248 Improving Business Performance Insight
For the case study, we start with a brief description of the business problem that
we considered, the Returns Management Process. It is important to understand
the case study from a business perspective in addition to the IT perspective. It is
the integration of these two areas that provides the strength and benefit.
To begin, we describe some examples of typical work activities in a returns
management process, and then we analyze how we gain performance insight to
evaluate and optimize them.
In particular, we show how the returns management process, a typical business
cross-functional process, can benefit, for example, from programmatic data
mining capabilities to make better decisions and influence the process flow itself.
We show how to post and resolve alerts about possible process problems, as
well as inefficiencies in the process. This is done by monitoring and collecting the
results of the operational day-to-day activity and passing them to management
and strategic layers for an appropriate evaluation. The strategic layers analyze
data accumulated in the process warehouse, and data warehouse from a history
perspective, and then analyze that data to find the problem root cause. Action
can then be taken to correct the issues, effectively closing the process loop by
influencing and optimizing the business performance.
7.2 The returns process management problem
Most organizations implement some form, more or less sophisticated, of a
returns management process. In general, customers return products for a variety
of reasons, including a simple change of mind, errors, damaged products, wrong
quantity, missing items or parts, and so forth.
In some industries, costs for this process can be very high. According to recent
surveys, merchandise returns represent 7%-20% of retail sales, depending on
merchandise mix and service levels. For example, in the USA, according to the
2003 National Security Survey, retailers lost about $16 Billion to fraudulent
returns. It is estimated that on average, 9% of merchandise returns are
fraudulent. That means that a retailer with $1B in annual sales could lose as
much as $13.5M from fraudulent returns.
Therefore, the Returns Management Process, that spans a number of business
functions, could become very expensive for a company. There are many factors
that contribute to this. The Returns Process problem cannot be simply reduced to
reverse the supply chain because there are a large number of peculiarities that
differentiate it with respect to processes that constitute the normal business
forward flow. In many cases, companies experience a scarcity of control in this