, the employee determines if the return is accepted and the actions to be taken later on. Thereafter, a certain amount of time can pass before further actions are taken in regards to those recovered products .Due to its unique advantages such as bulk reading, fully automation and no line of sight, the required time, labour and cost for collection and sorting are reduced. To increase the value of the returned products, decisions are made whether to repair, refurbish, remanufacture, cannibalize or recycle the products.The tracking and identification characteristics of the RFID give information about the quality of the returned products, advantages on making the right decisions and also reduce thievery. So RFID-based solutions have proven to help businesses reduce costs, fine-tune inventory management, fortify theft detection, and achieve new velocity with real-time visibility into business processes across the whole Reverse Logistics Supply Chain.
2. Social media as a touch point in reverse logistics: scale development and validation
Â InternationalÂ JournalÂ ofÂ BusinessÂ Research
This paper presents the development of a scale which assesses the factors that are important for customers who are contacted by companies on social media, in the context of reverse logistics. A two-dimensional scale is developed on usability and experience. The usability dimension consists of items related to ease of use, user control, response traceability and personalization. For the experiential construct, the items are empathy, empowerment and engagement. This scale can be used for all types of internet and mobile technology-enabled communication to assess customer service.Â
3. The Role of ICT in Reverse Logistics: A Hypothesis of RFID Implementation to
Manage the Recovery Process
Andrea PAYARO, University of Padova, Italy.
Traditionally a product was developed to be manufactured and go through the supply chain to be sold to a customer. However, supply chains are steadily integrating more activities than those concerned with supply alone, like including service and product recovery. Here we will focus on the latter, and especially reverse logistics, i.e. the handling of products, components and materials during the recovery process (Revlog, 1998). Several forces drive reverse logistics, like, competition and marketing motives, direct economic motives and concerns with the environment. At present, in literature it is not present a model that describes which products can easily be recovered and what are the elements that determine the feasibility of recovery process. This paper aims to define the product's characteristics that influence the
adoption of reverse logistics and to suggest the use of information technologies to support the recovery process. Information and communication technologies have a main role in the recovery process of electronic devices.
4. Cruising Ahead: Retail Reverse Logistics Outlook in India
Outlook, 14 Feb 2012.
Logistics is a component of integrated supply chain and is a significant contributor to the price of goods on the shelf. In India, logistics contributes 14-15 percent of the country's GDP, while in the developed geographies this percentage tends to be much lower, 7-9 percent. Here lies the challenge for Indian retailers, specifically discount retailers, for whom logistics management is a potential area to optimize cost.
Most logistics companies today provide customers real-time visibility regarding the coordinates of products in the supply chain. This is made possible by the use of technology like GPS/GPRS. The use of handheld devices for inventory control is also picking up in the industry. This helps retailers count their inventory faster and more efficiently. In some cases, a retailer's systems integrate with those of their 3 PL and 4 PL provider to enable smooth exchange of information on both sides.
In November 2011, the Committee of Secretaries of the Government of India approved up to 51 percent FDI in multi-brand retail, with a few conditions, before backtracking in the face of stiff opposition. One of the conditions was that half of FDI in multi-brand retail should go into creating back-end infrastructure like cold chains and warehouses. Also, the minimum FDI was mandated to be US$100 mn (around Rs 450 crore).
5. Green Reverse Logistics Brings Many Happy Returns
Amy Roach Partridge
Companies that combine the "reduce, reuse, recycle" mantra with the supply chain wisdom of managing costs and stamping out inefficiencies are developing reverse supply chains that help the Earth, the customer, and the bottom line.
"Reverse logistics is inherently green," explains Gailen Vick, president of the Reverse Logistics Association, a trade organization focused on educating retailers, manufacturers, and third-party logistics providers about the benefits of reverse logistics. "Repairing, refurbishing, or recycling a product instead of throwing it in a landfill automatically does good for Mother Earth."
Reverse logistics activities give companies a full green supply chain; they not only go to market with a green product, but they also have a way to get it out of the field that does not include a landfill. If a company can market a refurbished product that is just as good as a new one, it can cut manufacturing costs while promoting a green image through selling refurbished goods.
