Edition 46
Returning Thoughts
by Paul Rupnow, Director, Reverse Logistics Systems, Andlor Logistics Systems, Inc.

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Do You Know Where Your Reverse Logistics Inventory Is? A Primer on Secondary Markets

Do you know where your inventory is? You are likely very knowledgeable about where your products are sold through your primary channels, but are you as familiar about where customers are buying your products in the secondary markets? These days there are a lot of secondary market channels. Secondary markets have evolved considerably and become very sophisticated in recent years. These Secondary markets can represent a huge opportunity for a Consumer Electronics OEM. However, they can also cause significant problems. A solid understanding of these markets is essential not only to capture high values in reselling your returned, excess, obsolete or at risk inventory, but more importantly, a solid knowledge of the secondary markets is required to protect your brand and your primary market margins.

The Consumer Electronics Committee at the RLA Reverse Logistics Association is currently working on some white papers to help us all gain a better understanding of the secondary marketplace. Below is a quick preview summary of some of the work they are assembling.

Secondary Market Methodologies

Below is a basic description of some of the Secondary Market methodologies or options available to sell or dispose of returned, obsolete, excess or at risk inventory. Typically, several methods can be utilized for any condition of at-risk inventory.

Auction: Products are placed on a bid opportunity website. Bidders are invited to participate in or are part of an automated notification process alerting that an auction will be taking place. Bidders place their bids on associated opportunities. Highest bidder wins. A minimum reserve price can be set.
Liquidation: Product is sold to a third party for remarketing. Product is sold at a discount off of COGS or Retail.
Internal Sales: Product is sold by the OEM internal sales force.
Online Marketplace: Product is sold on a popular online site Amazon, Buy.com, Woot, etc.
Sell To Channel Partners: Product (usually excess/obsolete) is sold to current retail and distribution partners at a discounted rate.
Sell Outside the USA: Product is sold to markets outside of the US. South America is currently a commonly used geographic location for consumer goods.
Broker: Middle man between seller and buyer. Does not touch product or take possession. Collects a commission for connecting the dots and putting the deal together.
Use as exchange stock, alternate to repair: Product is utilized for RMA exchanges of warranted returned product.
Harvest for spare parts: Product is broken down and the parts utilized for the repair of returned, non-working product.
Scrap/Recycle: Product is sent to scrap house for recycling purposes.

Reverse Logistics Secondary Market Challenges

When seeking to sell inventory in the secondary markets, often the first challenge that comes to mind is achieving the highest possible price. However, there are many more challenges or concerns that arise when seeking to sell your secondary inventory for a high margin to the highest bidder. Other common challenges you may encounter are:

Highest Selling Price depending on the age and market demand for the products, sometimes you can seek the highest margin or sometimes with excess or obsolete, you need to sell below cost but at least you will be recovering some cash on the goods.
Channel Control managing or authorizing the resellers of your secondary market goods can sometimes assist you to control the market and achieve higher margins.
Protect Margins of Secondary Market sometimes if you are able to control your secondary channels and the rate of release of your excess or obsolete goods, you can help your company and your secondary partners achieve and maintain higher margins.
Protect Margins of Primary Market a secondary market flooded with inventory can force the secondary market prices downward. At the same time this may put significant pressure on your primary market to hold the selling price of new goods.
Post Sale Warranty Costs goods sold in the secondary market are often sold with the intention or understanding that no warranty is available on the goods. However, the end user who buys the goods and experiences a problem, will often seek assistance or warranty from the OEM for a solution. Any warranty service provided on these secondary market goods, essentially means the OEM is paying a second time for warranty on these items.
Brand Protection brand protection is important and for many companies, brand protection is extremely important. For instance, if your products are sold only through authorized or exclusive dealers, a secondary market full of current or past products can reduce or dilute your brand image and pressure your primary market margins.
Effort Required different channels may require significantly different amounts of effort (and skill). Selling items one at a time (on ebay for instance) vs. a bulk sale in an auction vs. a credit allowance where the retailer partner keeps the returns and resells them. Many OEMs prefer to sell large volumes to distribution channels rather than fulfilling orders to end users, one unit at a time.
Additional Investment sometimes it can be wise to invest further funds into the returned or obsolete inventory to make the products more attractive (e.g. attractive retail packaging) or improve the condition of the goods for a higher margin.
Time in the consumer electronics marketplace, often time is a very important factor affecting cash recovered on at risk inventory. The earlier the sale can be made in the product lifecycle, the higher the possibility of recovering a higher value. Similarly, the faster the returned goods can be processed and prepared for resale, the higher the recovery rate.

Secondary Markets represent a significant opportunity to recover significantly higher cash value for your operations on the disposal of returned, obsolete or excess inventory. Knowledge of these markets and the challenges you may face will assist you to achieve a higher recovery rate with less risks and issues. More cash for at risk inventory always pleases your senior management team. Keep an eye on the RLA website for more information on the CE committee Secondary markets work. Alternately, you can contact myself or someone on the RLA Consumer Electronics Committee to stay abreast of progress on this topic.

Good Luck!
RLM
Paul Rupnow
Director, Reverse Logistidcs Systems
Andlor Logistics Systems Inc.

Editor - Reverse Logistics Professional Report
Business Insights and Strategies for Managing Product Returns

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