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Reverse Logistics Reduces Return Costs By 25 Per Cent
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Consumer electronics companies in India do not manage the reverse supply chain well even when return rate of defective products is around 5 per cent.
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Tuesday, July 24, 2012:
The Reverse Logistics Company Pvt. Ltd recently joined hands with Philips India to handle its reverse supply chain. The company has been providing reverse logistics services to consumer electronics companies for the past two years now and provides services to the likes of LG, Samsung, Toshiba, Haie, Acer, Black & Decker, among many more. It has also set up a special channel to sell the returned goods, which are first repaired and refurbished and then sold under its brand GreenDust. EFYTimes spoke to Hitendra Chaturvedi, founder & CEO, Reverse Logistics Company, to find out more about the importance and current state of reverse logistics in the CE industry.
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Why is reverse logistics important in the consumer electronics industry?
HC At times, the products that are bought by consumers suffer transportation damage or come with a factory defect or some accessories are missing or also in some cases, the consumer might not like it. That is when the products have to traverse the return journey wherein reverse logistics is important.
To give an idea about the volumes, in the USA and western countries, the return rate of defective products is about 10 per cent, while in India, it is about five per cent overall. Even in consumer electronics, it is just about the same. So when these five items out of the 100 items need to be sent back, the volumes are not sufficient for most companies to justify putting up a very robust process to manage these returns.
These companies then look out for companies like ours that specialise in managing returns. We make a business model out of aggregating returns from multiple companies and manage the entire reverse cycle which includes call centre, picking up return material from customer or a retailer or from a warehouse, bringing products to a place for repairs and refurbishing. And once they are repaired and refurbished, we then use a channel of disposition.
With RLC, we have two channels of disposition – one is online through GreenDust.com and the second is over 50 GreenDust stores that are run by franchisees, which sell GreenDust certified products.
When the defective products are to be sent back, we get a call and we arrange for a pick-up and send it to the nearest centre where it is quickly repaired. After repairs, we have an inspection check in place after which we certify it as a refurbished product and it moves to either the online or the offline store. The products are then sold to the customers stating very clearly that they are refurbished products. We even give one-year's warranty on the products and even provide after-sales services also just like in the case of a brand new product.
You carry out reverse logistics only for the consumer electronics industry or other industries as well?
HC We carry out our services across multiple product categories. We started with four lines – consumer electronics, home appliances, IT and mobile. But we have customers in the e-commerce space too like homeshop18, futurebazaar, to name a few. Owing to this, we get all sorts of products like pen drives, plastic containers, even clothing. So, even though our focus is on the four categories that I mentioned, we still carry out reverse logistics for other categories as well as e-commerce companies are absolutely ill-equipped to manage the reverse supply chain.
We carry out reverse logistics for e-commerce players, organised retailers and manufacturers.
How much repair and refurbishment happens in this industry? Are there multiple players carrying out repairs?
HC If you look at the reverse supply chain in its entirety, there are many small players who will do repair and refurbishing. There are lots of 'mom and pop' stores who carry out repairs.
But those stores don't sell the products like you do?
HC They don’t sell the products after carrying out the repairs as they are basic repair shops. We take these products and have agreements with OEMs too. Either we take products on consignment basis from companies, repair and share the profits, or we buy the products outright which become our property. We repair, refurbish and then resell them in the market. We are creating an organised channel to sell factory seconds, surplus or refurbished products.
When did you start off with GreenDust.com and organised stores for GreenDust?
HC The company was incorporated in 2008 but officially the greendust.com channel and the franchisee outlets started about a year and half ago.
How many centers do you have for carrying out the repairs?
HC We have a hub and spoke model wherein we have hubs in Bengaluru, Delhi, Cochin, Chennai and other places. It ensures local acquisition, repair and disposition strategy.
We have 11 hubs, the value added centers, and they are connected to 23 odd distribution centers that are connected to about 50 plus franchisees.
What discount do you offer to customers as you sell refurbished products?
HC We have different products like refurbished, factory second or a surplus product. On surplus items, the discount may not be much but on products that are factory second, we give about 25 per cent discount on market operating price (MOP) and not on maximum retail price (MRP), otherwise the discount will be more substantial.
