We had the unique opportunity to engage with leading retail and OEM brands at the Consumer Returns event this week in Dallas. Having brands, retailers and providers in the same room to discuss a problem that costs the industry up to $100 billion in annual product returns provided an interesting perspective on some of the very challenges that exacerbate the cost of dealing with this problem.
The dialogue certainly created an awareness of the issues facing OEMs and retailers. Some progress has been made on tackling common problems such as cooperation on the prevention of fraudulent returns. What became clear, however, is that there is a lack of alignment on how to tackle the cost of dealing with the problem. While the returns culture (especially in the U.S. market) is a problem in itself, the cost of dealing with returns (at 2.7 times the cost of processing the original shipments) is at least partially self inflicted.
The retail returns “recipe” spans multiple organizations and functions with conflicting motivations. A simplistic view of the process would include:
Ultimately, the process needs to deliver the appropriate service to customers, and the objective is to maximize the recovery from returned product, while protecting the brand value of new product sales.
Every time we touch or move the product, we are adding to the cost of the returns process. This is a worthwhile investment only to the extent that these costs efficiently get products to a recovery condition or improve that condition to drive an increased recovery.
The market will fix the rate of recovery at a point in time based on the recovery channel and condition of the product. With the passage of time, that recovery will decline. Time, therefore, becomes the other enemy of this process.
Today’s recipe seems geared more towards moving the problem to the next stage of a fixed process than driving a dynamic process to improve the ROI of the returns process. It is time to step back from the daily execution process and examine the true value of returns management. In a follow-up post ‘Returns Management: Too Many Cooks – the Start of a Recipe,’ we will look at some of the elements needed to improve the current recipe.
We would love to get your inputs on ingredients for success.
The first step in creating sustainable and effective customer experience management is to crystallize an authentic service credo or theme that cuts right through the core of an organization.
Service theme is in fact the operating system that guides and permeates all aspect of the organization’s conduct when it comes to the delivery of services. It encompasses the ideologies, values and vision of what the organization stands for and the kind of services their employees are expected to deliver.
Comprehensive studies have shown that companies that have a clear vision of what they represent and what their core ideologies are have a greater propensity to outperform their competitors. Jim Collins and Jerry Porras in their celebrated work, “Built To Last,” show how organizations transcend their leaders, products and strategies, and observe that visionary companies, with well-rooted and palpable ideologies, “outperformed the general stock market by a factor of 12 since 1925.”
A service theme can only be a guiding force if it’s authentic and truly revealing of what is unique about the organization. It is an exercise that requires deep soul-searching and a savvy understanding of the environment in which the organization functions. It takes into account key elements such as the organization’s history, culture and customers.
To guide an organization through the crystallization of a genuine and unique service theme, we can leverage a set of strategic questions from Bernd Schmitt and Alex Simonson in their book, “Marketing Aesthetic.” These questions include:
- What characteristic of an organization should be accentuated?
- Where can we find a rich set of themes?
- How should the themes be best represented?
In order to answer these questions in a way that stays true to the organization, the same authors identified three salient steps:
- Analyze the core elements of the organization’s environment- both Internal and external. These include the organization, its customers and competition. For instance, in the book, Be Our Guest, Disney Institute reveals that at Walt Disney World, the process of collecting and analyzing customer data is a pre-requisite to completing what they call the “Guestology Compass”.
- Scan for rich thematic content from a variety of different domains within a culture such as religion, politics, fashion or history.
- Explore and evaluate where the corporate theme should be embodied: in names, symbol, slogans/songs, narratives, concepts or a combination of these elements.
What has been your experience in producing a service theme for your organization and how does it impact your service organization as a whole? Please comment and let us know.
There is no doubt in my mind that the Internet has made the world a little smaller. It has also created a lot of opportunity for businesses to expand globally. Internet Retailer published a story last week titled: Beyond North America and Europe: Catering to online shoppers throughout the globe. The article does a good job of outlining online shopping activities for markets in Asia, Latin America and the Middle East. As you probably suspect, there is no one-size-fits-all option when it comes to selling online internationally. Each country has unique requirements and habits.
For example, the article provides some insight into online shopping habits in Brazil where installment payments are the norm and consumer electronics and large appliances are top sellers. The article also points out that in South Korea digital content is a huge seller, such as music and video downloads.
The Logistics and Fulfillment Challenge
Aside from the differences in buying behaviors and product preferences internationally, there is a host of logistical and technical aspects to be considered. For example, how do you get your product to the local market? Earlier this month, I came across an interesting e-commerce statistic that stated nearly 75 percent of retailers send merchandise to overseas customers from a distribution center in their home country. This is most likely due to the challenges and costs associated with having multiple distribution centers. This could easily be solved by partnering with a supply chain company that has the right global footprint and scalability.
