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HowPhilipsReducedReturns
FromtheNovember/December2003issueofSupplyChainManagementReview
TONYSCIARROTTASupplyChainManagementReviewNovember1,2003
Theanswertoreducingthecostofreturnsdoesnotalwayslieinimprovingyour
reverselogisticsoperations.AtPhilipsConsumerElectronics,thereturns
managementdepartmenthasfocusedonhowitcanstopreturnsbeforetheyeven
enterthereversesupplychain.Bytakingpreventativestepssuchasimproving
aproduct’seaseofuse,enforcingcompanypolicies,andrevitalizingthe
servicenetwork,Philipshascutitsreturnsbymorethan$100millionperyear.
In1998,Iwaspresentedwithanopportunity:headupareturnsmanagement
departmentwithinPhilipsConsumerElectronicsandhelpleadeffortstocontrol
amajorcostdriver—productreturns.Atthattime,PhilipsConsumerElectronics
hadnoreturnsmanagementdepartment,andreverselogisticswasnotyetpartof
thelanguageofmostmanufacturers.
ButmanagementandKenGoins,thevicepresident/generalmanagerofPhilips
ServiceCompanywhoapproachedmewiththeopportunity,recognizedthatthe
companywasfacingrelativelyhighreturnrates.Theimpactofthosereturnson
thebottomlinewassignificant,amountingtotensofmillionsofdollarsin
losses.Philipsmanagementwasunderpressuretoreducethecostofreturns.
Theyrealizedthatthecompanyneededtodevelopacorecompetencyinreturns
management,whethertheactualprocesseswerehandledinhouseorviaoutside
partners.Managementbelievedthatitneededadepartmentwithadedicated
directorandfocusedstafftoaccomplishthesegoals,hopingthatsucha
departmentwouldenduppayingforitselfintheprocess.
WhenKenapproachedme,Iwasworkingintheproductmarketinggroupaftera
decadeinsaleswithregionalandnationalaccounts.Mybackgroundwasnewfor
thereturnsmanagementrole.Normally,thecredit,finance,orservicegroups
withinmostcompanieshandlereturns.ButKenunderstoodthatreturnsreally
arereversesales,andtheyareoftencausedbyproduct-marketingdecisions.
Aswebegantostudythesituation,wediscoveredareturnsenvironmentthat
wasoutofcontrol.Ingener
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