Also, we have realised that customer will be okay with about 25 per cent discount and will come in and purchase a factory second product. Earlier, customers used to compare us with grey markets like Nehru Place or Gaffar Market in Delhi but as the trust started to build, people have realised that they get even better service than new product. That way we are building up trust in our brand. As for price, if I only compete on the price band then we are going to lose the battle. The brand GreenDust stands for good price, service and also about environmental responsibility. If the return rate is 4 per cent and GreenDust is able to decrease it by even a per cent, I'll be absolutely happy as otherwise all this material would have gone into the ground and polluted our environment.
Do you think the Indian consumer is that mature to buy a repaired and refurbished product in place of a new product?
HC If you look at the Nehru Place or the Gaffar market, they have never been impacted by recession and have still been growing by leaps and bounds. If customers get a discounted product which comes with a warranty and service back-up, they'll surely pick up such products. I don't want people to relate GreenDust with cost but realise that they are doing something good for the environment too. It's like the red-headed step child of any company that we are making into a blonde-haired blue-eyed boy and then somebody adopts that machine. I'd want our younger generation to relate more to the cause. If you are able to reduce all this junk that goes into the environment and still give a value proposition to the Indian consumer, it will be fantastic.
Until a few years ago, companies were not focussing on their reverse supply chain. How has the scenario changed now and what challenges did you face while setting up your company?
HC The biggest challenge faced was educating companies on the impact of reverse logistics on their profitability. Most of my time was spent in telling people that here is something that is really impacting your bottomline, customer service and productivity that you need to seriously look at. It took time to do so because there is no single owner of reverse supply chain in companies. But slowly, now these companies are realising the importance of reverse logistics and that is the reason companies like ours are charting a new path.
Apart from this, what other challenges are involved in reverse logistics for consumer electronics?
HC Highly fragmented logistics and transportation industry in India is the biggest problem in carrying out reverse logistics. Also, there are different rules in different states. These are the two big challenges that we have faced. Since there was no organised process, even within companies there was a lot of corruption in this process.
Do you have tie-ups with logistics service providers for carrying out services?
HC Yes. We don’t own trucks. We have created a virtual transportation network. Our IT platform is extended to our small and large transportation partners. We have a huge portfolio of courier companies, trucking companies whom we tell, through our IT platform, where the pick up needs to happen. They carry out the pick up and our IT system is updated. So we get complete and total transparency. What is interesting is that we have created a virtual transportation company utilising the highly fragmented nature of the Indian logistics industry.
Who are your competitors in this business?
HC Today my competition is the highly unorganised sector. If you look at the reverse supply chain, it requires transportation so there are transportation companies who only focus on that. If you look at repair, there are some small repair shops that are around to do some repair work, some for home appliances sector, some for consumer electronics and some for IT sector. If you look at reselling, it is a highly unorganised resale market of factory seconds which take place in markets like Nehru Place and Gaffar Market in Delhi, and Lamington Road in Mumbai.
Also, the biggest competition for me are the scrap dealers who function in a very unorganised manner. They pick up the material, dismantle it, sell some parts, pour acid on it, take out any metal or plastic from it and sell it at a bulk rate. OEMs deal with many such small players as it is unorganised. For instance, LG was dealing with 400 such small players before we came in.
Don't the bigger logistics service providers provide reverse logistics too for companies?
HC Many of the larger service providers say that they do reverse logistics but they do so as they want to get the forward logistics business too. Ninety six per cent of the material is going forward in full truck loads. They may do the reverse logistics too, but the problem with reverse logistics is that the pick up happens from the customers' door step, which is not an easy task. Most of these companies actually shy away form it as it is very painful and that is not where they make money.
How does effective reverse logistics reduce costs?
HC Effective reverse logistics reduces returns management costs by up to 25 per cent and improves customer return experience by over 100 per cent. It also helps companies in avoiding channel conflict by 90 per cent and reduces leakage too by up to 80 per cent. This also provides a trusted partner to companies to manage their electronic waste.
Also, what happens is that many of the factory seconds go back into the new channel and are sold to unsuspecting customers stating as a new product. Companies will not do it but small retailers would do it. One very imp thing that these companies don't realise is that scrap dealers may sell used products to retailers who in turn may sell the branded product with non-genuine parts to someone. If something goes wrong with the product, consumers will sue the brand and not the small-time retailer. So, we sell the repair and refurbished goods through our channel to ensure such things don't happen.
Upasana Rajpal, EFYTIMES News Network
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