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Chapter 3

The chapter discusses reverse logistics and the secondary market. It describes 8 types of returned products including close-outs, buy-outs, job-outs, surplus, defective, non-defective defectives, salvage, and returns. The document outlines 7 channels for product disposition: return to vendor, sell as new, sell via outlet/discount, sell to secondary market, donate to charity, remanufacture/refurbish, and materials reclamation. It also describes several types of secondary market firms that deal with liquidated inventory such as close-out liquidators, job-out liquidators, brokers, and insurance claim liquidators.

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32 views23 pages

Chapter 3

The chapter discusses reverse logistics and the secondary market. It describes 8 types of returned products including close-outs, buy-outs, job-outs, surplus, defective, non-defective defectives, salvage, and returns. The document outlines 7 channels for product disposition: return to vendor, sell as new, sell via outlet/discount, sell to secondary market, donate to charity, remanufacture/refurbish, and materials reclamation. It also describes several types of secondary market firms that deal with liquidated inventory such as close-out liquidators, job-out liquidators, brokers, and insurance claim liquidators.

Uploaded by

minh.vokhanh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 3:

Disposition and the Secondary Market


Ph.D Nguyen Duc Duy
3.1 Overview of the Reverse Logistics Flow

Duc Duy Nguyen – [email protected] 2


3.2 Returned Product Types
1. Close-Outs: first quality products that the retailer has decided to no longer
carry;
2. Buy-Outs or “lifts”: where one manufacturer buys out retailers’ supply of
competitor’s product;
3. Job-Outs: first quality seasonal, holiday merchandise; Job out có lượng sản phẩm đa dạng hơn

4. Surplus: first quality overstock, overrun, marketing returns, slow-moving


merchandise;
5. Defective: products discovered to be defective;
6. Non-Defective Defectives: products thought incorrectly to be defective;
7. Salvage: damaged items
8. Returns: products returned by customers.

Duc Duy Nguyen – [email protected] 3


3.2 Returned Product Types
Close-Outs
▪ Close-out items are first-quality items that the retailer has discontinued from
its product mix.
Buy-Outs
▪ Buy-outs occur where one manufacturer buys out a retailer’s entire supply of
a competitor’s product.

Job-Outs
▪ Job-out items have come to the end of their normal sales lives.
▪ Some products—like swimsuits and snow shovels— are only popular during a
certain time of the year.

Duc Duy Nguyen – [email protected] 4


3.2 Returned Product Types
Surplus

▪ Surplus is first-quality items that the company has in excess, but will continue to
sell.
• The firm may have overestimated demand and ordered too many.
• Surplus items also result from an overzealous manufacturer.
➢ This may be due to inaccurate forecasts;
➢ Production constraints require a minimum production quantity, which is greater than
the demand.
• Marketing returns may also be a large source of excess product for the distributor.
The distributor or the vendor may offer a special promotion, which provides the
retailer an incentive to purchase a larger than usual order.

Duc Duy Nguyen – [email protected] 5


3.2 Returned Product Types
Defectives
▪ Defective items have been discovered by the retailer or by the customer to be
truly defective.
Non-Defective Defectives
▪ A customer will claim that a product is defective in order to return it, when, in
fact, it is not defective.
Salvage
▪ Salvage items have been used or damaged, and can no longer be sold as new.

Returns
▪ Returns are products that have been opened and used by the customer.

Duc Duy Nguyen – [email protected] 6


3.3 Product Disposition
▪ Products in the reverse logistics system are primarily disposed of through one of
these seven channels:
1. Return to Vendor
2. Sell as New
3. Sell Via Outlet or Discount
4. Sell to Secondary Market
5. Donate to Charity
6. Remanufacture / Refurbish
7. Materials Reclamation / Recycling / Landfill

Duc Duy Nguyen – [email protected] 7


3.3 Product Disposition - Examples

“Second hand Market” Hoang Hoa Tham market

Duc Duy Nguyen – [email protected] 9


3.3 Product Disposition- Examples
Donate to Charity: Kontti Lappenranta- Finland

Duc Duy Nguyen – [email protected] 10


3.4 Material Flow
▪ One critical objective is to receive the highest value possible for the products in
accordance with any legal restrictions or constraints imposed by the vendor.
Step by step:
1. Gatekeeping—deciding which products to allow into the reverse logistics system
2. Collection—assembling the products for the reverse logistics system
3. Sortation—deciding what to do with each product
4. Disposition—sending the products to their desired destinations.

