Time Value of Commercial Product Returns

TLDR

Manufacturers face a growing volume of product returns, valued over $100 billion annually in the U.S., yet most value is lost due to processing delays, creating opportunities for competitive advantage through better reverse supply chain design. The study aims to identify the drivers of reverse supply chain design by incorporating the marginal value of time into a network flow with delay model. The authors develop a network‑flow with delay model that incorporates the marginal value of time, illustrate it with case studies from two companies, and analyze how industry clockspeed influences the trade‑off between efficient and responsive returns networks.

Abstract

Manufacturers and their distributors must cope with an increased flow of returned products from their customers. The value of commercial product returns, which we define as products returned for any reason within 90 days of sale, now exceeds $100 billion annually in the United States. Although the reverse supply chain of returned products represents a sizeable flow of potentially recoverable assets, only a relatively small fraction of the value is currently extracted by manufacturers; a large proportion of the product value erodes away because of long processing delays. Thus, there are significant opportunities to build competitive advantage from making the appropriate reverse supply chain design choices. In this paper, we present a network flow with delay models that includes the marginal value of time to identify the drivers of reverse supply chain design. We illustrate our approach with specific examples from two companies in different industries and then examine how industry clockspeed generally affects the choice between an efficient and a responsive returns network.