Thus far, one conclusion would unequivocally be that inventory challenges exist at every stage of the product life cycle, since product phase-in/phase-out, missed sales, and basic forecast errors result in excess active inventory. The end-of-life (EOL) stock and obsolete inventory are the inevitable results of unsold active inventory that has since been displaced by newer-generation products, or otherwise discontinued. But what about inventory returns, the items that are returned to the manufacturer as defective, obsolete, over aged, etc.? An inventory item record transaction records the return or receipt into physical stores of materials from which the item may be scrapped. To make things even more painful, returns inventory comes in all shapes and sizes, with "new/unopened," "new/package-defect," "quality defect," and "consumer returns/used" being typical classifications.
Hidden in the darkest nooks and crannies of the warehouse, returned inventory accumulates until the aisles are virtually impassable. And many companies otherwise rigorous in their accounting standards do not manage warranty reserves effectively. Thus, when a liquidation action is taken, it is a hasty, ad hoc process, and millions of dollars in inventory asset recovery are swept out the door with the residue of the last damaged carton. It is but a small comfort that at least the things are out of the way and are no longer incurring the storage costs—a subset of inventory carrying costs. Storage costs include the cost of warehouse utilities, material handling personnel, equipment maintenance, building maintenance, and security personnel.
The phenomenon has even introduced the notion of reverse logistics, a complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, or recycling. Many retailers have the proverbial problem of how to move inactive, "grey market" stock (irrespective of condition) that they cannot return to the manufacturer for full credit. Return rates in some industry sectors can be as high as 20 percent, although through targeted initiatives and channel cooperation, some nimble companies have managed to attain only a few percentile rates. Whether the return rate is high or low, across the board one fact remains constant—no one in the reverse supply chain wants to add a penny more to the cost of managing returns. Aside from treating a return as an additional opportunity to make a favorable customer impact, the entire process is viewed as a "necessary evil," a cost of doing business with customers ranging from OEM relationships to end consumers.
Again, like in the case of active excess inventory, well-orchestrated auctions can be tools to remarket inventory to a specific or a global audience with minimal resources or input required from the retailer or manufacturer. However, new best practices in returns inventory asset management involve outsourcing as much of the material handling and disposition process as possible. FreeFlow touts a number of returns material remarketing programs with global manufacturers in the high-tech and telecommunications industries. In turn, these manufacturers can reap both operational and financial benefits from off-loading this category of inventory as soon as the customer interaction is complete. In the case of such certified pre-owned programs for inventory that was often previously scrapped or liquidated at cents on the dollar, some financial impact should come from improved cash flow (less cash locked in idle inventory assets), better inventory turns (fewer weeks of inventory being on hand), better recovery, and reduced warehouse space. The process steps are depicted below:
1. Returns Processing—In this step, customer and channel returns are processed to the company's returns center as usual, with customer return material authorization (RMA), credit, replacement, and all customer-related activities being conducted by the manufacturer or designated third party logistics (3PL) provider.
2. Material Sorting—Once the inventory is in house, the primary objective is disposition velocity and elimination of unneeded touches. During the put-away process, inventory is segregated as "new/unopened" and all other classifications. Some companies at this point also sort out components or modules that are to be returned to the manufacturer directly. All other inventory is compiled on a liquidation sale list for FreeFlow.
3. Material Valuation—Once FreeFlow receives the listing, a market analysis is conducted to determine a rough estimate of the remarketing opportunity for the particular lot of product. FreeFlow then initiates a PO in an amount of 10 percent (or other pre-negotiated ratio) of the estimated value and the inventory is sold and shipped to FreeFlow. The inventory is off the user company's books and out of the warehouse in a matter of days from the time it was returned.
4. Remarketing and Revenue Share—Upon receipt of the inventory at regional locations in Europe, Asia, or North America, FreeFlow proceeds with detailed inspection and sorting of the inventory. Some value-added processes may be performed, ranging from testing to repackaging to repair depending on the manufacturer agreement. Through its global network of fulfillment partners, FreeFlow can help with repackaging, re-labeling, and testing when it is appropriate to add value to increase recovery. All saleable inventory is remarketed through FreeFlow's auction platform, and at the conclusion of each auction cycle, the sales revenue is split along the pre-agreed revenue sharing agreement, such as a 60-40 percentage (manufacturer-FreeFlow). The revenue split is determined based on factors such as scrap ratios, value-add processing required, etc.
In a nutshell, the above would be an attractive revenue-sharing model (with a predictable revenue stream that allows a significant reduction in returns and scrap financial reserves for the manufacturer), whereby returned products are inspected, refurbished, and certified by the manufacturer. After these processes are completed, inventory ownership and operational responsibility is then transferred to FreeFlow. FreeFlow repackages and prepares the pre-owned products as necessary for the market, and can even provide package design services if required. FreeFlow works in tandem with manufacturers to clearly identify the condition of items and the terms of sale, and to determine decisive channel strategies for the pre-owned inventory to avoid conflict of inventory flow into primary markets. Using the auction portal, inventory is then sold according to this strategy, which often includes second tier channels, emerging markets, and e-tail arenas. The right target price is based on FreeFlow's market intelligence, while by way of drop-shipping, the manufacturer can even disposition the returns directly from its channel partner's facility, thus avoiding the additional transport costs of bringing the material back to its premises. This program, which can be tailored to the needs of each manufacturer (who specifies and audits all refurbishment processes, but remains free from having to manage them), is the result of consumers showing an increasing appetite for refurbished inventory from well-known manufacturers that have a constant flow of returns.
