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Reverse Logistics Opportunity: Returns are a Rapidly Growing Challenge for Online Retailers

Reverse Logistics Opportunity: Returns are a Rapidly Growing Challenge for Online Retailers

by Paul Rupnow, Andlor Logistics Systems Inc., Andlor Logistics Systems Inc.

Reverse Logistics Magazine, Edition 78

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Online consumer demand for free and easy returns means Reverse Logistics is a now a Strategic Opportunity for competitive advantage. 30% of online businesses say managing returns is affecting profit margins. Some call this a problem, but good Reverse Logistics teams see this as an opportunity. If you can show your CEO how you can speed returns processing, recover higher values from the returned items, reduce return processing costs and reduce inventory, you will create a significant competitive advantage over other retailers how are struggling with this complex challenge.

Barclaycard research recently published some shocking data about the impact of Returns for Online retailers:

• 60 per cent of retailers negatively impacted by returns
• 30 per cent online businesses say managing returns is affecting profit margins
• 20 per cent businesses have increased price of items to cover the cost of managing and processing customer returns
• 30 per cent of shoppers deliberately over-purchase and subsequently return unwanted items
• 19 per cent admit to ordering multiple versions of the same item to make up their mind at home
• 58 per cent say a retailer’s returns policy impacts their decision to make a purchase online
• 47 per cent of these would not order an item if they had to fund the cost of sending it back.

Source: May 18, 2016

E-Commerce is growing at a rapid pace as more and more consumers are utilizing online and mobile purchasing. The growth of online purchasing is also resulting in the growth of online returns. In fact, many E-Commerce retailers are encouraging consumers to buy and return, to help consumers reduce purchase risk with tactics such free returns shipping, open returns policy or even “bracket buying” where the consumer buys orders three sizes and returns the two that do not fit. This is presenting new and greater challenges for E-Commerce Reverse Logistics teams. Historically, E-Commerce Reverse Logistics has been very “customer focused”, ensuring that the customer satisfaction is high with quick processing of a store credit, refund or replacement. Now however, E-Commerce Reverse Logistics teams must advance their skills and efforts to rapidly get the returns inventory back on the finished goods shelf and to maximize value recovery from any open box units. Best Practice e-commerce returns processing teams need to learn and design systems to better plan, monitor, manage and recover maximum value from the returned and “soon to be returned” inventory.

Key Issues for E-Commerce Reverse Logistics
Customer service is the first priority and must be maintained despite the new policies and practices that may be resulting in increased returns. In addition to the best practice of processing customer credits quickly, some additional issues facing E-Commerce Reverse Logistics teams are as follows:

“Soon To Be Returned” Inventory – if customers are ordering 3 items and returning 2, there is an incredible amount of corporate cash tied up in inventory that is going to come back at some future date, hopefully soon.

Inventory purchasing decisions - if you buy more new stock to fulfill new “Bracket Buying” orders, you may be faced with too much inventory when all the unwanted “Bracket Buying” returns arrive. This is especially critical with seasonal good, since a slow return may result in a very low recovery value.

Increased Focus on your Warehouse team - you need to work with your Reverse Logistics warehouse, 3PL or 3PSP Returns processing partners to reduce inventory, rapidly process returns and to re-stock or recover value quickly, likely in an environment of increasing online sales volumes.

Reverse Logistics systems - most E-Commerce web site return systems are fairly basic and assume the returned unit is still in sealed package and can be returned immediately to stock. However, when your return volume exceeds 100 units a day, a more specialized and dedicated system is required to process a high volume of returns rapidly, accurately record the returns data and to scan, inspect, assess, receive, sort, disposition, consolidate, palletize and put away returned items that may be in conditions that are not “New in a Sealed box”. Your systems should direct the operator to find the best way to recapture the highest value from each returned item.

The Need for Speed #1 - Reduce outstanding inventory - if your return rate is high, or if 2 of every 3 products will be returned, you need to process the returned inventory as quickly as possible to get the returns back in to new stock or converted to credit/cash for operations. The goal is to reduce cash tied up in inventory that is at the customer, in transit or not productive. The challenge is you may have little control over this inventory that belongs to your balance sheet.

The Need for Speed #2 - Increase value recovery – inventory, especially fashion or electronics has a short life cycle. Returned goods need to be re-stocked and resold while the “buying season” is still on-going or sent to the secondary market while the value is still high. Or if the product can be returned to the manufacturer for credit, ensure these get processed ASAP.

Focus on Recovery – often issues or complexities of Reverse Logistics processing can cause expensive delays or errors. Remember: “it’s about recovery, not about cost” “If [a return processing partner] will process for $.10/unit less but cannot properly execute an RTV [Return To Vendor transaction] for a $500 item, you didn’t save $.10, you lost $499.90.” Rob Saper OfficeMax VP Supply Chain Logistics at RLA Vegas 2013

Best Practice Methods to Improve E-commerce Reverse Logistics
Improvements in your systems and processes can help you monitor, manage and improve your Returns processing. Enhancements to your ERP or specialty Reverse Logistics Software can assist you to accomplish this. Some key areas to focus on are:

1. Visibility – real time visibility of transactions, balances, exceptions help you monitor and track your progress whether in your warehouse or at your 3PL or 3PSP Reverse Logistics partners. Visibility is also essential in planning, especially in planning and monitoring “Soon To Be Returned” inventory.

2. Advanced inspection process – ability to define item specific rules, provide the inspector with questions or to create workflow to route the item and collect decision data to help determine the best possible outcome to maximize value recovery.

3. Disposition rules engine - ability for the business team to create receiving/inspection processing workflow or routes for each item that will enable or optimize highest value recovery, including the ability to re-allocate to retail outlets/regions/countries where demand is greater or the secondary market price is higher.

4. Warehouse organization - to sort, group, consolidate and store (as short a time as possible) with the ability to distinguish between the same item with different grades or stages of WIP Work In Process. These abilities are often beyond the abilities of a basic WMS. Also in the warehouse, special care is required in handling single units and open box items so not to damage the returned inventory and lose credit from the manufacturer due to damage.

5. Vendor collaboration and agreement compliance – provide your vendor partners real time visibility to returns, provide system alerts of issues, and monitor handling and disposition rules at an item level. Close collaboration with your vendor partners will help you both reduce returns and recover higher values.

The E-Commerce Reverse Logistics Opportunity
The issues and best practices above are just a starting point. Reverse Logistic for E-Commerce companies will be a rapidly changing area over the next several years. This will present both challenges and opportunities. Many E-Commerce companies now see Returns policies and effective returns processing as a competitive advantage, so it will be critical for your team to stay ahead of the curve and ensure you have the processes, systems and tools to be a Reverse Logistics leader in your industry.

Good Luck
Paul Rupnow
Andlor Logistics Systems Inc.
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