Leveraging Reverse Logistics to Handle High Volume of Holiday Returns

For supply chain executives, the holidays bring to light an organization’s logistical strengths and weaknesses.

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David CainesDavid Caines

For supply chain executives, the holidays bring to light an organization’s logistical strengths and weaknesses. Starting with Black Friday sales and continuing with gift card usage far into January, the rise in e-commerce shopping around the holidays also means an increase in returns for online retailers. The National Retail Federation cites that retailers expect an average of 11.1 percent of sales to be returned during the holidays this year, and return rates surge to 30 percent for holiday e-commerce purchases. With the spike in return volumes, organizations are faced with logistical challenges.

Since most supply chains are built to send items out – not bring them back in – reverse logistics is a new and daunting challenge for many organizations. The greater strain from holiday sales only further highlights the importance of designing supply chains to accommodate reverse networks. Consequently, many organizations are focused on getting that part of the supply chain up to speed. In updating their reverse chain, companies need to rethink the way they manage their full supply chain.

However, organizations cannot model a reverse logistics supply chain individually. Rather, it has to be modeled out as part of an integrated whole. In updating their reverse chain, companies need to rethink the way they manage their full supply chain. Both large and small organizations practice asset recovery management at some level with the end goal of obtaining the greatest possible return from the asset. By examining the full life cycle of a product from manufacturing to fulfillment to end-of-life, businesses can realize improved operational efficiency and cut costs.

Challenges in the Reverse Chain

While e-commerce now provides a seamless purchase experience and has made drastic improvements in the delivery of goods, making returns easier for consumers has become the last frontier for online retailers. Research from Forrester cites that 40 percent of customers order multiple sizes of an item because returns are free or cheap. Amazon, a continual e-commerce innovator, has even embraced the reality of returns, creating Prime Wardrobe, which allows customers to try before they buy. As with many supply chain trends, other retailers are chasing the Amazon standard. While Amazon continues to push the envelope, consumers' expectations become more demanding, making it imperative that e-commerce companies stay on the cutting edge of supply chain best practices.

Given the high cost of returns, retailers must still work to identify why returns are happening. Is your return policy encouraging a costly volume of returns? This was the case for L.L. Bean when they were recently forced to end their lifetime return policy, citing $250 million in losses over the last five years from “abusive” returns. Are certain products consistently being sent back because they did not perform as specified? Identifying the motive behind returns allows organizations to evaluate return patterns and adjust policies or clarify product details, leading to more satisfied customers and a reduction on return frequencies.

Improving the Post-Purchase Experience

With most buildings designed specifically for forward logistics, businesses must optimize their supply chain to improve the customer experience in both directions. To optimize the post-purchase experience, some retailers are creating reverse networks to handle returns, grading out products to be entered back either into regular sales or second channel distribution. By designing networks with returns in mind, companies can process returns with greater efficiency, benefitting the customer.

To improve the returns process, the supply chain must be constructed to provide transparency and visibility. Consumers are looking to shop with brands that make the returns process hassle-free, and quickly crediting customers accounts is essential. Providing tracking for returns and progress reports requires an efficient supply chain. A strategically designed reverse network allows retailers to shrink the time frame from the start of the return to the time a customer receives a refund. Integrations with brick-and-mortar stores have eased some of the returns stress, allowing customers to bring back online purchases to physical locations for a more immediate refund. This collaboration between traditional storefronts and e-commerce shopping has eliminated steps for consumers and reduced the amount of time returned merchandise is in the reverse chain.

To help e-commerce organizations improve their reverse network, third-party logistics analyze retailers’ supply chains to optimize the post-purchase process. 3PL partners can provide advice on what returns are happening on the front end, and review returns history by both volume and profile, giving companies insights into what products or time periods are putting a strain on the reverse network. 3PL partners can also help organizations set up the right networks and design their supply chain with returns in mind.

After the 2018 holiday returns die down, supply chain executives looking to elevate their reverse logistics in 2019 will need to examine cycle time to see how long customers are waiting to be credited for their returned merchandise. Dock to stock will also provide valuable insight into how long it takes for returned products to be made available to consumers again. Rather than conceding profits because their reverse logistics network is lagging, organizations must accept changing purchase behaviors and design their supply chains to handle both forward and reverse networks. A focus on reverse logistics can help organizations decrease their returns volume, improve the post-purchase experience and better manage asset recovery. Without a strong reverse network, the uptick in sales during the holidays can be overshadowed by the losses from a high volume of returns.

David Caines is chief operating officer of Kenco.

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