Reimagining the supply chain3 min read . Updated: 12 Apr 2013, 01:22 AM IST
GreenDust refurbishes factory seconds from original equipment manufacturers and retailers to make large-ticket products affordable for the mass market, according to the retail innovation report
New Delhi: A question about the definition of a supply chain prompted Hitendra Chaturvedi, founder of Reverse Logistics Co. that operates GreenDust.com, to give up his established career as a consultant and take up his first stint in a relatively new and untapped business—reverse logistics.
In 2000, Chaturvedi, after working as a strategy consultant with AT Kearney in the US, joined hands with start-up Newgistics, a reverse logistics firm funded by Texas-based Austin Ventures LP. He was approached by a venture capitalist who made an “interesting offer".
“Next thing I was sitting with the founder (of Newgistics) and he asked me a very simple question: ‘define supply chain for me’. I gave him a dictionary definition—movement of goods, services, products from manufacturer to the consumer—and he said, ‘good answer, but you’re only 50% right’. I was very curious to know what he was talking about; he said ‘supply chain has two elements to it—one is called forward, where your definition is spot-on, but then there is another activity which happens—that is the return of products, which is your reverse supply chain. You haven’t defined that for me.’ And that’s when the light bulb went off," reminisces Chaturvedi, who moved to the US to do his MBA from Southern Methodist University in Dallas, Texas.
Reverse logistics is the process of moving a product from the consumer—the typical final destination—to the manufacturer, the point of origin, for return, re-use or disposal.
After working with Newgistics for two years, Chaturvedi, a graduate in computer science from Roorkee, had to change jobs for personal reasons. He joined Microsoft Corp. in Redmond, Seattle, and was eventually posted in India as head of the original equipment manufacturing (OEM) business, a $400 million revenue stream for Microsoft in India.
When the assignment was getting over, he decided to take the plunge and get back to reverse logistics, based on the sense he’d got from OEMs he interacted with in the country. “I quizzed senior executives from companies about what’s their return rate, how much money do they spend in bringing their products back, are they compliant with electronic waste regulations, and if they realize the importance of reverse logistics...they had no idea," said Chaturvedi.
So Chaturvedi quit Microsoft in mid-2008 and started GreenDust.com in October the same year.
The scale or size of the industry in the US is such that for every 100 products moving forward to the consumer, on an average, 10 come back to the manufacturer. In India, for every 100 items going forward, about four to five come back across all categories. Accounting for all the goods produced in India, the opportunity size for reverse logistics is $15-20 billion.
“The reason the return rate in India is low is because we don’t believe in customer service. A good return experience can actually increase your revenue. Our research has indicated that 80% of the customers will not buy from the brand again if they have a bad return experience. But in India, we are penny-wise and pound-foolish at times,“ said Chaturvedi.
Chaturvedi said companies in India also do not encourage reverse logistics as they are unaware of its potential.
“I have companies which say ‘I want to make my return rate zero’. I tell them, try doing that, it’s going to kill your company. The point is, making a good return policy will allow you to grow the business because it becomes a part of customer service. It’s very strategic. So the Walmarts of the worlds don’t lose money, they actually have made the returns (of goods) a profit centre if they do it right. They outsource it. In India, we are trying to replicate this model," added Chaturvedi.
GreenDust is based on a unique hybrid retail model where reverse logistics is used as a sourcing engine. “By managing their (the clients’) returns, the products I get I use Greendust to push these products into the market through an online and offline model. It will still be a company-branded product, say LG or Whirpool, but with a Greendust stamp on it. Think of our sticker as an ISI (Indian Standards Institute) mark," explains Chaturvedi.
These are factory second goods, 30% cheaper than market price and come with a one year warranty.The company’s biggest clients include, Samsung, LG and Whirpool, among others.
The four-year-old company earns revenue on the differential between the price at which it acquires the products from its clients and the price at which it sells them.
Chaturvedi wants to expand this business into other emerging markets. “My aspiration is to have this company in the next three to five years to be a $1 billion company. A model coming out of India and expanding into emerging markets, with a local acquisition and disposition strategy, this works," said an optimistic Chaturvedi.