Commercial Returns
8803 Business and the Environment
Beril Toktay
College of Management
Georgia Institute of Technology
Growing Problem of Commercial
Returns

The value of commercial product returns now
exceeds $100 billion annually in the US (Stock,
Speck and Shear, 2002)
 Commercial
product returns: Products returned
for any reason within 90 days of purchase.
 Policy of most US retailers: Full returns no
question asked!!
 Return rates: 6% to 15% (Dekker and Van der
Laan, 2003)
 Mail order companies and e-tailers: as high as
35%
Time Value of Product Returns
 Loss
in asset value significant
 Downgraded

to a lower value product
Refurbished/remanufactured/parts/scrapped
 Losses
due to time delays
Deterioration of value in time
 Forced downgrading due to obsolescence

Time Value of Product Returns
Marginal value of time: How much value is lost per unit time?
Low MVT (e.g. power tools)
High MVT (e.g. PCs,
fashion apparel, cell phones)
Reverse Supply Chain Design

Most reverse supply chains are designed
for efficiency
 There is a trade-off between speed and
efficiency
Efficient Reverse Chain
Centralizes credit issuance, testing, sorting and grading.
Responsive Reverse Chain
Preliminary testing and sorting is done in a decentralized fashion
Reverse Supply Chain Design
Efficient
chain
Responsive
chain
Low MVT
Match
No match
High MVT
No match
Match
Managerial recommendations

Treat returns as perishable assets
 Elevate priority of reverse chain
 Make time a performance metric
 Make the product’s time-value a key design
variable
 Use technology to achieve speed at lower cost