In addition to product distribution, you also need to consider what payment methods you should offer and how can you manage those transactions. As mentioned above, each country may have different norms when it comes to buying items online. Think about how you can manage the payment process to ensure a seamless experience for your customers. Depending on which markets you are targeting, working with a partner may be helpful. If you offer payment options that shoppers are not familiar with then they may never complete the transaction and abandon their shopping cart.
In addition to this, there are also local tax implications. Taxes vary by country and you should work with a partner who is an expert in the country you plan to do business with to ensure you are in compliance with the local tax rules. When a shopper checks out at your e-store their bill of sale should show the amount they are paying in local currency and detail any taxes that are being paid.
You also need to consider localization for language – both for the web store and for customer support. Not only do buyers from around the world have different shopping habits they also speak many different languages. The language barrier is probably the reason why most North American companies choose Canada or the UK as their first international venture for online commerce expansion. There is a huge market beyond these countries if you build your site correctly and customize appropriately for language.
This topic is broad and there are many things to consider when planning an international expansion strategy for e-commerce. Ultimately, as with any business strategy, it is important to do your homework so you can make educated decisions about when and where to expand your e-commerce activities.
What other considerations do you think are important for international e-commerce expansion?
Want to learn more?
Download the Gateway to Global e-Commerce white paper that explores the process of global e-commerce expansion and addresses key challenges.
Top 10 signs that your value chain may include some horrors this Halloween
10. Your distribution center manager has presented a plan for a Halloween bonfire as the best way to shift the mountain of excess inventory that you have on hand.
9. Your head of sales and marketing is prepared to endorse this plan.
8. Despite having a warehouse full of inventory, you still find yourself chartering aircraft to expedite shipment from China of the product SKUs that your retail customers did actually order in time for the holiday season.
7. Your collaborative planning, forecasting and replenishment (CPFR) program is being described internally as the FUBAR (Fouled up Beyond All Recognition) program (with apologies for the use of this military term).
6. You find yourself re-working the dads and grads inventory with ‘trick or treat’ stickers.
5. Your customer order team is only scheduled to work the last six hours of the quarter when you receive 90 percent of your orders at a heavily discounted rate.
4. Your Halloween shipments have a greater than 20percent chance of being returned in time for Thanksgiving.
3. Once they are returned it takes you a further six months to get agreement on a satisfactory disposition.
2. Your field service team has developed a lucrative sideline carving Jack-O-Lanterns, while waiting for out-of-stock service parts.
1. Your planning manager has been seen using a Ouija board as a forecast tool.
If you recognize elements of your value chain, be prepared for a very scary time in the weeks ahead. Feel free to add your own signs to the top 10.
You have done everything you can internally to reduce supply chain costs – so what’s next? Supply chain outsourcing is a viable option, though it may seem daunting at first. In the September/October issue of Supply Chain Management Review (SCMR), there was an article that examined business process outsourcing and why it has the potential to be a significant area of opportunity for supply chain cost cutting.
The author explains how outsourcing can create a cost advantage because it requires little capital expenditure. Now consider the cost of opening your own facility in a new region versus outsourcing to a partner who is already established in that location? In this case, outsourcing can save you not just on the capital expenditures to open a new facility, but also on the time it would take to get the location up and running as well as all of the other logistical aspects of opening a new location.
Next, the author asks the reader to think about agility and responsiveness in the supply chain. Volatility in fuel, raw material and labor costs is only the tip of the iceberg for supply chain planning. Other considerations include IT infrastructure and rapid technology advancements that can accommodate an increasing need for global visibility and that can be “always on, always available and in real time.”
The article draws a distinction between outsourcing business processes versus outsourcing a function. The key differentiator is that in business process outsourcing you are looking at developing a strategic relationship with your outsourced provider, one in which both parties have an incentive to work toward continuous improvement, a concept Kate Vitasek, faculty member at the University of Tennessee and founder of Supply Chain Visions, has coined vested outsourcing. The SCMR article goes on to use the Supply Chain Operations Reference (SCOR1) model as a framework for business process outsourcing.
The bottom line is that if you want to achieve greater levels of agility and responsiveness in your supply chain while reducing costs, business process outsourcing can help you achieve these goals, especially if you have hit a plateau with internal efforts.
What are your thoughts on strategic partnerships in supply chain outsourcing?
