Time Value of Commercial Product Returns

Abstract

Once lightly regarded, the flow of product returns has become a significant concern for many manufacturers. For products, such as PCs, whose value deteriorates rapidly with time, the increasing rates of return from on-line sales have elevated the need for effective reverse supply chain designs. Products lose value in the return stream in two important ways: first, their value diminishes during time delays while awaiting evaluation, repair or refurbishing; second, losses can be incurred through erroneous disposition decisions due to incorrect assessments of the product’s value over time. Using field data for several consumer electronics products, we build analytical models to capture the economic value of a time-sensitive product over its life cycle and then use these models to develop supply chain designs that maximize value recovered from the return steam. We show that the returned product’s "time value" is a critical design parameter.