(fun upbeat music) If you've ever had to make a return at a store after you bought the wrong item, you have a sense of what reverse logistics is. Reverse logistics refers to material moving upstream from customers to suppliers. This includes goods moving from consumers to retail stores and from retail stores to manufacturers. Returns are the most common example of this. And for some supply chains, they're the only example. A return could be a result of a customer changing their mind, the wrong item could be shipped, or a defective product. Companies should have a documented returns policy in place that addresses such situations. You may see retail stores display this policy on in-store signs, posted on their website, or included on the register receipt. Some stores have a very liberal returns policy as a means of enhancing their customer service. For example, they may offer up to 60 days for you to return an item, while a competitor may only offer 30. Other stores may offer returns without requiring a receipt. Unfortunately, overly generous returns policies could incentivize unethical behavior on the part of the consumer. For instance, a sports fan may purchase a large high-definition television before a major sporting event, such as the Superbowl, host a big party for their friends, and return it after the game, or a customer may buy an item that is on sale and return it after the price goes up to pocket the price difference. Many retailers are aware of these practices, however, and have instituted controls to safeguard against it. Returns between businesses can become a much greater issue as there's a larger financial implication when returning an entire pallet or truckload of products as opposed to a single item. Look for the returns policy on the purchase order as part of the boiler plate terms or the company standard text on all purchase orders regardless of what is being ordered from or from which supplier. Alternatively, it's possible for two companies to craft their returns policy together as part of a negotiated contract. This is vital to the relationship as it's difficult to process returns without a firm policy in place. If there's no policy in place, litigation could be a result. Companies need to plan for returns from a logistics perspective. Sometimes this may be literally reversing the action of the supply chain. For example, the same UPS driver who delivers an item may pick it up and return it to the original location. Other times, companies may utilize a third party to handle their returns. If an item is returned in full working condition, it should be put back in stock for future sale. This can be done if the item was shipped in error, or if the customer changed their mind and did not open or use the product. If the product is defective, however, the company should have a process for product evaluation and disposal. This is typically done through material review board or MRB. The most serious and consequential return is a recall. Cars, pharmaceuticals, and food products are all examples of items that could be recalled due to consumer safety risk and the financial liability can be substantial. In this situation, advanced technologies, such as lot tracking and bar coding, can help identify what items were sold at which locations. Public service announcements are necessary to get the word out about recall as well. When there is a recall, companies would be wise to allow for generous return policies and initiate corrective action to minimize and mitigate the damage. Thankfully, the cost of material returns for a recall is minimal compared to the loss incurred through litigation. Yet, there is often long-reaching damage to the brand as a result of a recall. This cost is difficult to measure, but lost trust leads to lost customers and lost sales.