Unfortunately, Supply Chain Management Review does not have a digital edition that I could link to from this post. The print edition is a good resource if you are a subscriber and they do have a website and blog that provides some great content. We would love to hear what you are reading – whether it be print or online. Take the mini-poll located on the homepage of Value Unchained and let us know your favorite supply chain publication. If it’s not listed, leave the response in the comment chain for this post.
For more information on supply chain outsourcing, check out these resources:
1. SCOR is a registered trademark of the Supply Chain Council
I came across an article last week in the October issue of Accountancy Ireland (my early training was as a Chartered Accountant), which takes the view that there is increased value in aligning financial reporting to the value chain processes of an organization. These processes included inbound logistics, operations, outbound logistics, sales and marketing and service.
The article made me stop to consider the language, reporting and metrics gaps that exist between our financial and value chain organizations.
Financial reporting is controlled by an ever increasing list of standards to provide a ‘true and fair’ view of an organization’s financial health. In that search for ‘true and fair’ has the accounting profession lost sight of ‘relevant’ and ‘actionable’?
When it comes to driving increased revenue or reducing cost, the value chain organization is critical to making this happen. However, as we have mentioned in prior posts around the AMR Supply Chain Top 25, it is impossible to judge the effectiveness of a company’s value chain based on current financial reports.
We compensate for this with the addition of a management accounting function to our financial reporting functions in organizations. These are the financial interpreters between what is really happening in the business and what is required to report to the outside world.
Would investors benefit from more information around a company’s value chain performance? Can this be done without compromising commercially sensitive competitive information?
Of course there is also a responsibility for the value chain community to reach out and embrace the language of investors. Could this gap be part of the barrier preventing the Chief Supply Chain Officer from becoming a C-level fixture as more of a standard?
Maybe we need to start building that bridge of understanding with our financial colleagues.
I would love to get your thoughts.
“What does supply chain management mean?”
This was the follow-up question that I received from about 95% of the people who asked me what profession I was in when I first started working in supply chain management more than 10 years ago.
In the last 10 years there has been an amazing increase in awareness of what supply chain management involves and its overall importance. Education has played a critical role in creating this awareness and generating a talent pool for this growing industry.
For example, in 1998 when I was looking at MBA schools, I cannot remember more than one or two schools among the Top 50 graduate business schools in the U.S. with an emphasis on supply chain management. Even the schools that had courses related to supply chain lumped them together with production and operations management.
In contrast, today reputed universities such as the ones listed below not only offer full degree undergraduate and graduate programs but are also offering certifications and non-degree courses specifically in supply chain management. These include:
Other than universities, professional associations and even individual companies are using a suite of seminars, conferences, online and classroom courses to develop and expand a talent pool of supply chain professionals.
Notable associations include APICS, CSCMP, ISM and the Supply Chain Council, which all offer supply chain education not just at a regional level but also at a global level.
In my opinion, if supply chain management is to continue to grow and evolve as a modern discipline, the nurturing of supply chain talent is critical. We have made tremendous progress in generating a talent pool as well as raising awareness across the board on the uniqueness of supply chain management as a discipline separate from operations management and logistics.
Also, nowadays I am only asked to define supply chain management about 30% of the time when discussing what it is I do. :)
In an earlier post to this blog, ModusLink blogger Sean Sabre discussed why It Isn’t Easy Being Green. The topic of green supply chains is something you probably hear a lot about – especially if you follow industry blogs and other publications. And if you are really savvy and well read, you already know that when it comes to greening your supply chain, sustainable initiatives can save you money.
In fact, while cost savings and a positive environmental impact should be great motivators, often the key factor for green supply chain initiatives is customer expectations – from both the retailer who sells your products and the end-user. Walmart is a great example of a retailer who has taken serious measure to reduce its impact on the environment. By setting high standards for both Walmart and its suppliers, the company has escalated the need for manufacturers to improve their processes to meet the strict standards of Walmart’s sustainability goals.
So how can you create a green supply chain? There are many incremental changes that can be made, as well as processes that can be evaluated and streamlined, that can have a positive impact on your sustainability efforts. In ModusLink’s newest whitepaper, Sustainable initiatives for the Supply Chain, our own Value Unchained blogger Ryan Humphrey dives into three major areas of supply chain sustainability—sustainable packaging, network configuration, and greenhouse gas (GHG) optimization. Ryan offers insights on how you can:
- Streamline supply chain operations
- Reduce the impact your products have on the environment
- Generate revenue from sustainable practices to improve your company’s bottom line
I encourage you to download and read this whitepaper. It contains a lot of good, actionable information including types of sustainable packaging and materials, ways to optimize your supply chain configuration, GHG optimization tips and commentary on Walmart’s effect on how manufacturers view sustainability in the supply chain.
