Drivers of customer returns are defined as defects, product incompatibility with consumer needs, and absence of product performance in relation to the customer expectations (Rao, Rabinovich, & Raju, 2014). It is crucial for the retailer to estimate handling costs and the customers’ costs of returning the product (Yang et al., 2017). Hence, managing consumer returns effectively becomes crucial to business profits (Ruiz-Benitez & Muriel, 2014). Moreover, the returns process is approximated to be two to three times as expensive as their outbound shipment (Ruiz-Benitez & Muriel, 2014). Commonly, costs are allocated with activities, such as, repackaging, re-stocking and re-selling returns. Additionally, costs are made before the repackaging, re-stocking and re-selling activities, such as retail operations, and collection and transport at the moment a return is proclaimed by a customer. However most of the retailers accept CR costs as being unavoidable in doing business (Rao, Rabinovich, & Raju, 2014), a company cannot ignore that CR is certainly associated with costs made throughout the entire chain. Delivery and return options, and customer preferences have been found to be evolving over time (Hübner, Holzapfel, & Kuhn, 2016). Processing returns quickly and efficiently has become fundamental because of the following retail and customer perspective reasons: the product will be sooner available on shelf for resale and the customers’ expectation in quick reimbursement is fulfilled. Consequently, firms will benefit from adapting their return options to the evolving customer preferences. However, managers have difficulties in designing, planning and controlling the reverse supply chain in which customer returns are processed (Blackburn, Guide, Souza, & Van Wassenhove, 2004). Redesigning the returns process (reverse supply chain) in order to be faster can decrease the time delays, and subsequently, decrease the associated costs (Blackburn, Guide, Souza, & Van Wassenhove, 2004). Furthermore, reverse logistics has become an important issue regarding waste reduction (Mollenkopf, Russo, & Frankel, 2007). To summarize, a focus on CR and all associated activities is important for a retailer since CR is closely related to trust, customer satisfaction, costs, evolving customer preferences, and waste.
2.2. Channel Design
In literature, a channel is defined as ‘’a customer contact point or a medium through which the company and the customer interact’’ (Beck & Rygl, 2015, p.170; Neslin, et al., 2006, p.96). A channel can be appointed as both forward (sales) and backwards (returns) contact points. The evolution of channel designs and the drawbacks of former channel designs that are outpaced, as discussed by Saghiria et al. (2017), can be schematically illustrated in this research as shown in figure six.
Figure 6. The evolution of channel designs
The journey of omni-channel retailing and supply chain business is far-reaching, passing through multi- and cross-channel retailing. Multi-channel retailing is the most basic channel design and is commonly associated with bricks and mortar stores (offline channels) and websites (online channels), with each of the channels seeking its own improvements in output (Saghiria, Wildinga, Menab, & Bourlakisa, 2017). Cross-channel retailing is commonly associated with online and offline channels being integrated with each other, through communication and information. Omni-channel retailing is the most sophisticated channel design, and is associated with various touchpoints, all transparently integrated with each other and the customer. These channel designs can be schematically illustrated as shown in figure 7 (Kositpipat, 2017).
Figure 7. Channel Designs (Kositpipat, 2017)
Along with the growth of shopping via various channels, firms keep creating new channels (Beck & Rygl, 2015), as a result, more contact points arise. The growth of channels brings us to the concept of omni-channel retailing, despite evolutonary research on OC remains underdeveloped (Saghiria et al., 2017; Hübner, Holzapfel, & Kuhn, 2016). OC retailing is defined as a seamless shopping experience for the customer, a world wherein a customer can place orders, purchase goods, anywhere, any time, encompassing all channels (Beck & Rygl, 2015). However, ‘a seamleass purchase decision across multiple channels’, is far removed from the current reality in retailing, and is ‘a distant future goal’ (Beck & Rygl, 2015, p.170), there are several motivators to implement an OC design, the most important for this research being, the optimization of the physical channel (Kositpipat, 2017). Optimizing the physical channel may be crucial to eliminate waste in the processes within the returns channel design and adjusting the existing channel design to a higher level. With regard to channel design, a distinction should be made between back- and front-end related logistics and retail operations (Wollenburg, 2016). Literature suggests that back-end is commonly related to inventory and warehousing, while front-end is mostly concerned with deliveries and returns (Wollenburg, 2016).
