NextGen Supply Chain Interview: John Lee

This month we spoke with John Lee, vice president of business development at goTRG, which integrates reverse logistics into the multi-channel supply chain. Prior to joining the company, he was vice president and general manager of Liquidity Services, which manages, values and sells surplus inventory and equipment.

NextGen Supply Chain: What's the future of reverse logistics from where you sit?

Lee: We are just at the beginning of changing reverse logistics from being a tactical nightmare to a strategic partner of all companies involved with the distribution of goods.

The vast majority of these companies are retailers that typically sell through e-commerce and/or brick-and-mortar. For them, the forward supply chain is 90% of their operations. Reverse logistics is just 10%. But it's a really rough 10% for most everyone at this stage.

Using advanced data analytics, artificial intelligence and advanced software, reverse logistics can become not only much more manageable but a pocket of profitability that adds to the bottom line. But that's going to require a paradigm shift by retailers and others.

NextGen Supply Chain: What do you mean by that?

Lee: I said paradigm but I should have said paradigms.

The biggest shift is to change from looking at returns only tactically. Companies also need to look at returns strategically and that requires shifts away from two other long-established paradigms.

To begin, there's the matter of turn around time for returns. Most companies deal in days or even weeks. That has to come down to hours. Every day that returned product sits in a center it loses value. So rapid processing times are needed to turn around product and make it available much sooner than later.

In addition, product that a retailer can't simply re-introduce to its inventory has to find a new home. And the retailer wants more than just a few pennies on the dollar for it. Typically, the retailer sets a recovery price that it wants for the product and expects that price. Unfortunately, that's not what it's usually worth in the various disposal channels. It's often worth less.

So retailers need to collaborate with companies to sell it for what people are willing to pay. Otherwise, much more outdated merchandise is going to go to liquidation rather than another retail channel for more money. That's a huge paradigm shift but a manageable one with advanced NextGen technologies including AI.

NextGen Supply Chain: You really are turning management of reverse logistics on its head. And your focus is not on the process of managing returns but on how to dispose of them through channels from resale to other retailers to liquidation. So, tell us about how that works in this new world.

Lee: The starting point is the specific product and its value.

Every product has a UPC or universal product code. This distinguishes not just a particular style of shoe, for instance, but its color and size. We work from a database of nearly 100 million UPCs.

And as you might expect a light tan shoe is worth more in the summer than the middle of winter, in the Northeast at least. So, the value of that shoe varies by season. The challenge is to maximize value, which, of course, is dependent on turnaround time for processing that return for resale up front.

There are also multiple channels where a product could be sold. But prices are not static. They are very dynamic. Using AI, advanced software takes into account what is selling for how much in the past minute across more than 20 on-line marketplaces. And it makes adjustments accordingly.

NextGen Supply Chain: That's quite impressive and quite a long way from pre-set prices.

Lee: That it is. But it's also where reverse logistics are headed. The days of selling aggregated pallet loads of product for a pre-set price will be history. And the only way this will work is with the help of advanced data analytics and AI. Companies need this technology to manage returns. People just aren't able to go sufficiently granular fast enough otherwise.

NextGen Supply Chain: All of that said, is this really worth the effort?

Lee: On every front, this is a major change. But it is an important one because reverse logistics can improve financials for companies.

Returns, which are about 33% of e-commerce sales and 5-10% of brick and mortar sales, are not going to go away anytime soon. They are here to stay. And competition for sales is unlikely to become any less competitive. Which means margins are not likely to improve significantly.

Suddenly, new reverse logistics efficiencies can immediately improve the overall bottom line. In fact, reverse logistics is a huge pocket that we are only beginning to tap. This is going to get very interesting really quickly.

Gary Forger is Special Projects Editor for Supply Chain Management Review. He can be reached at [email protected].

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