Effective Return Product Management ensures customer satisfaction, maximized spend, and ultimately increases a company’s profitability. Learn how.

1. New Paradigms in Reverse Logistics
and Returns Management
Extron | White Paper
Introduction to Returns
Management
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Why do Industries Need
Reverse Logistics?
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Reverse Logistics Process –
The Backward Movement of
Goods
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The Various Factors Affecting
Returns Management
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Disposition and Reconciliation
of Returned Goods
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How Extron Can Make a
Difference
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About Extron
Effective Return Product
Management ensures
customer satisfaction,
maximized spend, and
ultimately increases a
company’s profitability.
Learn how.

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
RETURNS MANAGEMENT AND REVERSE LOGISTICS
First let’s get our terms aligned. Although Reverse Logistics and
Returns Management are often used interchangeably, our
organization finds it useful to classify Reverse Logistics (RL) as the
transportation of returned goods to a Returns Processing Center
(RPC). Returns Management is the business process that deals with
inventory once it has been identified as a return (usually via
customer contact). As a result, in our definition, Returns
Management (RM) includes Reverse Logistics.
This inventory may be returned or rejected by a business, retailer,
or customer for reasons that include:
 Customer perceives that received product is defective
 Customer has had a change of heart (aka “buyer’s remorse”)
 Retailer or distributor stock rotations
 Equipment change-out due to technology evolution or
changing vendors
 Miss-shipments, damaged goods upgrades, competitive
upgrades, et al.
Globalization, new environmental legislation, societal norms, and
increased competition have impacted the returns management
process profoundly. Regardless, the manufacturer has a strong
vested interest in getting the returned merchandise back into the
supply chain. When the returns management process is not
properly managed the manufacturer stands to lose materials,
stakeholder support, goodwill, and revenue…all attributed to
unproductive inventory.
WHAT DRIVES THE NEED FOR REVERSE LOGISTICS
Globalization of modern day goods and product transactions has
introduced a new perspective on the returns management process.
Regrettably, the majority of businesses place their emphasis on
getting product out the door and overlook the business of Returns
Management, operating as if they do not expect the return of the
dispatched product. Often times this gap is attributed to the lack of
system automation required to manage returned product. Indeed,
they focus more on the Reverse Logistics, to take care of the
immediate customer issues, but focus less on the processing of the
returned goods – the Returns Management process.
According to Gartner, Inc., net profits are reduced 35% by
improperly handling returns1
, resulting in a loss of control, loss in
revenue, and a loss of inventory. Therefore, it is economically
prudent and, quite frankly, just makes good business sense to
establish an effective and reliable reverse logistics process that will
The Council of Logistics
Management defines the
reverse supply chain as
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.
Globalization is requiring
that organizations
rethink their Reverse
Logistics and Returns
Management processes
in order to stay
competitive

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
streamline the various RL attributes such as price protection, stock
upgrades, product obsolescence, ‘try and buy’ programs, et al.
THE REVERSE LOGISTICS PROCESS
The Backward Movement of Goods
Today, some 40%-70% of the goods returned to OEMs are shipped
back directly to a returns processing center (RPC), which may be
located overseas, thus incurring significant costs.
Already, a significant amount of material is being returned to the
manufacturer to be fully or partially recycled. This is expected to
increase multifold in the next few years as technology changes at
an ever-increasing pace, as new mobile and set top device
categories get established, as new environmental legislation takes
hold and as scrap value of recycled material continues to increase.
It is critical to note that returned goods continue to remain an asset
as long as organizations take action to convert them into revenue
AND that this action costs less than the revenue realized. It is also
important to note that this cost varies greatly depending upon the
RL solution being utilized. A key point to make is that although
returned goods are not a balance sheet asset in many organizations
(due to the accounting choices made by that organization), they are
actually a significant financial asset. As a result, many RM
operations, when viewed exclusively, can be extraordinarily
profitable.
The returns process is triggered when a business or consumer
initiates a return request. The return request normally requires
specific information be provided in order for the vendor, reseller, or
OEM to assign a Returned Material Authorization (RMA) number.
Once the RMA number is assigned, signifying the return has been
authorized, the party returning the item generally takes on the
responsibility and cost to ship the good(s) to the manufacturer’s
facility or RMA processing center. Typically, a functional support
group is in charge of the RL process. It is in everyone’s best interest
to promptly get these returned items back into the supply chain,
ideally reducing the onset of future rejects.
A time and money-saving option is to have these goods first
shipped to a ‘low cost’ returns center where support experts have
the capability to verify if the returned item(s) can be easily fixed or
swapped out there versus shipping them back to the original
Process
Location
Time-sensitive
Figure 1: RL Timeline Dependencies
Today, significant
amount of goods are
returned to the
manufacturer in order
for those goods to be
fully or partially
recycled; and, this is
expected to increase
multifold in the next few
years.