In the utmost general sense, channel is the customer interaction point, and the design of a channel is how these interaction points are embedded throughout the up- and downstream value chain of channels. The three-dimensional framework of Saghiria et al. (2017) (Figure 8.2., Appendix E) takes a view on the channel design from three dimensions, being the channel stages, the channel type and channel agents (Saghiria et al., 2017). Channel stages, are known as pre-purchase, payment, delivery and returns, and each one of these channel stages is a customer value-ading journey. The channel type refers to the mediums available in those channel stages, which can be divided into information channels, payment channels, product delivery channels and product return channels. These channel types provide the product and the information to the customer, and endless possibilities can be deployed, such as: information through social media, websites, text, e-mail, phone, post/catelogue, television commercials, and through shop; payment by mobile apps, on-line, phone, post/e-mail and face to face; product delivery through 3rd party pick up points, pick up from retailers site, name delivey and taken upon purchase; and product returns by post, home, drop-off point or shop. Furthermore, each channel stage identifies agents that interact with the end-consumer or perform operations for the end-consumer in that particular channel type, for product returns these are known as manufacturer (which is the distribution centre of the retailer), the physical retailer (which is the physical store), the digital retailer (which is the webshop), and 3rd parties (which are LSPs). Subsequently, each channel stage defines its own customer interaction points, for returns this is post, home, drop-off point, shop, and credit institutions. Literature argues that every available point in a channel design should be able to connect with any other point in the channel (Saghiria, Wildinga, Menab, & Bourlakisa, 2017). Accordingly, each stage and agent in the channel design should be able to cement with each other. For example, returns policy information provided by the retailer in shop, should be the same as returns information on the website, returns information obtained per e-mail or via phone. To conclude with, channel design is, the complete channel stages, channels types, and channel agents that enable the interchange of products and/or information throughout the up- and downstream value chain.
2.3. Conce
pt of Waste
As prior research points out (Abdul Rahman, Sharif, & Esa, 2013) many companies are still struggling to become lean, despite the availability of knowledge and resources. Lean management, is a tool that can help to eliminate waste from processes, bear improved inventory control, and achieve greater financial and operational control (Abdulmalek & Rajgopal, 2007). From a lean perspective, waste is ‘’anything other than the minimum amount of equipment, materials, parts, and working time, which absolutely are vital to production’’ (Abdul Rahman, Sharif, & Esa, 2013, p.175). In accordance with the scope of this research the term ‘production’ can be replaced by ‘customer returns (process)’. In other words, waste is every non-value adding (NVA) activity in a process. Lean management principles are focused on identifying the substantial sources of waste, and then using methods to eliminate waste (Abdulmalek & Rajgopal, 2007). Waste is always linked to lean and the goal of lean management is to create a value stream wherein all activities create value (Wahab, Mukhtar, & Sulaiman, 2013; Arnheiter & Maleyeff, 2005). Within the concept of lean, seven types of waste have been identified, that are described hereafter.
2.3.1. Seven types of Waste
1. Overproduction
This form of waste occurs when there is made too much, too early or ‘just in case’ (Wahab, Mukhtar, & Sulaiman, 2013). The operations should have been ended but they are not, the result is an overload of products, made too early, that have increased inventory (Hicks, 2007).
2. Waiting
The second most important source of waste is identified as waiting and it is of high importance to product and/or returns flow. This type of waste occurs when time is not effectively employed. For instance, when products (returns) are not in movement, it will influence the lead time. Consequently, competitiveness and customer satisfaction will suffer (Wahab, Mukhtar, & Sulaiman, 2013). The waste of waiting can be described as queuing and intervals of idleness in downstream processes, caused by delayed upstream processes (Hicks, 2007). These intervals are filled with activities that do not add value, and every non-value adding activity in a process is waste.
3. Transportation
Waste of transportation interrelates with the movement of materials (products and/or returns) and double handling of it. Transportation will negatively influence productivity and increase quality issues (Wahab, Mukhtar, & Sulaiman, 2013). In case of returns, transportation is a risk factor for the return on stock option. Waste of transport should be kept to a minimum, considering during transport (product) damages can arise and reducing transportation will save time in the (CR) process in which no value is added to processing the returned item.
4. Over-processing
This type of waste is caused by defects, overproduction, and/or excess inventory. As a result, extra operations occur: rework, reprocessing, handling and/or storage (Hicks, 2007). Over-processing is related to quality incompetent equipment and processes (Wahab, Mukhtar, & Sulaiman, 2013). Furthermore, over-processing arises under overly complex circumstances for straightforward procedures. Unnecessary complex circumstances can lead to needless transportation, poor layout and lousy communication (Wahab, Mukhtar, & Sulaiman, 2013).
5. Inventory
Waste that can be referred to as inventory covers raw materials, work-in-progress (work-in-process) and finished goods (end-items) which are not necessary to fulfil the customer order and related to additional handling and space. (Hicks, 2007). The occurrence of inventory bears prolonged lead time, delays problem identification and increases over-processing.
