The PLM Insider
Jyotirmoy Dutta works as a PLM consultant with more than a decade of expertise in PLM Strategy Consulting, Solution Architecting, Offshore Project Management and Technical Leadership. He has led several full life-cycle PLM implementations, in the Consumer Products, Electronics & High Tech, … More »
Effective Product Returns using PLM
May 13th, 2012 by Jyotirmoy Dutta
I write this post based on my latest experience of buying two products from a leading retailer and then returning them both after scarcely being able to use either one. Every one of us has experienced this common scenario on a regular basis.
The first product was a home water filter made by Fortune 100 chemicals major and the second product was a piece of furniture made by leading producer of “ready to assemble” residential furniture.
In the first case, I simply could not get the product to work as anticipated. After tinkering for an hour or so with it I headed to their website – was extremely dismayed to find no product support/self-help available, had a long wait time to get to their customer care and there were no FAQ’s on what could go wrong and how to fix such issues. It seemed like the “big-company” had forgotten its retail customers or were not very inclined to serve them. Therefore, I took my receipt and headed back to the store.
In the second case, it was more of unmet expectations. I ordered this piece online and paid much more than comparable item in store, but when I landed my hand on the item, the quality seemed inferior. The nice glossy pictures of their website took me in! In addition, it had taken longer to ship than anticipated (by the time I had lost the euphoria of buying in it), and had extremely complicated assembly with more than 30 different parts needing specific tools for assembly (which I was reluctant to buy). This was not a small product – was over 50 lbs and had extensive packaging to prevent damage while shipping to the store.
Returning these items (for a full refund off course) made me think – especially after the second one: Who was going to bear the cost of packaging, shipping, inspecting/assessing, repackaging, restocking and reselling the returned merchandise? Moreover, how common was this practice? Therefore, I drudged in a little deeper. A study “Time Value of Commercial Product Returns” done few years back estimated: “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.” More recently, “Accenture estimates that US consumer electronics manufacturers, communication carriers and retailers will spend $16.7 billion to receive, assess, repair, re-box, restock and resell returned goods in 2011. For manufacturers this represents 5 – 6 percent of revenues and 2 – 3 percent of sales for retailers.” The Aberdeen Group estimates that high-tech companies alone spend approximately 8% of revenue just to manage their reverse logistics function. Naturally, product returns are a “pain in the neck” for a firm’s supply chain management and bleed overall profitability, costing in terms of both profits from sales and reverse logistics. The reasons for return are myriad, and industry analysts concur that returns have become endemic in many markets, with rates of 18-25% in some sectors. Return rates will probably continue to rise due to factors that include increases in low-cost, and low contact distribution channels like the Web, customer uncertainty that emerges from a dramatic expansion of product choices, and shorter product cycles. [Managing Returns: Art To Science]
Though penalties like restocking fee, non-refundable shipping or handling charges, penalty per return etc. exist, a “money-back guarantee” policy or a full refund policy is more common. Relaxed returns policies at most major retailers allow consumers to return unwanted merchandise back to the store for almost any reason. Retailers try to make a customer’s return experience positive (e.g. easy hassle free returns), as this offers a chance to build the relationship with the customer resulting in higher customer lifetime value. Studies conducted show that though product returns are inevitable but by no means evil – a customer’s product return behavior positively affects his or her future buying behavior, up to a threshold. However, the issue in finding this threshold and having an ideal rate of return is that once returned to a retailer, the products can follow one of two reverse channels, where either the manufacturer or the retailer resells or salvages the products. In the second case, it is difficult for the manufacturer to take corrective and preventive measures as gaps along the supply chain thwarts the credible sharing of such information as the product return rate or reasons for return.
Many manufacturers actively take countermeasures against returns, including investments in processes and infrastructure. While my post today does not focus on these methods, I think there is a large scope of improvement where PLM tools can specifically help. The picture below from Returns Management Inc. whitepaper “Unlock Profits In Your Product Returns” depicts the “Organizational environment for product returns”. When you look at the entirety of an organization from the angle of returns management, the connection to PLM is instantly recognizable.
In my view, PLM systems can effectively aid returns management by various means:
1. Pre-Purchase Stage:
Help consumers in their pre-purchase decisions: When customers conduct pre-purchase research, providing better product information goes in a long way. Currently if you look at various retailer websites say for a piece of furniture, garden, or home equipment you get to see only a fully assembled product photo. 2D and 3D product visualization with markups directly pulled up from the PLM system would enable customers to visualize these products better and to understand what effort would go in to put them in use. Information on parts list, tools required for assembling, estimated time to assemble etc. could be put up front too.
2. Usage Stage:
Survey of US consumers found that consumer tolerance levels-for making a device work is about 20 minutes. After that, they tend to give up and return the product. In such cases, manufacturers need to address problems with a product’s design, packaging or instructions. Redesigning a product to simplify the technical complexity imposed on the consumer goes in a long way. As PLM systems evolve, companies can now create and manage technical information aligned with product structures to automate product-specific documents such as installation, service, and maintenance instructions, along with training materials, FAQ’s etc. If a manufacturer has this piece automated then it would be prudent to make such information easily accessible to the customer.
3. Post Purchase Stage:
Encouraging customer feedbacks/complaints to understand dissatisfaction and keeping customer feedback mechanisms simple goes in a long way. Since only a small percentage of discontented customers actually complain, simple questions and short surveys (Amazon style) tend to ease user fatigue and return information that is more reliable. The survey results should directly feed Returns Analyses and in succession Engineering Change and front end processes such as new product/market development or quality assurance.
Reverse supply chain is a complex process and I may have missed some points in my assessment here – I would love to hear from you on this topic! Do post your comments or send me a note.
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