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
distribution and refurbishment center. For example, a technology
company that does not take this initial validation step and instead
has all returns shipped back to the manufacturing country of origin,
such as Thailand or China, does so at a much higher cost. It is not
surprising that a large return stream could incur significant costs
and inventory overages.
DISPOSITION AND RECONCILIATION OF
RETURNED GOODS
Many businesses do not have distribution networks that are
adequately equipped to manage returned products. All too often
these returned products find their way to warehouse shelves where
they take up valuable space, ultimately being forgotten and no
longer bringing any value to the supply chain or revenue to the
affiliated business parties. Returns management is a vital
operational business process and should be treated with the same
importance as getting the originating forward moving products fed
into the marketplace. Indeed, due to accounting quirks, returned
product sales can actually be much more profitable than “A-stock”
sales
Figure 2: RL Data Flow Integration
A business’ successful integration of the returns management
process requires reliable and appropriate data share: Return,
Product, Receipt, and Disposition Information. The first two are self
explanatory, the lattermost requires some explanation.
The disposition of returned goods includes the activities related to
recycling and reusing materials. In this example, recycling includes
the collecting of recyclable materials from waste generators and
processing these materials to realize limited economic value. Reuse
consists of refurbishing or repairing the returned items so that they
may again be used in their original form. The latter is obviously the
preferred economic outcome, as the items are circulated back into
the supply chain as new goods to be:
Every department,
including design,
engineering, and quality
control should be
mobilized to take care
of the returned goods.
Return
Information
Product
Information
Receipt
Information
Disposition
Information
Returns managment
must be integrated
with data flow
Today’s new legal
disposition requirement
have increased the
already innate challeng
within the returns
management process.
It is important to note
that these geographical
definitions vary amongst
organizations based on
size, products, geograph-
ic footprint, et al. For
example, “region” for
one company may trans-
late to city, province,
state, or even country.

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
 sold in the marketplace
 returned to supplier for credit
 sold at a discount in retail outlets
 sold into the secondary market
 donated to charity for the write-off
BUILDING EXPERTISE IN RETURNS MANAGEMENT
It should be clear that developing a Returns Strategy is a critical component to a
business’s overall success. It should come as no surprise that RL is a high priority in
industries where returned product can be remanufactured or recycled. Indeed, once
value is established, a whole new business model can take hold.
EXTRON’S VIEW OF THE RETURNS MANAGEMENT LANDSCAPE
GEOGRAPHICAL
Global organizations must view reverse logistics as a global operation; as there is a
driving need to manage and control a myriad of country initiatives that span across
regional and global levels. These varying levels include: localized, region/county, and
global.
Figure 3 – Global Reverse Logistics
Activities related to distributed collection centers, logistics consolidation, and return
point management should occur at a localized returned goods processing center
while activities such as validation, repair, recycling, or replacement are best
managed at a centralized regional center. And, to ensure these goods are expedited
back into the supply chain, it is a must for each business to define their own global
reverse logistics and warranty strategy.
“The market for remanufactured parts is $36 billion”
- Auto Parts Remanufacturers Association
“70% to 90% of the goods sold in the motor vehicle
market have been remanufactured”
- Remanufacturing Industrial Council International

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
FUNCTIONAL
Answers to the following questions will guide a company’s functional
requirements when establishing its returns management strategy.
1. What needs to be done with the disposal of the material in order
to meet environmental legislation?
2. Is there a warranty on the product that can be leveraged?
3. Can R&D or the original suppliers improve reliability by testing
returns?
4. By collecting the material(s), can abuse of the warranty system be
reduced?
5. Can the organization generate revenue from the recycling of
valuable waste materials?
6. When and how can functional goods be redeployed into the supply
chain?
TWO-TIER RETURNS MANAGEMENT™
Two-tier returns management is important in that it recognizes and
accounts for two critical variables in the returns management
stratagem: freight/time costs and processing costs as they relate to
specialized resources. The farther the distance the returned goods
must travel the less the potential value of the return, and the longer it
takes to realize the inherent value, thereby eroding their value.
However, the cost of mobilizing specialized resources to test and
refurbish goods is equally taxing, so there some tension between 1)
transporting goods long distances and 2) having skilled refurbishing
resources closer to the marketplace.
Figure 4 – Technology Vendor optimized on non-value-add transportation & careful use of
repairs
Two-tier returns management addresses this divergence by defining
Tier 1 centers that receive the returned products and test/validate
each product and Tier 2 centers that possess a higher level of repair
support, both which strategically reside throughout a geographic
service area.
Ships product to
Ships product to Ships product to
Local
collection
center
Regional
collection &
validation
center
Global
repair
centers
Marketplace
Tier 1 centers
enable 60% to 80%
of Returned goods to
promptly reenter the
Supply Chain.

