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How to Improve ROI on Product Returns

ADT Security Systems joins with Inmar Reverse Logistics to revamp the company's method for the receipt, management and disposition of returned parts, an opportunity that it had previously overlooked.

Returns are a headache for any company that has to deal with them. Determining the fate of broken, defective or obsolete items while attending to the accompanying paperwork can be a costly and time-consuming process. But for ADT Security Systems, Inc., a renewed focus on improving its returns-management program ended up yielding big benefits across the organization.

ADT is the nation's leading provider of electronic security systems. It maintains 170 branch locations throughout the U.S., providing sales, installation and services for residential, commercial and small-business accounts. The company acts on some 71,000 alarm signals each day, with a customer base of approximately 6.8 million.

One thing ADT wasn't doing well was managing its reverse supply chain. The company "saw supply chain as a necessary evil," says Eric Blue, director of supply chain planning. As a result, there was plenty of room for improvement.

ADT was receiving upwards of 800,000 defective parts a year from customer sites, yet fewer than 10 percent were being returned to suppliers for credit. "They were not even making their way back to the branch," says Jeff Pepperworth, president of Inmar Reverse Logistics. This despite the fact that more than 30 percent of the returned parts were within warranty.

How to tell which ones? ADT was saddled with more than 40,000 part numbers, and no easy way to determine whether a given part was in or out of warranty. It took about 48 hours for a branch to learn a part's warranty status, and obtain return authorization. The process required the branch to contact ADT's call center, which in turn would reach out to the applicable supplier. The 170 branches were shipping returns "at will" to any of 16 key suppliers, creating up to 3,000 potential links in the reverse logistics chain. ADT further lacked the metrics that would have revealed the poor performance of its returns process. It's no wonder that many defective parts that were eligible for replacement or refurbishment ended up being sent to scrap.

An Ambitious Agenda

The company's objectives were clear: Recoup all credits that were due on supplier parts. Receive replacement or refurbished parts in line with the warranty agreement. Boost warranty compliance by ADT's branches, 2,100 service technicians, suppliers and its third-party logistics provider, Inmar. And create a closed-loop returns process backed by performance-based metrics.

ADT attacked the problem with the help of Inmar and its largest supplier. The first step was to identify opportunities for automating and improving the returns process. A cross-functional team from customer service, information technology and the supply chain offered input throughout development and implementation. The effort involved the creation of functional process maps, quality assessment audits, business rules, project plans and standard operating procedures, all aided by Inmar's Web-based applications.

Under the new closed-loop process, ADT technicians return all defective parts to the branches, which in turn ship them to Inmar at the same frequency. Inmar then verifies each item's warranty status, obtains return authorization and ships parts to the appropriate supplier.

For their part, suppliers send replacement parts to an Inmar returns facility, which then redeploys them to the branches as requested. Inmar's real-time, interactive screening software oversees the process, automatically creating weekly return merchandise authorization (RMA) requests via the 3PL's Web portal.

The Web-based system can be accessed by all parties, providing real-time monitoring and slashing the cycle time for authorizing returns. ADT provides supplier-specific purchase-order data to Inmar, which integrates it into the authorization request. ADT's enterprise resource planning system is also a key part of the process, helping to redeploy the right parts for replenishment to the branches. Errors are eliminated because the new system acts as the centralized authority for devising disposition rules for each of those 40,000 part numbers.

The Pilot's Results

ADT saw dramatic results from a 10-week pilot program, conducted in eight branches in North Carolina, Florida, Georgia and Michigan. During that period, Inmar processed some 8,000 units of returns. According to Pepperworth, the experiment yielded an overall compliance rate of 98 percent. It also resulted in a savings of $8 for every dollar that ADT had spent on packaging, freight and related services.

Additional benefits include an improvement in the technician compliance rate to an average of 70 percent, a similar boost in the volume of parts shipped to suppliers, and a projected annual savings of $3.5m, in the form of credits for replacement parts. Says Blue: "It paid for itself in a month."

The partners are also claiming big environmental advantages. Pepperworth says some 60 tons of carbon dioxide were saved because more than 209,000 pounds of material were kept out of landfills. Instead, approximately 144,000 returned items were deployed back to the field.

The program has since been extended to all of ADT's North American branch locations. Today, the company can realize the greatest financial benefit for each of its three possible return types: credit, refurbish/replace and scrap. Even on the disposal side, it has seen efficiencies. A new e-scrap program is designed to boost revenue recovery and sustainability, as well as improving the handling of hazardous wastes. Performance dashboards monitor product quality through a system of checks and balances. Inmar and ADT next plan to expand the initiative globally.

"Inmar did a great job of collaborating with us to develop a best-practice solution that fit our specific needs," ADT has said. The key, adds Blue, lies in the simplicity of the concept, which stresses access to data and visibility to metrics. "If it was complicated," he says, "it wouldn't have worked."

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