Product damage and returns Electrical and Electronic products Note
Product damage and returns Electrical and Electronic products Product returns are estimated to cost the Electrical and Electronic Equipment (EEE) supply chain 1bn to 2.4bn* in lost sales revenue per annum *early estimates based on very limited data, some of which is from US data and applied to the UK market. Our current work seeks to investigate the cost to UK electrical product sales more accurately. Product returns result in an estimated >120,000 tonnes of waste Nine product contribute 80% of this lost revenue Damaged products are estimated to make up 6% of the reason for product returns re is insufficient focus on the problem including: Inadequate monitoring and recording systems, meaning limited data on the size of the issue and breakdown of the A lack of best practice in the management of returns Note page 1
Product damage and returns Electrical and Electronic products Overview Product returns and damage represent a considerable to the EEE sector now and in the future. Rates of return and damages are increasing against a background of growth in online consumer purchasing and global sourcing. This guidance note has been prepared following an analysis of product damage and returns data in the EEE sector in 2012 coupled with an extensive literature search. It examines the literature available and data gathered from key stakeholders and outlines the nature, scale and of damage and returns in the sector. Furthermore this guidance note outlines the market identified by this research and options for business improvement. In 2015 WRAP, based on this 2012 guidance, commissioned more detailed analysis with retailers and manufacturers on product returns, which will inform the development of further industry guidance to be published in 2016. Note page 2
Product damage and returns Electrical and Electronic products In the distribution chain there are a number of inefficiencies including product damage; product returns; sub-optimal packaging; poor handling; and inefficient supply chain systems, practices & relationships. se all have significant negative financial implications. Opportunities to address these inefficiencies and promote resource efficient distribution include packaging optimisation, re-usable packaging, improving distribution & returns processes and more resource efficient supply chain relationships. Addressing these opportunities requires tackling a number of key s: Measuring product damage & returns rigorously and consistently and in a way that allows business to assess financial and environmental impact. No businesses benchmarks or norms exist. A significant proportion of the damage can occur on the return journey from customer to supplier. Products may experience damage during the returns cycle due to the unsuitability of the original packaging system. Reported and recorded damage vary enormously across product. Returns management varies considerably. Some returns are returned to stock, others inspected and repacked, some are offered to the customer at reduced cost, some are sold via auction to third party businesses, whilst others are scrapped. Measuring true is therefore problematic. relationship between sales, marketing, and customer service strategies and product returns appears to be poorly understood All of this tends to lead to acceptance of the status quo rather than an environment that s current performance and strives for improvement. Note page 3
Product returns in the EEE supply chain are due to a number of reasons. Some relate to product condition or quality on arrival, others due to customer expectations. (It s not been possible to estimate the contribution for each of these ) Cause of returns Origin of problem Damage to product or packaging Product did not meet expectations Wrong size Wrong colour or style Mismatch with home decor Duplication of order Mismatch in technology and consumer knowledge or ability See damage mechanisms table on the next slide Insufficient product description; poor product quality; unrealistic consumer expectations Insufficient product description; consumer error Ineffective ordering or order management process; consumer error Consumer error Ineffective ordering and order management processes; consumer error Insufficient instructions; product complexity; customer lack of ability/knowledge Note page 4
Product damage is caused by a number of potential transportation, storage & handling hazards. Damage mechanism Where in supply chain Damage caused Drop Manual handling Breakage, indentation, component failure, chipping, crushing, dislocation etc. Side impact Mechanical handling As drop above Vibration Mechanical handling Dislocation, loosening, scuffing, abrasion, fatigue Top compression Stacking Crushing, distortion, breakage, fatigue Side compression Clamp truck handling As top compression above Manual handling Loading/unloading, unpacking As drop above Climate Anywhere Rusting, discolouration, change in packaging performance Note page 5
table and diagrams below describe the EEE market size in 2012 estimated from the data analysis along with reference to market size data from the literature. Alongside these market sizes an estimation is given for the sales value and tonnage of returns and damages. returns and damages estimates are derived from the data analysis conducted in this study. Damages are presented as a sub set of returns. Returns and damage by value Size - 2012 Value ( m) Weight (kt) Up to 24,219 1,546 Value ( m) Returns Weight (kt) Up to 2,422* 155 Value ( m) Damage Weight (kt) Up to 156 19 *early estimates based on very limited data, some of which is from US data and applied to the UK market. Our current work seeks to investigate the cost to UK electrical product sales more accurately. note page 6
Analysis of data from the participating companies identified the key product which experience relatively high levels of damage. Product that represent the top 80% cumulative damages in the EEE sector by value from product covered by the retailers contributing data to this study Product category size ( m) Damage ( m) % damage Batteries 1 633.2 25.1 4.0 Heaters 266.1 19.2 7.2 Fridges 315.9 12.2 3.9 DIY tools 263.3 11.8 4.5 Washing machines 1,037.1 9.2 0.9 Vacuum cleaners 343.5 8.8 2.6 Fridge freezers 502.8 8.2 1.6 Ovens 237.4 6.4 2.7 Hobs 105.0 4.7 4.5 1 It is felt that from the data collected that a large proportion of this figure is theft rather than damage note page 7