I welcome you to use the comments section of this post to let us know your thoughts on the paper as well as what your company has done to achieve sustainability in the supply chain.
I read a fascinating article in The New York Times about Japan’s efforts to recycle rare earth minerals from waste electrical items. The article describes the fact that rare earth minerals such as indium and anitimony can now be extracted from LCD TVs and semiconductor wafers. The extraction processes are driven by the ever increasing price of rare earth metals and the potential future supply concerns of the materials as the mines are concentrated in particular regions of the world.
There will also be future increased demand for the materials as hybrid cars with complex technologies increase in popularity. Many companies have begun to stock pile the materials in expectation of shortages.
From a supply chain perspective the recovery of rare earth minerals will certainly make large consumer electronics companies and automotive manufacturers look at their supply chains from an end-to-end perspective starting with the raw materials mining location to taking back the products at end of life. An effective strategy will ensure that there is a constant flow of materials and steady pricing.
In terms of the recovering of materials at the end-of-life this can be done in conjunction with national legislation such as the European WEEE regulations or end of life vehicle legislation.
Effective recovery can be driven through incentive programs for customers; this will increase loyalty and give the company a steady supply of rare earth materials to compliment traditionally mined minerals.
Have you seen any innovative take-back programs that recover value effectively? Are large companies effectively engaged in recovering value from returns from a rare earth minerals perspective?
Infomercials and direct response television advertising are a fast-growing industry in the U.S., with more than $154 billion a year in sales. Payments are collected through various methods and order fulfillment must be efficient in order to maintain customer loyalty. This market predominately uses subscription billing and recurring payments. Many larger programs leverage multiple contact centers that must be directly linked to the subscription billing and recurring payment systems. And recurring payments can have multiple payment intervals up to seven times. This translates to multiple order and payment interactions between systems and processes.
How can you overcome all this complexity?
First, you must answer the following questions:
- Authentication: Who is the customer behind the order?
- Authorization: At what point is the money guaranteed ”in the bank?”
- How will the orders flow? What if multiple feed connections between CRM and e-Commerce platforms are required?
Next, you must take into account the following requirements:
- To accept credit cards you need to have a:
- Merchant account with a bank or processing organization including an installment payment solution to cover payment intervals in combination with a subscription invoicing system
- A fulfillment company to transfer the transaction information to the processor for authorization, authentication, fulfillment, invoicing and settlement
- Collection process for those recurring payments failing settlement at a certain point.
- You will need to specify the way payment information is captured to stay in line with PCI compliance in the event multiple contact centers and/or shopping carts are integrated.
- Be sure to capture your customer's credit card information in a secure fashion as orders can flow through:
- Contact center phone processing
- Online shopping cart
- Transactions can be transferred using:
- A web services platform that transmits and interfaces with multiple contact centers/online shopping carts in order to manage the order transactions to the processing center
- Online "real time" credit card processing gateway systems The payment processing center obtains the approval (or decline). A confirmation message is sent to the client. Once authorized the order will be fulfilled and the funds are deposited into the merchant's bank account.
Subscription billing and recurring payment processes need to follow logical steps in order to succeed. You will always be confronted with the multitude of integration points that might influence the set up from an IT point of view. Even if you conduct a very close analysis prior to implementation and roll out, you may still be surprised with the elements that could have effect on your business process before the go-live stage.
What order processing challenges are you facing with direct response, or even other types of marketing promotion vehicles?
I often get questions from clients on the ultimate e-commerce technology such as “Can you help us to select the right technology (hardware and software) as part of our infrastructure to deliver products digitally?”
It’s not possible to define a one size fits all solution (combination of: hardware, software, applications and/or cloud service) or one technology. My perspective is that the solution you choose must comply with the standards and principles that will enable you to provide the right service today and that can cope with the rapid changes that will definitely occur in your marketplace. We are in a highly transformative time as we are facing rapidly changing e-commerce customer expectations. Technology continues to rapidly evolve; especially from the customer’s perspective with the move from traditional personal computer (PC) to mobile devices.
On top of the changing environment, the challenge of serving customers via many touch points, like first sell, order status, delivery receipt, customer loyalty programs and returns has grown and solution providers must work to minimize this complexity.
In my response to the “ultimate e-commerce technology solution” question, I emphasize that the solution has to comply with the following rules and principles. I also emphasize that the solution really needs to address the requirement. You should validate if it’s an actual requirement for your solution, keeping in mind that B2C can have different requirements than B2B.
e-commerce user requirements (based on the offered solution):
- Multi platform - PC, iPad, mobile devices
- Adaptable - to integrate with new/other functionality and solutions
e-commerce business user requirements:
- Usability – easy to maintain and operate (shop manager’s perspective)
- Full and integrated solution - one-stop-shop principle
e-commerce IT requirements:
- Portability – able to operate on various platforms regardless of the manufacturer or operating system.