6. Assessing the Impact of RFID on Return Center Logistics
Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213
According to this article, many manufacturers, retailers, distributors, and logistics ï¬rms adopt RFID, the technology is becoming pervasive in the supply chain. Although its advocates include retail giants such as Wal-Mart, not all companies are enthusiastic about its beneï¬ts. It is not clear whether RFID is a boon or a curse to the supply chain-its market growth may just be an issue of compliance. To establish the real beneï¬ts of RFID, ï¬eld study was conducted with GENCO, a third-party logistics company that deployed RFID in the outbound logistics operations at one of its return centers. Their analysis found that the RFID implementation had a signiï¬cant impact on the GENCO outbound process. The number of customer claims fell substantially following the RFID deployment. After controlling for other factors in our model, they conï¬rmed that RFID was a key factor that contributed to the positive results at this return centre.
7. IT Investment Is Key to Successful Reverse Logistics Management
According to this article, Companies need some kind of track-and-trace capability to gain better visibility into where a good is in the reverse supply chain process. For starters, companies can use bar-coding and radio frequency identification to tag items before moving back through the supply chain. Enhancing the visibility of inbound returns allows businesses to adjust staffing levels according to inventory fluctuations. This enhanced visibility also helps maximize the value of returned merchandise by creating inventory alerts when products are ready for resale.
Reverse logistics software addresses this issue by automating compliance reports to prove that government regulations were followed. A reverse logistics system captures product data at each stage of the technical process and then produces compliance documentation in a customer report. Automating compliance reports eliminates documentation errors and reduces staffing requirements to produce compliance reports.
8. Automating the Retail Returns Process with R-LogÂ® Reverse Logistics Software
GENCO developed proprietary R-LogÂ reverse logistics softwareÂ to manage the reverse flow of products, information and cash from the point of receipt through final disposition. R-Log houses the business rules, agreed to between organization and their vendors, defining the appropriate product disposition method for each product. These rules help automate formerly manual processes to virtually eliminate human error, speed up the reverse flow of products and reduce labour costs.
R-Log benefits include:
Automation of the returns authorization process
Validation and crediting of online customer returns
Improved reconciliation of customer, store, and vendor compliance
Virtual elimination of store labour to process returns, freeing up store-level staff to work directly with customers
Reduced inventory and improved cash flow through fast, automated processing
Immediate application of vendor credits to the accounts payable system
Complete visibility and control through a Web-based tool that provides real-time information on returns inventory.
9. Reverse Logistics: Customer Satisfaction, Environment Key to Success in the 21st Century:
The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective merchandise collection and return. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness.
Reverse logistics is based upon heightened environmental consciousness, public policy and the law. The main concept is that reusable packaging, as well as outdated, damaged or defective products, can best be recycled or reused by the original manufacturer. It also involves product system designs that make recovery and reuse possible, efficient and profitable. In reverse logistics, a measure of what gets thrown away is a measure of a product design and recovery process failure. While landfill sites worldwide are at their busiest, more companies are discovering it makes good business sense to be proactive on environmental issues concerning returned inventory.
10. Sustainable Supply Chain Strategy - Reverse Logistics in E-Retail
According to this article, the rapid expansion of e-retail has also contributed to the increased awareness of the importance of reverse logistics. Customers buying over the internet do not have the benefit of a physical inspection of the product and this increases the likelihood that they will experience some dissatisfaction with the product and will want to return it. As increasing numbers of on-line vendors offer easy, no-fault returns, this has resulted in the potential for an ever-greater amount of returned merchandise flooding a company's reverse logistics supply chain. In recent years companies have reported returns percentages anywhere between 5% and 35%. Hard goods are normally at the lower end of the scale, while fashion clothing and footwear, where the customer will sometimes order a range of sizes if they are unfamiliar with the fit, is frequently at the higher end of this range.
Reverse logistics management software exists that can either operate as a standalone application or as part of an ERP. This specialised software can automate some of the critical functions and provide reporting and audit functions to enable retailers to maintain better control and also assist in meeting regulatory requirements.