Reverse logistics management for supply chains

In many siloed returns processes, we find that the buying agreements with suppliers are disconnected from the supply chain, making it very difficult to understand the total cost of that supplier agreement. If there are high returns on an item, the current siloed processes don’t usually tie this return rate back to the supplier agreement.

From the outset, even before the purchase is made, merchants, suppliers, and sellers should discuss how they will share ownership for returned products and how they will build that ownership into the buying agreement.

Returns are increasingly a part of the overall customer experience, and 67 percent of consumers check the return policy before purchasing an item. For example, 74 percent of people will be deterred from making a purchase due to returns shipping fees.

Extended return periods also impact markdowns. The time allowed for returns varies between retail industry sectors.

Although customers prefer free return delivery, it isn’t an industry norm yet. Free returns are most frequently offered by pure-play e-tailers, but even that model is changing. Online companies with no or limited physical presence can now offer customers a free “walk-in” return option through partnership with brick-and-mortar retailers or through third-party services.

Retailers must make sure that they embrace the return and not miss the big picture. Rather than representing a failed sale, return options can save the sale and lead to further sales—96 percent of consumers would shop again with a retailer based on a good returns experience. Moreover, every return can be leveraged as an opportunity for a customer to replace the item or buy additional items.

Fifty-five percent of 21-to-29-year-olds prefer in-store returns, and 48 percent agree that online returns are a hassle. Our research suggests the main reason they are returning purchases to the store is they want their credit immediately, rather than waiting 10 to 14 days for a mailed return.

Buy online and return in-store (BORIS) is increasingly the method of choice for consumers and retailers, as it is a win-win. For the customer, it means an immediate credit and ability to make an exchange; for the company, it means logistical expenses are reduced and additional sales can be made while the consumer is in the store.

Returns that are in transit or in process represent lost opportunity to retailers. The longer those items are not available for sale, the less valuable they become. Getting merchandise available for sale as quickly as possible is critical to maximize the recovery.

Nearly half of all companies say returns are a pain point for their supply chain. But addressing the pain requires robust logistics processes, and there are three major areas that retailers are focusing on to save time and money:

• Technology – Allowing customers to request a return and print an online return delivery label is a fast and easy customer experience, and it also provides multiple benefits for return logistics.

• Operations & infrastructure – Many companies attempt to manage the reverse logistics supply chain through their forward logistics channels, believing that it is most economical to leverage existing warehousing and transportation networks. However, for certain industries, it can increase operational complexity and cause negative ripples across the value chain.

• Transportation – Network consolidations, economy delivery services (small parcel to USPS), and in-store options are tools that are being leveraged to keep the transportation costs down as part of the return strategy.

While the first choice of retailers is to resell returns at the full price, the reality is that less than 50 percent of returns can be sold at the full price.

Determining whether to reinvest in or dispose of returned merchandise is a critical decision point in reverse logistics supply chain management. Although many returned items can be repackaged to be made to look new again, refurbishing them will add cost and time that also must align with the cost of the goods.

Additionally, the preference of consumers to buying online and returning in-store often results in stores having noncongruent inventory, particularly if store and digital SKU assortment vary.

Retailers, who are seeing 8 percent of their supply chain cost going to the reverse logistics supply chain, recognize that their return policy has an impact on purchasing behavior. Once the strategic decisions on return policies and processes have been designed, you need to leverage the insights that capture every touchpoint in the returns life cycle to complement your supplier agreements to take the total cost of ownership into consideration.

That step means creating centralized data lakes that import structured and unstructured returns activity in real time.

That data in turn must be analyzed to understand the reason behind those returns and how to address upstream drivers. In addition to optimizing the customer return experience, these learnings can then be leveraged to improve future sales conversion by identifying products that are less likely to be returned.

Turning data into action, however, calls for dashboards informed with predictive analytics that provide visibility into a single source of truth across reverse supply chain, recommend clear proactive action, and track clear indicators to ensure that performance is meeting standards.