Hidden in the darkest nooks and crannies of the warehouse, returned inventory accumulates until the aisles are virtually impassable. And many companies otherwise rigorous in their accounting standards do not manage warranty reserves effectively. Thus, when a liquidation action is taken, it is a hasty, ad hoc process, and millions of dollars in inventory asset recovery are swept out the door with the residue of the last damaged carton. It is but a small comfort that at least the things are out of the way and are no longer incurring the storage costs—a subset of inventory carrying costs. Storage costs include the cost of warehouse utilities, material handling personnel, equipment maintenance, building maintenance, and security personnel.
The phenomenon has even introduced the notion of reverse logistics, a complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, or recycling. Many retailers have the proverbial problem of how to move inactive, "grey market" stock (irrespective of condition) that they cannot return to the manufacturer for full credit. Return rates in some industry sectors can be as high as 20 percent, although through targeted initiatives and channel cooperation, some nimble companies have managed to attain only a few percentile rates. Whether the return rate is high or low, across the board one fact remains constant—no one in the reverse supply chain wants to add a penny more to the cost of managing returns. Aside from treating a return as an additional opportunity to make a favorable customer impact, the entire process is viewed as a "necessary evil," a cost of doing business with customers ranging from OEM relationships to end consumers.
Again, like in the case of active excess inventory, well-orchestrated auctions can be tools to remarket inventory to a specific or a global audience with minimal resources or input required from the retailer or manufacturer. However, new best practices in returns inventory asset management involve outsourcing as much of the material handling and disposition process as possible. FreeFlow touts a number of returns material remarketing programs with global manufacturers in the high-tech and telecommunications industries. In turn, these manufacturers can reap both operational and financial benefits from off-loading this category of inventory as soon as the customer interaction is complete. In the case of such certified pre-owned programs for inventory that was often previously scrapped or liquidated at cents on the dollar, some financial impact should come from improved cash flow (less cash locked in idle inventory assets), better inventory turns (fewer weeks of inventory being on hand), better recovery, and reduced warehouse space. The process steps are depicted below:
1. Returns Processing—In this step, customer and channel returns are processed to the company's returns center as usual, with customer return material authorization (RMA), credit, replacement, and all customer-related activities being conducted by the manufacturer or designated third party logistics (3PL) provider.
2. Material Sorting—Once the inventory is in house, the primary objective is disposition velocity and elimination of unneeded touches. During the put-away process, inventory is segregated as "new/unopened" and all other classifications. Some companies at this point also sort out components or modules that are to be returned to the manufacturer directly. All other inventory is compiled on a liquidation sale list for FreeFlow.
3. Material Valuation—Once FreeFlow receives the listing, a market analysis is conducted to determine a rough estimate of the remarketing opportunity for the particular lot of product. FreeFlow then initiates a PO in an amount of 10 percent (or other pre-negotiated ratio) of the estimated value and the inventory is sold and shipped to FreeFlow. The inventory is off the user company's books and out of the warehouse in a matter of days from the time it was returned.
4. Remarketing and Revenue Share—Upon receipt of the inventory at regional locations in Europe, Asia, or North America, FreeFlow proceeds with detailed inspection and sorting of the inventory. Some value-added processes may be performed, ranging from testing to repackaging to repair depending on the manufacturer agreement. Through its global network of fulfillment partners, FreeFlow can help with repackaging, re-labeling, and testing when it is appropriate to add value to increase recovery. All saleable inventory is remarketed through FreeFlow's auction platform, and at the conclusion of each auction cycle, the sales revenue is split along the pre-agreed revenue sharing agreement, such as a 60-40 percentage (manufacturer-FreeFlow). The revenue split is determined based on factors such as scrap ratios, value-add processing required, etc.
In a nutshell, the above would be an attractive revenue-sharing model (with a predictable revenue stream that allows a significant reduction in returns and scrap financial reserves for the manufacturer), whereby returned products are inspected, refurbished, and certified by the manufacturer. After these processes are completed, inventory ownership and operational responsibility is then transferred to FreeFlow. FreeFlow repackages and prepares the pre-owned products as necessary for the market, and can even provide package design services if required. FreeFlow works in tandem with manufacturers to clearly identify the condition of items and the terms of sale, and to determine decisive channel strategies for the pre-owned inventory to avoid conflict of inventory flow into primary markets. Using the auction portal, inventory is then sold according to this strategy, which often includes second tier channels, emerging markets, and e-tail arenas. The right target price is based on FreeFlow's market intelligence, while by way of drop-shipping, the manufacturer can even disposition the returns directly from its channel partner's facility, thus avoiding the additional transport costs of bringing the material back to its premises. This program, which can be tailored to the needs of each manufacturer (who specifies and audits all refurbishment processes, but remains free from having to manage them), is the result of consumers showing an increasing appetite for refurbished inventory from well-known manufacturers that have a constant flow of returns.
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