6. Motion
Two types of motion are identified as waste, the first being layout motion and the second being human motion, both of these refer to extra steps that must be taken by employees (Hicks, 2007). Layout motion is related to badly designed workplaces, human motion are activities (commonly related to a production environment) such as, bending, picking-up, and moving products and/or returns (Wahab, Mukhtar, & Sulaiman, 2013). However, human motion not only occurs in a production environment, but also in logistics activities and retail stores regarding returns. It has been noticed that waste of motion is exhausting employees, and lowering their productivity (Wahab, Mukhtar, & Sulaiman, 2013).
7. Defects
An inevitable outcome of defects in a process is customer dissatisfaction. Defects are related to products that are not in conformity with the expectation of the customer (Hicks, 2007). In terms of CR one can speak of processes (or actions) that do not meet the expectations of the customer regarding handling returns, such as, lead-times for refund, returns policies, and returns information ambiguity. Defects are identified as scrap, rework, delay, warranty, repairs and field service, which implicate direct cost for immediate and long term (Wahab, Mukhtar, & Sulaiman, 2013).
2.3.2. Lean Methods
In order to successfully remove (sources) of waste it is necessary to understand the previously described ‘seven types of waste’. The next step will be choosing a lean method or technique, to identify and remove waste, that suits the setting of the retailer and one that is applicable to the specific case study. Hereafter, techniques distinguished in literature to eliminate waste from processes will be elaborated on. Several methods to remove waste are known in literature, however, not all of them are applicable for every type of organization. The following lean manufacturing methods: single minute exchange of die (Hicks, 2007), cellular manufacturing, total productive maintenance, setup time reduction (Abdulmalek & Rajgopal, 2007) are excluded for this research, since these methods are solely applicable to machines and or equipment in a manufacturing setting. The ones that might be applicable for the processes of this case study setting are introduced in table 1.
Table 1
Lean methods
Method Explanation Improvement(s)
Theory of Constraints (TOC) • The focus of TOC is on series of interdependent processes (the system) and the improvement of these processes. The constraint is the weakest link in the chain. The impact/strength of the weakest link defines the performance of the entire chain (Nave, 2002).
• Improvement of throughput volume;
• Reduced inventory (Nave, 2002).
Value Stream Mapping (VSM) • All activities, both value adding and non-value adding are represented in a value stream. These activities are necessary to bring products and/or services (or a group of one of these that utilize the same resources) through the chain.
• Identification of all forms of waste in the entire value stream;
• Create current state of operations;
• Elimination of all identified waste;
• Improve throughput time
• Design future state of operations (Abdulmalek & Rajgopal, 2007).
5S • The definition of 5S is: sort (seiri), set (seiton), shine (seiso), standardize (seiketsu) and sustain (shitsuke) (Näslund, 2008). Following this 5 steps cycle will improve work places and standardize work procedures (Abdulmalek & Rajgopal, 2007).
• Higher quality;
• Reduced costs;
• Improved safety;
• More reliable deliveries;
• Improved availability of plant and equipment (Näslund, 2008).
Kaizen
• Kaizen (continuous improvement) focuses on improving the performance (gradually) and sustaining the culture of continuous improvement (Näslund, 2008).
• Elimination of hidden waste(s);
• Elimination of unwanted activities (Vinodh, Arvind, & Somanaathan, 2011).
2.3.3. Value Stream Mapping
Within the context of OC and
waste in the HFG case, the VSM method is most useful d
ue to the following reasons: VSM is the most appropriate method to describe processes, VSM works on the big picture of the whole chain and not just individual elements of the supply chain, and VSM is a tool to manage the change process (Rother & Shook, 2003). Furthermore, VSM:‘’Makes decisions more visible, allowing previous discussion of possible changes and improvements and forms the basis for an action plan‘’ (Dal Forno, Pereira, Forcellini, & Kipper, 2014, p.780). Hence, the method will be useful to understand and interpret the current channel design and create the future state, that will form the basis for possible changes, improvements and actions towards an OC design. The main steps in VSM are twofold, firstly the current state of operations is mapped, consequently, a future state map will be created.
Current state map
The current state map is designed to identify weaknesses of the current state, while one stepwise walks along the process (Abdulmalek & Rajgopal, 2007). The current state map is an illustration of the current design of processes, in order to find problems in the associated processes. The current state map is mainly based on information from the people that ‘work on the floor’ or perform daily activities regarding the illustrated processes. Process-level kaizen, as opposed by Rother and Shook (2003), is useful as approach within the current state since it eliminates waste on shop floor level through a focus on people and process flow.
