3 Tips for Getting Reverse Logistics Right
Getting products out the door in a timely fashion isn’t the biggest struggle E-commerce retailers face, it’s dealing with the returns.
For many retailers, the 2017 holiday season yielded record sales growth with an estimated $680 billion in total sales generated, nearly $25 billion higher than 2016 (source: Statista). One downside to the upswing, however, was an increase in the number of returns. Nearly 28% of the gifts people purchased were returned, at a value of $90 billion, according to a survey from RedStag Fulfillment and Optro. The return expenses for organizations can be anywhere from 20% to 65% of the cost of the goods and poor execution and policies can drive costs even higher, in addition to damaging customer relationships.
Reverse Logistics Challenges
Unlike the forward logistics process, where a customer places an order and items are picked, packed and shipped, a return order isn’t as straightforward. For starters, several questions must be answered before the warehouse/distribution center knows what to do with the returned product. For example, is a customer returning a pair of jeans that didn’t fit with tags still intact? If so, the item can be put back in the original bin. However, what if you’re dealing with a faulty electronics gadget? Things start to get a little more complicated. You have to know whether the item is under warranty and should be sent back to the OEM, or if not under warranty, it may need to go to a repair center or be discarded and written off.
According to Invesp, on average 30% of E-commerce orders are returned compared to about 9% for in-store purchases. And with the growth of E-commerce and evolving customer expectations, retail returns are growing at 8% a year, per UPS’ findings. When you consider the tens of thousands of returns some E-commerce fulfillment centers experience post-holiday season (January 5, for example, is now known as National Returns Day), it becomes evident how important it is for retailers and manufacturers to master their reverse logistics processes. Forrester’s research corroborates this statement, too, finding that 81% of customers were more likely to make an online purchase if the retailer had an easy-to-understand return policy.
Despite the high percentage of returns, the majority (nearly 68%) of all E-commerce fulfillment centers don’t have a long-term reverse logistics strategy. With that in mind, here are some best practices every E-commerce retailer should include in its reverse logistics strategy:
- Take a holistic approach to reverse logistics. A holistic approach unifies the inbound receiving of returns and excess, as well as the warehouse operations required to prepare inventory to be resold on a retailer’s primary sales channels (e.g., brick and mortar or online). A holistic strategy is crucial for helping fulfillment centers determine whether to return merchandise to the OEM or to remarket it via secondary marketplaces, such as third-party liquidation vendors. A holistic reverse supply chain requires several capabilities, including:
- Purpose-built receiving and processing — ensures each unit of returned and excess inventory is routed to the highest margin channel.
- Integrated first-touch disposition — enables returned inventory to be routed to the appropriate disposition channel with the fewest touches.
- Automated remarketing — enables returned items to be quickly remarketed on secondary marketplaces in real time.
- End-to-end data visibility — Allows decision makers to view and understand critical reverse logistics data, such as inventory, warehouse productivity, sales and other stats.
- Adopt a generous return policy. Shortsighted retailers try to recoup online merchandise returns by charging their customers restocking fees or requiring customers to pay for return shipping, but research shows this thinking is costlier in the long run. A survey conducted by Shorr Packaging, for example, found that companies asking customers to pay for return shipping saw subsequent sales decrease 74% to 100%. Conversely, companies offering free returns reported seeing 58% to 357% increases in sales over the following two years. Another shortsighted return policy entails having a short return window (e.g., 14 days). Research shows that brief return windows only hurt retailers in the long-term due what's called the endowment effect — the attachment customers develop to their merchandise over time, making them less likely to return it.
- Make returns easy for your DC associates, too. In addition to the customer-facing components of your returns strategy, it’s important to consider the impact on your internal operations — and more specifically, your DC associates. Equipping workers with barcode scanning technologies and a unified (i.e., omnichannel) warehouse management software solution is an excellent first step. But, to really alleviate employee stress and reduce error during peak return seasons, consider automation equipment.
Using a robotic item sorter (e.g., Sure Sort from OPEX) is an example of how equipment used in “forward logistics” also can ease the burden from returns. A robotic sorter handles complex variables and delivers a wide variety of items into a compact array of order bin locations in a single pass. The same system reduces human touches along with the number of transfers and conveyors required to execute returns quickly and seamlessly. Regardless of size, packaging, or orientation of an item, a robotic item sorter will read every barcode and deliver each piece to an appropriate put-away destination in a single pass.
Returns management is a fact all retailers face, but those offering E-commerce services need to be especially cognizant of it since they'll deal with more than 3x the number of returns than brick-and-mortar retailers. Plus, when you don’t have the benefit of an employee to interact with a dissatisfied customer face-to-face, a quick and pain-free return experience is the next best thing.
Designing an efficient and productive reverse supply chain can be complicated and challenging, especially as organizational priorities and customer expectations continue to change. Following the three tips mentioned earlier is a great place to start. And, as you begin to design your reverse logistics strategy, OPEX is here to support you and your team.
Our team of project managers, engineers, and analysts can assist and support you through your document management and mailroom automation evaluation and implementation process from start to finish. Contact us today via phone (+1 856.727.1100) or online to learn more.