Time Value of Commercial Product Returns

Once lightly regarded, the flow of product returns has become a significant concern for many manufacturers. For products, such as PCs, whose value deteriorates rapidly with time, the increasing rates of return from on-line sales have elevated the need for effective reverse supply chain designs. Products lose value in the return stream in two important ways: first, their value diminishes during time delays while awaiting evaluation, repair or refurbishing; second, losses can be incurred through erroneous disposition decisions due to incorrect assessments of the product’s value over time. Using field data for several consumer electronics products, we build analytical models to capture the economic value of a time-sensitive product over its life cycle and then use these models to develop supply chain designs that maximize value recovered from the return steam. We show that the returned product’s "time value" is a critical design parameter

Time Value of Commercial Product Returns

Manufacturers and their distributors must cope with an increased flow of returned products from their customers. The value of commercial product returns, which we define as products returned for any reason within 90 days of sale, now exceeds US $100 billion annually in the US. Although the reverse supply chain of returned products represents a sizeable flow of potentially recoverable assets, only a relatively small fraction of the value is currently extracted by manufacturers; a large proportion of the product value erodes away due to long processing delays. Thus, there are significant opportunities to build competitive advantage from making the appropriate reverse supply chain design choices. In this paper, we present a simple queuing network model that includes the marginal value of time to identify the drivers of reverse supply chain design. We illustrate our approach with specific examples from two companies in different industries and then examine how industry clockspeed generally affects the choice between an efficient and a responsive returns network

Optimal production planning for a multi-product closed loop system with uncertain demand and return

We study the production planning problem for a multi-product closed loop system, in which the manufacturer has two channels for supplying products: producing brand-new products and remanufacturing returns into as-new ones. In the remanufacturing process, used products are bought back and remanufactured into as-new products which are sold together with the brand-new ones. The demands for all the products are uncertain, and their returns are uncertain and price-sensitive. The problem is to maximize the manufacturer\u27s expected profit by jointly determining the production quantities of brand-new products, the quantities of remanufactured products and the acquisition prices of the used products, subject to a capacity constraint. A mathematical model is presented to formulate the problem and a Lagrangian relaxation based approach is developed to solve the problem. Numerical examples are presented to illustrate the model and test the solution approach. Computational results show that the proposed approach is highly promising for solving the problems. The sensitivity analysis is also conducted to generate managerial insights

Applying Revenue Management to the Reverse Supply Chain

We study the disposition decision for product returns in a closed-loop supply chain. Motivated by the asset recovery process at IBM, we consider two disposition alternatives. Returns may be either refurbished for reselling or dismantled for spare parts. Reselling a refurbished unit typically yields higher unit margins. However, demand is uncertain. A common policy in many firms is to rank disposition alternatives by unit margins. We show that a revenue management approach to the disposition decision which explicitly incorporates demand uncertainty can increase profits significantly. We discuss analogies between the disposition problem and the classical airline revenue management problem. We then develop single period and multi-period stochastic optimization models for the disposition problem. Analyzing these models, we show that the optimal allocation balances expected marginal profits across the disposition alternatives. A detailed numerical study reveals that a revenue management approach to the disposition problem significantly outperforms the current practice of focusing exclusively on high-margin options, and we identify conditions under which this improvement is the highest. We also show that the value recovered from the returned products critically depends on the coordination between forward and reverse supply chain decisions.remanufacturing;revenue management;onderdelen;revenues;spare parts inventory

Closed-loop Supply Chain Network Design under Carbon Emission Regulations

This paper considers a closed–loop supply chain (CLSC) network design problem that accounts for the impact of carbon emission regulations. Three regulatory policy settings are considered; namely, (a) firms are subject to mandatory carbon caps on the amount of carbon they emit, (b) firms are taxed on the amount of emissions, and (c) firms can participate in a carbon cap and trade system. Traditional CLSC network design models are extended to account for the carbon emissions caused by transportation under different transportation modes. Model validations are demonstrated via a case study. Through detailed sensitivity analysis, we investigate how the parameters of regulatory emission control policies affect aspects of the CLSC network design such as product allocation and transportation configuration. This new formulation provides the decision makers with tools to balance the trade-offs between usual costs and the impact of carbon emission regulations. It also highlights the significance of incorporating carbon emission considerations when designing the CLSC network

