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From the November/December 2003 issue of Supply Chain Management Review

TONY SCIARROTTA Supply Chain Management Review November 1, 2003

The answer to reducing the cost of returns does not always lie in improving your

reverse logistics operations. At Philips Consumer Electronics, the returns

management department has focused on how it can stop returns before they even

enter the reverse supply chain. By taking preventative steps such as improving

a product’s ease of use, enforcing company policies, and revitalizing the

service network, Philips has cut its returns by more than $100 million per year.

In 1998, I was presented with an opportunity: head up a returns management

department within Philips Consumer Electronics and help lead efforts to control

a major cost driver—product returns. At that time, Philips Consumer Electronics

had no returns management department, and reverse logistics was not yet part of

the language of most manufacturers.

But management and Ken Goins, the vice president/general manager of Philips

Service Company who approached me with the opportunity, recognized that the c

company was facing relatively high return rates. The impact of those returns on

the bottom line was significant, amounting to tens of millions of dollars in

losses. Philips management was under pressure to reduce the cost of returns.

They realized that the company needed to develop a core competency in returns

management, whether the actual processes were handled in house or via outside

partners. Management believed that it needed a department with a dedicated

director and focused staff to accomplish these goals, hoping that such a

department would end up paying for itself in the process.

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