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
As shown below, the user originates a product return that is then
shipped to a Tier 1 returns center where the returned goods are
validated, tested, and then repackaged - ready to be returned to the
user or to the marketplace. This equates to 60%-80% of the goods
being promptly fed back to the supply chain, with minimal value
additions in terms of time and freight costs. Of course, more complex
repairs will be forwarded to a Tier 2 returns center.
Figure 5 - Two-Tier Returns Management
CREATION OF DATA FLOWS/DATA MANAGEMENT SYSTEM
A key concern with many Reverse Logistics and Returns Management
strategies is that less attention is placed on data share and
IT/workplace productivity applications than their Forward Supply
Chain affiliate. Forward Supply Chains are replete with ERP, MRP,
Planning, Material Tracking, and multiple other operational tools
whereas RL is severely lacking; paradoxically the need for integrated
information tools is actually HIGHER for the latter.
This inconsistency reflects a lack of knowledge concerning the
financial impact returned goods comprise. Businesses that
successfully operate a carefully thought out returns management
policy have come to learn that this is the most profitable if not an
equally profitable part of the business, as measured by return on
sales.
Having solid information tools means that companies will be able to
determine many key variables.
Extron’s proven returns
management technique
recognizes out of date
product revisions and
components immediately
upon receipt.
TWO-TIER RETURNS MANAGEMENT™
Supply Chain Process
User
Regional ‘Tier 1’ Returns
Center
• Returns policy
• Testing
• Repacking
Global Contract Manufacturer
or ‘Tier 2’ Returns Center
60% -80% of the
goods
20% - 40% of
goods

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
The ability to:
 On a case by case basis, determine which RM center to return
individual RMAs to, based on transit time and freight cost
 Integrate RMA #s with expected receipts, configuration, and
serial number information and actual receipt validation at the
Tier 1 center
 Provide key decision making data: manufacture date,
configuration data, warranty expiration date, expected repair
costs, etc. in order to help the local center make economically
sensible decisions and to sort accordingly
 Capture key quality and performance data that may relate to
manufacturing defects, reverse supply chain velocity and
more
 Integrate suppliers across the Reverse Logistics and Returns
Management supply chain, from transportation providers to
call centers from the manufacturing factory to Tier 2 centers
and from the Receiving floor to Finance.
Figure 5 – Extron’s View of the Reverse Logistics Management Platform
HOW A VENDOR MAKES A DIFFERENCE
Extron’s integrated returns management system is designed to
specifically align the returns process in a logical and efficient manner.
Extron’s highly skilled return management experts possess extensive
experience in refurbishing a vast array of products; and in many
instances the goods are back in the field within 24 hours. Extron has
been trusted provider of end-to-end returns management for more than
two decades, which explains why Extron is uniquely capable of guiding
and executing any type of returned product operation to a successful
conclusion.
Extron is well equipped to develop appropriate disposition methodologies
for each customer’s specific needs, thus saving them the cost of
warehousing obsolete stock.
Figure 6 - Reverse Logistics Workflow
Reverse Logistics Management Platform should have at least 1 of the
following processes, data, and tools.
Software tools to gather
information, process returns,
and report on assets
Establish business processes to
manage incoming product,
inspection, sorting, and testing
Technology center to test
incoming product
Repacking/
Reprocessing
Disposal
Extron consistently
provides the highest
economic and
environmental return
industry wide.

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(source: http://www.rlmagazine.com/RLMagazine_3rdEdition.pdf)
Extron can support all legal disposition compliancy issues including WEEE (The Waste
Electrical and Electronic Equipment Directive). Whether the highest economic and
environmental value is remarketing complete systems, remarketing major
components, and/or partial or full recycling, Extron consistently provides the highest
economic and environmental return industry wide. By using Extron’s return goods
management system, returns are transformed from assets gathering dust into a
valid revenue stream.
Extron’s sophisticated return product management system ensures customer
satisfaction by reducing cost and ultimately increasing its profitability. Collaboration
is key – and sharing data and activity offers supply chain visibility and highly
interactive applications that empowers managers to follow a streamlined process and
make a tangible contributions as well as gaining a competitive edge. This is achieved
by proactively managing what previously was thought to be a hindrance, turning it
into a usable resource, and eventually turning it into revenue.
Partnering with Extron eliminates the pitfalls that come with the return and rework of
products and produces valuable resources from what might have been waste in the
past. When organizations are interesting in building a strong foundation for a robust
Reverse Logistics strategy, it is imperative that this objective be addressed by a
proven and trusted partner with established systems that enable high levels of
interaction with others who work within the industry…Extron is that partner.

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ABOUT EXTRON
Extron has been a pioneer in providing supply chain and retail chain solutions for
many of its clients across the globe. Extron clients enjoy the unique advantage of an
industry-leading Reverse Logistics program. Extron’s integrated return product
management system is designed to specifically deal with the returns process in a
logical and efficient manner. Our skilled staff has experience refurbishing a vast
array of products in minimal time and gets them back into the field tested and up to
our clients’ cosmetic standard (including “like new”), often within 24 hours or less.
For more details on Extron's Returns Management programs, click here
Or email us at sales@extroninc.com
This whitepaper has been written by Extron:
http://www.extroninc.com/