Quantity discount contract for supply chain coordination with false failure returns

Consumer return attracts more and more academic attention due to its rapidly expanding size, and a large portion of it falls into the category of false failure return, which refers to return without functional defect. In this paper, we exclusively consider profit results from exerting costly effort to reduce false failure returns in a reverse supply chain consisting of a retailer and a supplier. The supply chain as a whole has strong incentive to reduce false failure returns because it can avoid much reprocessing cost associated. But typically, retailers enjoy a full credit provided by suppliers in case of returns, and hence they may not have sufficient incentives to exert enough effort for supply chain profit maximization. In some scenarios they may even have the motivation to actually encourage such returns. We suggest using a coordination contract to resolve such profit conflicts. The contract we propose is a quantity discount contract specifying a payment to the retailer with an amount exponentially decreasing in the number of false failure returns. We give explicit forms of such contracts given different assumptions about distribution of the number of returns and we also prove that such contract is capable of increasing both retailer's and supplier's profit simultaneously. Besides, when the contract is used together with other forward supply chain coordination contracts in a closed-loop chain, it is shown that it can act to deter retailer's potential incentive to encourage false failure returns. Moreover, some modifications of the contract may lead to easy allocation of incremental profit within the supply chain. © 2010 IEEE.published_or_final_versionThe 6th International Conference on Natural Computation (ICNC 2010), Yantai, Shandong, China, 10-12 August 2010. In Proceedings of the International Conference on Natural Computation, 2010, v. 8, p. 4450-445

Returns Management for Time-sensitive Products: What is the Value of RFID and Sensor Technologies?

This contribution concerns itself with the value of RFID and sensor technologies to reverse logistics processes. Our research is motivated by the question, to what extent the accuracy of information on product quality delivered by such technologies impacts the total recovered value companies obtain from returned goods in an industry with time-sensitive products. For this purpose, we first present a case study to examine the returns management process at a manufacturer of high-tech consumer electronics. We then develop an analytical model to study the monetary benefits in a scenario with RFID-enabled product disposition. Our results first show that RFID allows for a redesign of the return process which performs more efficiently regarding total recovered value depending on technology costs (i.e. tag costs) and capabilities (i.e. sufficient sensor-delivered parameters to rightly infer the product quality). Second, our results indicate that maximum benefits can be drawn with lower accuracy but early decision on the disposition option

Linkages analysis risk factors of the return process in logistics fast moving consumer goods

This study analyzed the linkage of risk factors in the return process of fast-moving consumer good (FMCG) logistics systems.  The risk of returning products due to expired, near expiration, order errors and bad stock (damaged) haunts sustainable supply chains in the industry. In four business processes, warehousing, transport/distribution, product­ion/supply and order processing identified twenty-two risk factors that cause the return process. The decision-making and trial evaluation laboratory (DEMATEL) method helps decision-makers simplify causal relationships between twenty-two complex risk factors.  Through the depiction of the matrix  and the network relationship map, twelve risk factors entered the dispatcher group, namely risk factors that can affect other risk factors that impact the return process on the FMCG logistics system. The result becomes a reference for decision makers to prioritize risk factors management that have a relationship with other risk factors, because the impact obtained will be maximal

Managing Product Returns Within the Customer Value Framework

Customers can create value to the firm by purchasing products, not returning these products, recommending products to other potential customers, influencing other customers, and providing feedback to the company. In this chapter, we first discuss how product returns and engagement behaviors can be included in the customer value framework. Second, we discuss the antecedents of a customer’s product return decision, namely, return policies, information at the moment of purchase, and customer and product characteristics. Third, we focus on the consequences of product returns: the effects on future purchase and product return behavior, as well as on customer engagement behaviors. Thus, this chapter provides a comprehensive synthesis of current knowledge on antecedents and consequences of product returns and how this relates to measuring and managing customer value