gam-masthead
GLOBAL COMMERCE

What happens when the
consumer says ‘I don’t want it’

PAUL BRENT

Special to The Globe and Mail

In today’s ultra-connected, seamless and seemingly limitless world, most of the everyday non-food purchases we make as consumers completes the final leg of a supply chain that often stretches halfway around the world. Manufacturers, distributors and retailers have developed increasingly complex systems to ensure that most people get the right product, at the right price, at the right time.

This intricate commercial ballet runs smoothly until purchasers turn the flow of goods around, either because they have changed their minds about the product they bought or because it is defective.

And so starts the process of reverse logistics – a hassle for consumers and a potential supply chain and reputation nightmare for retailers and manufacturers.

“The stakes are so much higher today,” says Laurie Turnbull, a supply chain consultant at Cole International Inc. in Toronto. The traditional “one unhappy customer tells 10 friends” rule of thumb has expanded exponentially because of social media. “Today someone goes on Twitter and they share it with 100,000 people.”

Mr. Turnbull, who has been in the logistics business for more than 25 years, says that the challenges of dealing with returns and defective products jumped in complexity after the liberalization of trade in the mid-1990s led to offshoring and ever-longer supply chains. Defective products no longer could be shipped to a nearby factory to be repaired or recycled. Suddenly it made no economic sense to ship products across borders and continents when things went wrong.

This proved a boon to third-party logistics companies such as his that specialize in dealing with a supply chain suddenly running in reverse. “When a company encounters a problem and they have got to deal with it, most companies don’t do it right.”

Because retailers and product makers are set up to ship and handle goods in only one direction, third-party logistics companies are now adding services and functions to handle the backward flow of products. “Companies like ours today are repairing, using technologists, doing aftermarket services like wiping hard drives for data security” and parts harvesting for recycling, says John Ferguson, president and chief executive officer of Toronto-based SCI Group Inc., a third-party logistics company with 25 distribution facilities.

SCI is also an e-commerce pioneer, having handled Amazon’s logistics when it first began selling in Canada and was, for many years, the only serious e-commerce retailer in the country. Today, e-commerce has exploded and is causing reverse logistics issues as online retailers grapple with a very different Internet shopper.

“The companies that are getting into fast-growing apparel or footwear online purchases, that is a place where you are seeing big growth,” he says. Returns can be upwards of 30 per cent among these virtual retailers, “which is huge.” For these sellers it is common for consumers to order multiple sizes of the identical product to ensure an optimal fit and return what they don’t want.

“It is coming from several places so you have to have a way to get it all back, consolidate it and process it and get it back to market it or get it out of your inventory as soon as possible,” explains Mr. Ferguson.

His business has grown from traditional logistics to the technology of tracking goods to operating call centres as clients seek one-source logistics. “There is sort of a convergence happening. If you are going to do the distribution, you might as well do the call centre, you might as well do the repair [and] the aftermarket services. So there is a tendency to have one provider handle these sorts of things.”

One of the toughest situations businesses face is recalls, as it not only involves logistical issues, but reputational ones, as well.

Perhaps the most famous recall case was the nationwide recall of Tylenol in 1982 following poisoning deaths in the Chicago area. Manufacturer Johnson & Johnson’s quick action received high praise and the company and brand recovered from the crisis.

Consumers are almost numb today to the steady drumbeat of recall notices from appliance and electronics manufacturers. Auto makers are likely the highest-profile players in recall, with even quality standard bearing companies such as Toyota Motor Corp. regularly issuing recall notices as their vehicles grow ever more complicated. The major advantage that auto makers have over most other manufacturing sectors, however, is their extensive network of dealerships and repair facilities.

While returning unwanted or defective goods are, for the most part, just a hassle for buyers, it is much more serious when it comes to recalls of food or drugs. Memories of the 2013 XL Foods beef recall in Canada are still fresh and the 2008 outbreak of listeriosis at a Maple Leafs Foods plant in Ontario was linked to 22 deaths. In such cases, the issue is not just how to get the product back and disposed of, but to compensate victims and try and rebuild brand and corporate reputations.

Disposing of tainted product that originated across the globe can also be an issue. That was just one of many problems faced by Menu Foods Ltd. of Mississauga in 2007, as well as other pet-food companies. At the time the largest manufacturer of wet cat and dog food in North America, Menu Foods recalled more than 60 million containers of food sold under dozens of brands due to a toxic mixture of chemicals causing sudden pet deaths and blamed on ingredients sourced in China.

John McKenna, president of Mississauga-based McKenna Logistics Centres, remembers the logistics aftermath: “I remember going through a guy’s warehouse and it was full of this pet food that couldn’t be sold.” The Menu Foods recall was estimated to have cost the company at least $45-million and played a role in its takeover by a rival in 2010. As for the recalled product, the firm had to ensure millions of cans of food would “not re-enter the human food, pet food, or animal feed supply,” in the words of the U.S. Food and Drug Administration.

Massive recalls may get the headlines and attention, but it is lower-profile returns activity that keep the 3PL (third party logistics) sector busy.

“No questions asked” return policies among big-box retailers and e-commerce sellers has made the process of dealing with unwanted goods more complicated than ever before. Mr. McKenna’s warehouse facilities in Vancouver and the Toronto area are often used by U.S. clients who require a place to figure out what is worth shipping across the border and what should simply be disposed of.

“Some product is worth it, it’s a higher-value product, while some look at the salvage that they can get out of it,” he says.

He remembers one multinational business that tasked his company with collecting its lineup of home-appliance products that had been returned by customers. Products deemed fit for resale were cleaned, refurbished and sold as seconds. The rest faced a more dramatic fate. “They took it into their warehouse and they put it in a big car crusher, put it into a container and shipped it back to China, where they would strip it all apart for the plastics and metals.”

http://www.theglobeandmail.com/report-on-business/international-business/when-the-consumer-says-i-dont-want-it/article27182086/