Wilcox, W., Horvath, P. A., Griffis, S. E., & Autry, C. W. (2011). A Markov model of liquidity effects in reverse logistics processes: The effects of random volume and passage. International Journal of Production Economics, 129(1), 86-101.

Duc Duy Nguyen – [email protected] 11


3.5 Secondary Markets

• Reverse logistics activities: heavy dashed line


• Secondary market activities: light solid line.
Duc Duy Nguyen – [email protected] 12
3.5 Secondary Markets
▪ If a product is entering the secondary market directly from the
manufacturer, the manufacturer probably did not want the item for one of the
following reasons:
• Changed Product Packaging
• Product Redesigned
• Order Cancellation
• Sales Expectations Not Met

Duc Duy Nguyen – [email protected] 13


3.5 Secondary Markets
Packaging Change

▪ Packaging changes account for a large percentage of closeout items.


▪ A package change may occur due to outdated design, or a change in the size
of the product.
▪ This is particularly true with grocery items (hàng tạp hóa)
• Customers may be conditioned to a particular price for the product.
• Does not increase the price of the package.
• manufacturers may keep the price constant by reducing the amount of product in
the package, while keeping the size of the packaging unchanged.

Duc Duy Nguyen – [email protected] 14


3.5 Secondary Markets
Product Redesign

▪ Introduction of a new product version precipitates inventory clean out of the old
product.
• The old version of the product is sold until it is gone, perhaps at a discount. The
product may never enter the secondary market.
• A significant modification may make the retailer more likely to pull the old product
from the shelves and send it to the secondary market.

Duc Duy Nguyen – [email protected] 15


3.5 Secondary Markets
Order Cancellation

▪ Cancellation of a very large order results in surplus inventory.


▪ The manufacturer may be quite willing to sell the unsold product to anyone
willing to pay a price sufficient to recover the cost of manufacturing the
goods.

Duc Duy Nguyen – [email protected] 16


3.5 Secondary Markets
Sales Expectations

▪ Manufacturer may find itself with a large


quantity of unsold merchandise because
the sales projections for the product were
overly optimistic.
• Rather than hold a large quantity of
inventory that may take a long time to
sell,
• Manufacturer may prefer to sell it all at
once to a liquidator, for a lower price.

Duc Duy Nguyen – [email protected] 17


3.6 Secondary Market Firms
▪ These firms may be broken into several categories:
• Close-out liquidators
• Job-out Liquidators
• Brokers (người môi giới)
• Insurance Claim Liquidators ( người thanh lý)
• Barter Companies
• Gray Markets

Duc Duy Nguyen – [email protected] 18


3.6 Secondary Market Firms
Close-out liquidators
Close out product = product that end of season or no longer been sold in the store

▪ Deal in merchandise obtained from return centers, other liquidators, directly from
retail stores, or directly from manufacturers
▪ Types of products: close-outs, surplus, packaging change, end-of-life
▪ Physically handle inventory, sorting, consolidating, palletizing

Duc Duy Nguyen – [email protected] 19


3.6 Secondary Market Firms
Job-out Liquidators

▪ Primarily first quality, seasonal clothing items


▪ Negotiate directly with corporate buying departments of major retailers
▪ Negotiate while merchandise still selling at retail store
▪ End of season or transition inventory purchased a season in advance

Duc Duy Nguyen – [email protected] 20


3.6 Secondary Market Firms
Brokers

▪ All types of products (close-out, seasonal, salvage)


▪ Find liquidated merchandise for retail clients
▪ No physical ownership of inventory, service provider only
▪ Product very likely to be shipped outside of U.S

Duc Duy Nguyen – [email protected] 21


3.6 Secondary Market Firms
Insurance Claim Liquidators

▪ Appraisal, salvage, and recovery services for inventory losses from natural
disasters
▪ Primarily salvage goods

Duc Duy Nguyen – [email protected] 22


3.6 Secondary Market Firms
Barter Companies Lấy hàng của 1 công ty vận chuyển qua công ty khác, ăn hoa hồng, không investment, không capital,
không mua bán

▪ Make arrangements for companies to trade a surplus of one product for another
company’s surplus inventory of another product.

Gray Markets Không nhận được bảo hành từ công ty gốc, vẫn đúng pháp luật

▪ New product sold by non-factory-authorized resellers


▪ Products do not carry factory warranty

Duc Duy Nguyen – [email protected] 23


End of chapter 3
▪ Read Chapter 3 : Disposition and the Secondary Market
▪ Book: Going Backwards: Reverse Logistics Trends and Practices

Duc Duy Nguyen – [email protected] 24

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