The Reverse Logistics Crisis: The Avalanche of Returns

With the rise of eCommerce, there has been an equivalent rise in the rate of returns. Retailers’ distribution centers have been flooded with returned merchandise, but how can those products quickly be converted to revenue?

Part One: Finding Value in Returns

Returns have long been an afterthought for many retailers, with the predominant focus being placed on the optimized outbound channel for merchandise. However, with the recent shift in consumer habits to online ordering, there has been a massive increase in the rate of returns. Retailers have no choice but to focus their attention on the reverse logistics process because of the sheer volume and value of returned merchandise.

The footwear and apparel industry is one example where online shopping has encouraged “bracketing” where shoppers purchase multiple sizes with the intent of returning items that do not fit. While this practice is beneficial for shoppers, it creates a challenge for retailers that now are left to process, or discard returned goods. Estimates now project that the value of post-holiday returns in the U.S. will exceed $100 billion annually.

The returns process for a distribution center is part of a larger reverse logistics channel. Reverse logistics is the total process of a product traveling backwards in the traditional supply chain. That is, products moving from the consumer back to the point of origin to recapture value (i.e., re-sell) or to be disposed of. Until recently, this area of the supply chain has been largely neglected or ignored, and investment to optimize returns has been lackluster. But times are changing as more companies realize the benefits of an effective reverse logistics process.

Build customer retention and loyalty with swift response for an exchange or refund. Update your outbound processes to make the potential returns process smoother with pre-printed return labels and a pre-paid returns program to build loyalty with a customer-focused returns policy.

Realize additional revenue by streamlining the returns process and quickly moving returned items to stock to be re-sold. If needed, repackage, refurbish, and repair products for return to stock.

Reduce waste and develop an environmentally friendly policy to recycle or donate products versus disposing of them. A policy that offers a discount on new products when returning an end-of-life product (i.e., electronics) reduces waste and enhances brand image.

Gather valuable product data to correct existing issues upstream in the supply chain that cause a return. Are certain products more likely to be returned for quality or sizing issues? Has there been damage in shipping that requires a review of packaging?

As part of a larger business strategy, a well-planned and thoroughly executed reverse logistics process can build customer loyalty and provide valuable data for continuous improvement.

Part Two: How Can the Returns Process be Streamlined?

So how can retailers optimize their reverse logistics process to improve re-stock/resell time, reduce costs, and build customer satisfaction all at once?

Simplify Returns

Supply chains are adopting digital technology as a means to offset the costs of manned support centers. Digitizing and automating the outbound process can be the first step. This can also build customer satisfaction when buyers are able to easily start a return online, receive or print a bar coded label, or schedule a return from the click of an app or a link in the retailer’s delivery information. Customer loyalty and retention is built by ensuring a convenient returns process.

Consider Centralized Returns Facilities 

One way to optimize reverse logistics is to implement centralized facilities that only process returns. By dealing only with the flow of products back up the supply chain, these processing centers can streamline operations and speed the disposition of merchandise. Third party logistics (3PL) companies dedicated to returns processing are also an option. Companies must consider the costs and benefits of running a returns operation in the same facility that processes outbound orders versus a dedicated returns center or 3PL.

Understand the Process and the Data

By harmonizing customer-side data with your inbound product data when goods enter the returns warehouse, the faster the returns processing can be. Upon receipt, a bar code scan can start the system that links each item with order information and can determine the next step. Questions a retailer must consider for product disposition are:

• Is this product able to be returned to stock? If not, can it be donated versus scrapped?
• Is there an outstanding exchange order that this product can fill?
• Should this item be shipped to a store, outlet, or clearance center for re-sale?
• Should it be returned to the manufacturer, shipped to another facility for storage, or to replenish inventory?

Optimize and Automate

Labor challenges continue to be an issue in providing efficient operations for both forward and reverse logistics. One option is to consider automation and robotics technology. Although there are upfront costs, technology that reduces dependence on labor and improves agility can provide a rapid return on investment. Automated storage and retrieval systems and goods-to-person systems maximize storage capacity in a small footprint and support faster putaway and picking. Automated Guided Vehicles (AGVs) speed transportation of products within the facility, replacing manual forklifts. Collaborative robots (cobots) and Autonomous Mobile Robots (AMRs) work alongside humans and can reduce walking time and worker fatigue.

The benefits of efficient and customer focused reverse logistics will quickly be recognized. Ensuring proper inventory management processes and data reporting are in place will lead to reduced losses and faster time to resale. When optimized and automated, reverse logistics operations can build competitiveness and sustainability, support customer satisfaction, and positively impact the bottom line.