Reverse logistics management for supply chains

What’s behind the surge of returns?

Simply stated: e-commerce. The rise of e-commerce over the past decade has driven a 33 percent increase in the return rate of overall retail sales. Digital challenges and consumer behaviors, as well as emerging business models that are unique to e-commerce, all contribute to e-commerce return statistics like this one.

With e-commerce revenues growing 15 percent annually and a product return rate near 30 percent of sales, we can expect 4 billion incremental units to be added to the annual reverse logistics pipeline by 2022.

And returns are expected to grow. If current industry forecasts hold steady, by 2022, retailers can expect 13 billion units worth $573 billion to be returned annually. That’s four times the total e-commerce sales in 2008.

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Navigating the rise in returns: Workforce implications of reverse logistics

While e-commerce has continued to rise over the past decade, 2020 brings unparalleled growth to the online sector. While overall US retail sales are expected to drop 10.5% this year, e-commerce will grow 18 percent, solidifying a shift in consumer behavior that is here to stay; this trend will likely endure as a result of the lasting impact of COVID-19.

In an e-commerce–focused future in which customers are returning products at an increasing rate, retailers are at a critical juncture, as any continued lack of focus on reverse logistics will be unsustainable. It is essential that organizations implement new or refresh existing holistic reverse logistics strategies to reflect the increased importance of the capability. Every component of those strategies—from workforce management to store operations to operating model considerations—has important human capital implications.

How is COVID-19 intensifying reverse logistics challenges?

Even retailers who were prepared for industry-forecasted growth in returns could not have anticipated the impact of a global pandemic on reverse logistics. Retailers are now operating within a state of continuous disruption driven by COVID-19.

Understanding the dynamics behind how, when, and why customers return items is critical to navigating this disruption while minimizing return volumes and maximizing the customer experience. That’s why it’s so important for organizations to have a sound reverse logistics strategy in place. Robust reverse logistics capabilities are critical to maintaining organizational health, especially in times of crisis.

What’s driving the need for a reverse logistics supply chain strategy?

As retail returns grow, so do the challenges and opportunities for understanding consumer behavior and improving future sales. Some of the dynamics at play:

1. Returns are becoming one of the greatest supply chain challenges companies face today. A reverse logistics supply chain management strategy is critical to maintaining healthy inventory turn and operating expenses.
2. Understanding the dynamics behind how, when, and why customers return items is critical to understanding purchasing behavior and improving overall experience. Every product return is a chance to learn more about the customer, drive the next sale, and make it stick.
3. Online returns are often the result of digital challenges, such as poorly displayed images and incorrect fit. Variances in manufacturer sizing contribute to over 50 percent of customers returning items due to product size or fit.
4. Emerging retail models, such as curated shopping, rentals, and try-on services, are compounding e-commerce return volumes. These retail models are conditioning the customer to make returns, as they are built on the concept that some, or all of the items ordered, will come back. For many retailers, this concept creates a behavior for which the supply chain is not currently designed.

To turn reverse logistic challenges into opportunities, retailers must transform siloed return policies and processes into a holistic returns strategy. That supply chain transformation means knowing when, how, and why customers make returns, alongside applying smarter insights throughout the reverse logistics supply chain.

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“Traditional” reverse logistics supply chain strategies aren’t good enough

As customers shift their expectations to a more holistic shopping experience, retailers must adapt to building a cross-channel returns strategy that connects the purchase cycle from the earliest stages of assorting and buying goods through the consumer sales cycle. Integrating the returns strategy with your supply chain transformation strategy can further enhance the value chain and generate better return on assets.

The returns management organization should be comprised of analytical experts and process SMEs with deep domain knowledge, people who understand supply chain business issues and customer behaviors. This group must be enabled with an insights and decision support platform that integrates and monitors transactional data from internal and external sources and automatically separates issues from the mass to generate insights and actions needed to improve the end-to-end process.

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