Analysis of data from the participating companies identified the key product which experience relatively high levels of damage. Product that represent the top 80% cumulative damages in the EEE sector by weight from product covered by the retailers contributing data to this study Product category size (t) Damage (t) % damage DIY tools Heaters Vacuum cleaners Washing machines Fridges Batteries Ovens 53,865 2,419 4.5 28,307 2,038 7.2 70,889 1,822 2.6 183,690 1,635 0.9 40,222 1,557 3.9 35,180 1,393 4.0 41,944 1,132 2.7 note page 8
Listed below are a number of shortcomings or market which contribute to the lack of understanding of returns and/or damages in the market place, their magnitude and financial impact. Damage and returns recording and monitoring A lack of understanding of the quantities and of product returns and damages in the supply chain Existing commercial arrangements are reducing the likelihood of individual businesses prioritising collecting, monitoring and acting on accurate product returns and damages data Reluctance of business to introduce robust and open returns and damage data recording and monitoring systems as these may disrupt existing commercial practices and internal business systems Lack of openness and nervousness by industry to share returns and damages data, information and experiences leads to: a lack of reference literature and data for business an inability of businesses to benchmark any returns or damages data they may have against industry norms or best practice A lack of consistency in the approach to categorising, recording, and monitoring returns and damages across businesses and within the same business makes compilation of data difficult and sometimes misleading Instability of data recording systems in any one business can make year on year comparisons or trending difficult or lead to misinterpretation of quantities and Lack of robust recording and monitoring systems make it difficult to assess the impact of the changing business environment in particular, global sources of supply, increased online retailing etc. Returns management best practice A lack of best practice regarding the management of returns relationship between level of customer service, marketing and sales systems with levels of product return is insufficiently understood Damage and returns may not be seen as significant when business is considering changes to its operations or supply chain re is little published guidance on best practice in reducing product returns, damage prevention and maximising value recovery. Specialist supply chain knowledge re is insufficient specialist supply chain knowledge and / or insufficient prioritisation of effort in business to tackle product returns, product damages, identify and appropriate and resource efficient solutions. Environmental metrics In addition to the commercial benefits of reducing product returns and product damage, there is insufficient availability of environmental metric data to quantify the resource impacts of product returns. Packaging Design Packaging is often designed for traditional in store retailing and is often inadequate for the additional rigours of online shopping distribution. note page 9
for the Electrical and Electronic products sector Damage and returns data monitoring Ensure that consistent damage and returns data monitoring systems are employed. se systems should specifically identify the reasons for return and/or cause of damage Regularly review damage and returns data to ensure Trends are tracked and identified Products experiencing high levels of damage and returns are investigated and appropriate remedial actions employed Set KPI s that encourage accurate recording of damages and returns Ensure that responsibilities for recording, monitoring and reporting quantities, financial and environmental impacts of returns and damages are adequately defined and set Ensure that those responsible have adequate expertise and/or training to analyse and interpret the data and provide the right recommendations to bring about improvement Ensure that damage and returns data is compiled and presented as a single company wide picture. Packaging Design Design packaging that facilitates ease of use by customers or delivery crews for any returned product For products experiencing high levels of supply chain damage review the packaging to ensure adequate product protection is provided Review suppliers packaging regularly to ensure that it meets the demands of the various retail channels employed by your business. Impact of operational, logistical or supply chain changes Ensure that an adequate review of the likely impact on damages and returns rates is considered prior to any operational, logistical or supply chain change. note page 10
for the Electrical and Electronic products sector Customer service, marketing and sales systems To help reduce rates of return from online shopping Enhance the interactivity of the online shopping experience, to reduce the likelihood of customers using their homes as fitting rooms ; help consumers fully understand product colour, finish and size Provide accurate, thorough and easy to read product descriptions. Consider incorporating positives and potential shortfalls of the product in order to manage customer expectations Use online product finders/comparison guides/recommendations based on the important product features asked for by the customer Consider Q&A tools on product pages Make returns policies easy to find. Give customers more time for returns Use plain readily understood language. Provide customers with a step by step summary of how to handle returns Detail who pays for the delivery cost of returns Ask customers for feedback Ensure product set up and usage instructions are easily understandable Provide a readily accessible technical customer support help line Consider pro-active purchase follow up calls or email to ensure the product has met expectations and to offer any after sales support Returns management process Consider and evaluate which returns management process is most effective for your business Consider and measure all of the of managing returns in order to assess the business benefit and which returns are worth managing Identify by product category which returns revenue stream provide greatest revenue Handling, distribution and storage systems Review your product distribution system to identify returns and damage hot spots. Once identified consider product, packaging and system changes altogether to address the returns or damage issue. note page 11
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