Customer Value Perspective in Managing Returns: A Case Studyfrom the Italian Footwear Industry

In the footwear industry, we see a vast array of products and more and more frequent outsourcing of production activities by many firms in order to achieve supply chain’s competitive efficiency, which however generate more perils for the quality of products. It should also be noted that the intangible components of the products, such as image and post-sale service, become competitiveness elements among different firms. One of the complexity elements that we have found, and that is becoming increasingly more relevant, is the management of returns, that is, the whole of material flows connected to financial and information flows that for any reason travel back along the supply chain. The interest in this sector and phenomenon also stems from the observation of a few current trends: sales predictions that are increasingly more difficult to make, given the variability and unpredictability of the market; a difficult integration between marketing and logistics/ production; the unavoidable need of the firms carrying recognized and prestigious brands to control the flow of returns, and the need to guarantee a high valueadded post-sale service. From a practical perspective, Jayaraman and Luo (2007) noted that overall customer returns are estimated at 15% of sales for mass merchandisers and up to 35% for catalog and e-commerce retailers in the United States. Further, the Reverse Logistics Executive Council (RLEC, 2010) estimates that RL costs account for approximately one-half of one percent of total GDP. In view of this transformation in the distribution and supply area, we have observed therefore an increased complexity in market management issues (sales predictions, orders management) which make the relationship between the marketing, sales, logistics and production functions more critical. Managing the flow of product returns is increasingly recognized as a strategically important activity that spans different functions within and across firms, particularly marketing and operations. We focus specifically on managing commercial returns in the shoes industry. Returns management includes several activities characterized by an interfunctional logic. These activities are return avoidance (activities aiming at minimizing upstream the number of returns) and gate-keeping (activities for the control of returns flow) as well as reverse logistics (collection, transport, receipt, sorting) and, last, the activities to redirect and allocate returns. There are many types of returns, Rogers et al. (2002) grouped in five categories: consumer returns, marketing (commercial) returns, asset returns, product recalls and environmental returns. We focus our paper on commercial/marketing returns, for example unsold products or job-outs or product quality reasons that retailers return to manufacturer. By its own nature, a returned product involves several functions inside an organization: from customer service to sales/marketing, production, from logistics to management control/administration. Therefore it requires a coordination between these areas to afford efficient and effective management. Analyzing the role played by the returns management process within the customer value creation is certainly of some interest not just for the inter-functional aspect but also for the role it plays in relationship management strategies. We have seen that the various contributions on customer value hold that many factors may influence this parameter. We make no distinction between consumer-originated returns (e.g., defective product and/or buyer’s remorse) or customer (retailer) originated returns (unsold product being returned from the retailer). Thus, we want to understand how a shoemaking manufacturer can manage commercial returns in order to improve customer value. Many are the causes that make returns management inefficient (and not effective), such as a lack of coordination among the various actors of the supply chain in terms of information, material and financial flows, a strategic management of the operations connected to this phenomenon, an integration between the various process functions, the management and the agreements of the marketing channel, the promised service level regarding customer complaints. For this reason, the problem of managing returns should involve the whole firm, as well as the retailers and suppliers, without limiting the issue to the mere management of logistics operations when the problem arises, and stressing even the most strategic aspects with a view to recovering efficiency, improving effectiveness and creating value. The focus of our paper is to investigate the returns management process in the shoemaking context. In particular, our research questions are: · What is the relationship between customer value and returns management? · What are the main important drivers and steps that create value related to commercial returns management in B2B context? The gap in the literature we wish to fill specifically refers therefore to the management of returns in the footwear industry, paying special attention to value creation for customers in a business-to-business context, particolarly analyzing the manufacturer and retailer relationship.