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Case Study: Return Network Design - SmartPhone

Optimizing the Return Network#

Finding the optimal return and repair footprint that meets customer turnaround time requirements at the lowest cost.


  • 12% savings in total return network cost
  • 35% reduction in diagnostic and repair costs due to lower labor rates in regional low cost locations.
  • Testing and triage performed closer to the customer ensured that customer requirements were met
  • Marginal increase in transport costs due to increased internal transport between North American light repair and heavy repair sites

SmartPhone* is a major mobile phone OEM. After streamlining their forward logistics strategy they wanted to look at the after-market supply chain. Although the issue of product returns is not a pleasant one, it is a reality. All products will have some returns, either through buyer remorse, user-damage, or defective design. A poorly designed return network can alienate customers and erode profits. On the other hand, a well designed return network can offer a competitive differentiator in an increasingly commoditized market.


SmartPhone's market is characterized by demanding and fickle customers, questionable brand loyalty, and multiple competitors with the same product offering. In the event of a defective product, excellent customer service is a must to ensure customer retention. As a result, existing return and repair operations were carried out close to end markets in high cost countries, and meeting customer requirements was becoming an expensive endeavor. SimFlex was engaged to investigate whether a more cost-effective logistics strategy could be found for their North American and European markets, without impacting the customer service levels.


SimFlex analyzed and built SmartPhone's current situation, incorporating their products, return depots, repair centers and return volumes. Return volume was broken down according to the failure type - L1 (No Fault Found), L2 (Light Repair) & L3 Heavy Repair. A number alternative strategies were identified, with L1/L2/L3 carried out in various sites in local, regional low-cost (Mexico/Eastern Europe), and global low-cost (Asia) locations. Each alternative solution was created, and SimFlex compared them across multiple criteria, including cost, 'Turnaround Time' (TAT) and inventory.


SimFlex determined that a Regional strategy was the only solution that would guarantee customer requirements at the lowest cost. For the European market, all returns were processed in a centralized site in Eastern Europe. For the North American market, L1 & L2 repair were carried out in the US, with L3 in Mexico. This offered significant labor costs savings, and ensured short turnaround times, thus maintaining service level targets. A 12% reduction in total costs was identified, driven solely by diagnostic and repair savings of 35%. The need to ship returned products between L1& L2 and L3 repair sites resulted in a marginal increase in transport costs. An Asia repair strategy was considered but the costs of air freighting phones for light and/or heavy repair exceeded the labor cost savings it offered over Mexico and Eastern Europe.

Repair Process

Total Savings Relative to Sc1 (In '000)

*Company name disguised to retain confidentiality