This friction in repatriating defective product creates opportunities for unscrupulous middlemen to commit warranty fraud. In many cases the cost of the return label plus the customer support agent’s time will exceed the cost of the product. Because the return shipment can no longer take advantage of bulk shipping discounts, the postage to China is likely more than the cost of the product itself!īecause of the asymmetry in forward versus reverse logistics cost, it’s generally not cost effective to send defective material directly back to the original factory for refurbishing, recycling, or repair. Now repeat the hand-knit mittens thought experiment and replace it with a big-screen TV that has to find its way back to a factory in Shenzhen. This explains the miracle of Amazon Prime, when overnighting a pair of hand-knit mittens to your mother somehow costs you $20. This is because logistics are much more efficient in the “forward” direction: the cost of a centralized warehouse to deliver packages to an end consumer’s home address is orders of magnitude less than it is for a residential consumer to mail that same parcel back to the warehouse. However, leaving reverse logistics as a “we’ll fix it after we ship” detail could saddle the venture with significant unanticipated customer support costs, potentially putting the entire business model at risk. In order to deal with defective products, one has to ship a product first – an all-consuming goal. Unfortunately, reverse logistics – the system for handling returns & exchanges of hardware products – is not something on the forefront of a hardware startup’s agenda. This explains the insane density of hardware suppliers around Shenzhen it explains the success of Ikea’s flat-packed furniture model and it explains the rise of Amazon’s highly centralized, highly automated warehouses. One dirty secret of hardware is that a profitable business isn’t just about design innovation, or even product cost reduction: it’s also about how efficiently one can move stuff from point A to B.
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