“Smartphone Inferno”: Lessons in Reverse Logistics
Samsung has created one of the biggest global recalls in the world with 35 cases of exploded phones or phones catching fire thus far.
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Barely out of its launch on 19th August, 2.5 million units of the Galaxy Note 7 are to be returned to Samsung, a portion of which have not even reached carrier stores.
And that’s not all. Other Samsung products such as the recently released Galaxy S7 edge and soon to be launched Galaxy Tab S3 are facing scrutiny as well. No longer will “trendy” or “reliable” be at the forefront of consumer minds but more likely “exploding batteries” and “fire hazard”. The Federal Aviation Administration (FAA) is contemplating whether to ban Note 7 devices on planes days after the decision to ban usage inflight.
Although an exchange program was launched in all 10 countries where the devices were sold, a Verizon spokeswoman stated that even if replacement phones were to arrive from Samsung, there will not be sufficient phones to cover every Note 7 sold initially.
Unlike Apple which has a large network of retail stores, Samsung relies mainly on carriers to sell its products. This has made the task of recalling 2.5 million phones very difficult as Samsung has little control over carriers.
Why should we focus on reverse logistics?
Reverse logistics is defined as the process of moving goods from the point of consumption to the point of origin (manufacturer or retailer) to recapture value or ensure proper disposal. What was once mainly an afterthought is now an indispensable part of any robust supply chain in recent years.
1. Protecting your Brand Equity
Traditionally, aftermarket service is considered one of the harder areas in logistics to manage, coordinate and operate efficiently. It is also often overshadowed by the blind pursuit of profits, with retailers and e-tailers failing to see the value of reverse logistics in protecting a company’s brand equity.
Recalls in general are becoming more common. Just this week, GE has begun recalling three models of its top-loading washing machines due to an electrical malfunction that causes them to catch fire. In February, Mars swiftly recalled several chocolate products in 55 countries due to plastic found in a Snickers bar. A month later, Nestle voluntary recalled numerous lines of pizza, lasagne and pasta in March due to the potential presence of glass pieces. There was minimal public backlash, which stands in stark contrast to Samsung’s epic failure, and a large part of this is down to reverse logistics.
2. Proper returns management prevents unnecessary costs
Stack of cardboard delivery boxes or parcels. Warehouse concept
“Our best customers have the highest return rates, but they are also the ones that spend the most money with us and are our most profitable customers.” – Craig Adkins, Vice President of Services and Operations at Zappos.
Return shipments cost a whopping three to four times more compared to forward shipments, with supply chain costs averaging 7 to 10 percent of cost of goods. With the recent boom in e-Commerce and drop shipping (return rates between 5 and 7 percent of online sales), the sheer volume and cost of processing returns is making decision makers take a harder look at reverse logistics.
Unlike forward logistics where items are heavily optimized for delivery, reverse logistics is messy and disorganized. Furthermore, delays during transit, misloading and damage, or even inaccurate product counts or paperwork complicate the reverse logistics chain. A proper system which, for example, handles sorting and segmenting before sending the product back through the supply chain would prevent the unnecessary wastage of transportation dollars.
“If they’re doing nothing today, they’re losing about 5 percent to 7 percent of their bottom line. It’s just being thrown away.” – Gailen Vick, Executive Director, Reverse Logistics Association
3. One man’s trash is another man’s treasure
Although some returned products can be resold, not all products are merchantable after refurbishment or remanufacturing. These products may yet be of value outside the traditional supply chain. Secondary market venues are an area companies should explore; every dollar recovered is one less dollar of cost. Auctions, factory outlets and value retailers are alternative places to move products that are not selling well in the intended primary market.
Furthermore, secondary markets create positive externalities as they serve to reduce landfill waste and promote job creation which provides environmental and economic benefits.
Given the importance yet difficulty of achieving a true end-to-end supply chain, companies may find efficiency in outsourcing the task of reverse logistics. Due to expertise gained from managing complex supply chains and multiple SKUs in different arenas, third-party logistics players (3PLs) are the best companies to work with. Outsourcing reverse logistics allows companies to focus on their core competencies yet gain the benefits of a well-managed supply chain.
Samsung’s misfortune is indeed regrettable, but it has brought the spotlight back on the importance of reverse logistics. The longer the product stays in the chain, the more its value declines. A complete end-to-end supply chain must include reverse logistics, and being able to efficiently handle returns is critical for the management of customer expectations.
Phones don’t catch fire every other day, but when they do, it burns.
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