- Scalability – able to cope with more/less load without or little impact to the underlying components
- Flexibility – able to take advantage of new technologies and able to cope with changing environments
- Interoperability – the combinations of solutions that must work together , the right choice between integrated IT solutions and stand alone best-of-breed IT applications/systems
- Manageability – able to easily manage the cloud solutions and/or “ internal” solutions
There are no perfect solutions…but there are good and bad solutions.
Are these requirements also applicable to your e-commerce technical solution or do you use others?
In the last few days I have joined a fitness boot camp. Yes, it’s about time I got myself into shape and what better way to do so than having an army-style workout with various instructors shouting at me to pick up the pace and to give them 20!
This regime reminds me of some things you can do in your supply chain just before the major selling season:
- Are your logistics costs as lean as they should be? What things have changed in your supply chain over the last year? Has the form factor changed on your products? Have your customers become more centralized? Can you choose less expensive modes for certain customers and pass on the discount? Freight costs are very dynamic and should be negotiated regularly to fit your profile.
- Can your space requirements go the distance? If you have new products that are expected to sell well, what agreements are in place with partners on overflow space requirements? Are there flexible approaches that can be used so that it is on a pay–as-you-use basis?
- Can your supply chain lose a few pounds? Are there extra nodes in your supply chain that can be eliminated? Perhaps packaging and logistics can be consolidated? Perhaps volumes or form factors have changed in a particular market allowing for fulfillment from a nearby market.
- Can you get in some extra workouts? Many retailers increase sales by bundling products. Do you have a flexible supply chain able to react to retailers’ demands in terms of product pack out?
- Turn that excess fat into cash? Are there slow moving or out of date products sitting in warehouses? Look into selling off the products via alternative channels or discounting them to employees or discount retailers. This will release cash, reduce space costs and free up space for more profitable lines.
Do you have any ideas on getting your supply chain into better shape? What areas can you trim down ? What is your army-style instructor asking you to do?
Are you ready to make the commitment? Yes Sir!
“Are you guys a 3PL?”
“Do you sell network design/package design software or services?”
“Do you have presence in Brazil? We could really use these solutions there.”
“Can you apply network optimization to wine/food/tobacco etc. products?”
“Do you still have warehouses in Utah?”
“How can we partner with ModusLink?”
These were some of the most common questions that I recently fielded while manning the ModusLink booth at the recently concluded first annual CSCMP Supply Chain of the Future lab in the beautiful city of San Diego.
ModusLink’s quadrilateral-shaped booth showcased our expertise in supply chain design, supply chain execution, aftermarket solutions including returns and repair and value recovery solutions.
This lab, spread over 100,000 square feet of the San Diego Convention Center, consisted of a cornucopia of approximately 100 organizations in the supply chain arena offering:
- Software solutions (from strategic network design and decision making analytics to transactional warehouse management systems)
- Automated equipment solutions (mobile fulfillment systems, automated palletizing and high-speed case packing solutions to right-sized on-demand packaging solutions)
- Value-added solutions (forward and reverse supply chain solutions)
- “Next-generation” and sustainable products (pallets/packaging etc.)
While the CSCMP Annual Global Conference, which attracts close to 3,000 supply chain professionals, has traditionally been designed across various educational sessions, the Supply Chain of the Future was meant to depict a “real-time, fully integrated operating supply chain.”
Did this “lab” achieve the goal of depicting a real-time and fully integrated operating supply chain? Only partially; and I feel this way primarily because this was just the first year of the event.
While some of the participants did preview some “cool” innovations such as robotic picking and shipping systems, the majority of the exhibitors used this forum to demonstrate and market their current service offerings and network with potential clients and partners.
Also, as opposed to a fully integrated supply chain, as one walked into the exhibit hall the first impression was of a compartmentalized supply chain grouped by functional areas and separated by makeshift boundaries, each “compartment” trying to differentiate itself and its offerings from its neighbors.
In my opinion, adding an event like this to the educational conference is commendable and a step in the right direction. It adds the missing practical component to an otherwise largely academic and theoretical endeavour for a targeted gathering of supply chain professionals from across the globe.
In future years, I expect this event to only get better and become the preferred conduit for futuristic and economically feasible solutions for the supply chain space.
If you attended the Supply Chain of the Future, what were your thoughts?