Future state map
Subsequently to the current state map, the second step in VSM is the creation of the future state map. The result of this map is a visualization of the desired design of the system, after inefficiencies (waste) have been removed (Abdulmalek & Rajgopal, 2007), and adjustments towards value stream improvement are made (Rother & Shook, 2003). The future state is developed by questioning the efficiency of the system (Abdulmalek & Rajgopal, 2007). Additionally, questioning other issues in the system, such as the channel design, returns options, and information visibility might be useful as well.
Summarizing, VSM is regarded as a valuable tool to understand the current position of processes and find possibilities to make improvements in those processes (Dal Forno, Pereira, Forcellini, & Kipper, 2014). Making use of a lean method and find possibilities to make improvements is highly dependent on information from people on all organizational levels (Dal Forno, Pereira, Forcellini, & Kipper, 2014). The method to retrieve information from different organizational levels is elaborated on in the chapter methodology.
2.4. Channel enablers
In the previous subsections channel design, and the concept of waste is described into detail. However, the relationship of channel design with non-value adding activities is not discussed yet. This section is concerned with the link between the two phenomenon omni-channel design and waste, and explores theory on the relationship between the two phenomenon. Both phenomenon, omni-channel design and waste have a focus on the customer value adding journey. In theory, a well-established channel design should neither contain nor result in waste, hence the question arises, how can channel design result in waste? A retailers’ inventory, picking, assortment, delivery, return, organization and IT systems are identified as main enablers of well-established omni-channel designs (Table 2). Literature acknowledges these enablers as channel development areas of organizations (Hübner, Wollenburg, & Holzapfel, 2017). The remainder of this section is concerned with the channel design enablers and the causality of a undeveloped channel design with waste.
Table 2
OC enablers
Enabler Basic Channel Omni-Channel Illustration
Inventory Channel separated inventory Integrated inventory
Picking Picking per channel Cross-channel picking
Assortment Limited number of SKUs (online) More extensive assortment (online and offline)
Delivery Limited delivery options Expanded delivery options
Return Return coupled to the sales channel Return decoupled from sales channel
Organization Separated operations responsibility Cross-channel coordination and responsibility
IT systems Separate and channel specific ERP Joint, cross-channel ERP system with real time access
Note. Framework of the transition from multi- to omni-channel logistics. Adapted from ‘’ Retail Logistics in Transition from Multi-Channel to Omni-Channel,’’ by A. Hübner, J. Wollenburg, A. Holzapfel, 2017, International Journal of Physical Distribution & Logistics Management, 46, p. 34. Copyright 2016 Emerald Group Publishing Limited.
• Inventory, Picking and Assortment
Retailers that deploy an OC design enable flexible and demand-driven inventory allocation. Findings of Hübner et al. (2017) confirm that in the basic channel design retailers use separate inventories (Hübner et. al., 2017). Separate inventories result in waste of motion, redundant employees, excess inventory, waste of effort, time, and materials (Lukic, 2012). Regarding the assortment, the OC retailer deploys a varied assortment where the online shop is a virtual shelf extension. The basic channel design retailers offer a limited assortment online, resulting in waste of defects, such as lack of standardization, pricing, inventory availability and waste of over-processing, such as separate product assortment adjustments for online and offline channels.
• Delivery and Return
In the extended OC design customers can pick-up in store, and have items purchased in store delivered from central warehouses. In the basic channel design customers can only obtain items through postal delivery (Hübner, Wollenburg, & Holzapfel, 2017). Hence, profitability is limited in the basic channel design, furthermore, inventory is more decentralized and dispersed over locations, which results in waste of motion, transportation, waiting and waste of defects due to customer dissatisfaction caused by stock-outs. The extensive returns channel enables decoupling the purchase location from the returns location. Meaning, the return can be handled offline even when it is purchased online. Within the most basic return channel design customers can only return items at the purchase location. As a result, waste of waiting and over-processing arise due to the narrowness of the returns channel.
• Organization and IT Systems
Hübner et al. (2017) define organization, which is the issue to separate or integrate logistics responsibility, and IT systems, which is the issue to separate or integrate ERP systems, as enablers for efficient and effective logistics integration (Hübner, Wollenburg, & Holzapfel, 2017). In an advanced OC design organizational units, such as separate DC’s, stores, and fulfilment areas, merge their operations by reason of higher logistics efficiency. In the basic channel design organizational units disjoin activities, as a result, there is a lack of consistency, standardization, information flows and operating efficiency (Lukic, 2012) deriving from waste of time, transportation, over-processing and inventory. Regarding IT systems, the OC channel design develops standardization, integration, and transparency throughout organizational units. While in basic channel designs, ERP systems are separated from other ERP systems within the organization, as consequence over-processing, and increased lead-time due to information inaccessibility, and information redundancy arise in processes.