June 15, 2010

Set-top box builders' substantial returns rate

Recently, I posted some solutions for managing the long life cycles in the set-top box industry. While this equipment sits in a home for years, many of its internal components become obsolete, thus having a direct effect on managing the service spares inventory for these products. I’d like to discuss another area where additional improvements can be gained, related to the substantial return rate of set-top boxes.

Even though set-top boxes have a long life cycle, they tend to be returned a lot. For instance, they can break, service requirements change or, quite often, the end user simply changes residence. These high field return rates are not just a characteristic of product failure but also of simple address change. Multiply this occurrence by tens of millions of users, and the quantities returned are dramatically high.

Now these boxes are widely deployed – logistically they can be located anywhere. As equipment is returned to local and regional distribution centers, the returns are often palletized and trucked cross-country to a single processing center. This process inflicts additional harm, as electrical components such as fans and hard drives are much more susceptible to damage when transported in a hot truck under less-than-ideal circumstances.

Rather than ship boxes across the country to one location, forward-thinking cable service providers and manufacturers can save money on freight by relying on partner-managed, centrally located processing centers, such as those handled by Converge. This type of outsourced solution can utilize packaging and product planning techniques to minimize transit time and ensure that equipment is not damaged further. Once the set-top box arrives at its destination, it is tested to strict standards and reconditioned for redeployment, and components are harvested for reuse/resale or responsibly recycled.

I’ve noticed two opportunities that manufacturers often fail to take advantage of:

1. Cross-utilization of parts in processing. Since a high number of set-top boxes are returned simply because of a move, they typically have a high yield or pass rate. In a heavy-return/high-yield environment, there is significant opportunity to repair failed units with NTF (no trouble found) parts harvested from other returned units. This practice decreases the need to purchase additional service parts inventory if implemented in the decision-making process properly.

2. Often the only reason set-top boxes cannot be immediately returned to service is CID (customer-induced damage), such as scratches or other blemishes on the surface of the unit. For example, maybe someone placed a plant on top of the unit, leaving dirt and a water mark. Damage such as this can be easily fixed with harvested shell components or minor cosmetic touch-ups such as paint or cleaner, enabling the manufacturer to return the box to service quickly and at low cost.

Because of the unique nature of these high returns and the potential to reuse parts, it is surprising to me that many vendors are still running old-school processing centers that do not take advantage of these opportunities to save time, money, logistics costs and repair costs.

Do you have additional ideas? Let me know if you have any other low-cost ideas that can have high financial impact.

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