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TriFactor Home > TriFactor Learning Center > White Papers > Reversing the Challenges of Reverse Logistics

Reversing the Challenges of Reverse Logistics

Introduction

Retail trends may come and go, but returns are here to stay.

At least that’s what the figures from the National Retail Federation suggest.

According to the group’s year-end projections, American consumers were on pace to return nearly $400 billion worth of purchases in 2018—an increase of more than $100 billion over 2016 and an amount representing about 10 percent of total retail sales. This year? The total is expected to continue to swell.

While billions of dollars in lost sales is bad enough, it’s just part of the real costs of returns. You also have to add in the losses that accrue when retailers are forced to clearance or distress out returned goods, netting just pennies on the dollar. Then there’s the expense of fraudulent returns involving stolen or used merchandise.  In addition, retailers spend an average of 8.1 percent of total sales managing reverse logistics, which includes activities like handling, processing, sorting, and disposition or reuse of all those unwanted or damaged items.

It’s a big, backwards business, affecting cash flow, profits, and margins.

And it’s nothing new.

The Lure of Free Returns

Retailers and manufacturers have always had to deal with some returns, but never anything approaching today’s volume.  Conditioned by companies like Amazon to expect ever more lenient return policies, consumers are returning purchases at an unprecedented rate.

Consider this:  while brick-and-mortar stores took back between 8 and 10 percent of all merchandise sold in 2018, the total for e-commerce retailers was more than twice that. In fact, online returns have been more than 25 percent each of the last five years.  Although return policies drive decision-making for most shoppers, the importance of liberal returns is amplified among online buyers: 67 percent click on the returns page before making a purchase, 95 percent said they come back to online stores where the return process is easy and convenient, and 46 percent will abandon their virtual shopping cart if they find out the merchant doesn’t offer free returns.  

That’s not to say that returns aren’t a pain point for conventional retailers: by some estimates, it costs a brick-and-mortar retailer three to four times as much to process a return than it did to ship the item to a store in the first place.

Make it Quick

Wherever they’ve shopped, consumers expect returns for credit, replacement, or repair to be quick, efficient and seamless. Failing to meet those goals can keep customers away.

That means while the idea of many happy returns may be essential to shoppers, getting it right can be a headache for retailers, physical and virtual alike, especially when a slip-up can turn a satisfied customer into an irate individual with an axe to grind all over social media.

As for distribution centers, all those unwanted or damaged items have to go somewhere, and this is where they land to be readied for the next step—repackaging or re-kitting, restocking, sending to a reseller or discounter, recycling, or disposal. The sheer quantity of returned merchandise can be overwhelming and lead to workflow snags and delays: after all, most distribution centers were designed to accommodate an outflow of neatly-packaged orders, not deal with a tidal wave of messy returns.

Fortunately, companies can implement distribution center design strategies to make reverse logistics more manageable, regain value from returns, and please customers in the process.

From Cost Center to Competitive Edge

Planning or implementing the effective flow of goods from consumers back to their point of origin isn’t simple or inexpensive. This is one reason companies often avoid reverse logistics altogether, choosing instead to use third-party vendors with the expertise and trained staff to process returns accurately and fast. 

But what about companies that prefer to manage their own reverse logistics? How can they avoid the clutter and confusion (and potential safety hazards) of a warehouse full of open boxes and discarded merchandise? How do they salvage more items and turn a cost center into a competitive advantage?

Effective space planning is key.

Whether you’re building a new facility, enlarging an existing area, or trying to repurpose existing square footage, to support the everyday activities of managing returns you will need:

  • Adequate, orderly staging space for receiving and organizing returns for processing, removing trash, and entering items into your automatic data collection system. By automating tracking and analytics from the start, you can ensure nothing gets lost in the shuffle and have real-time visibility into your inventory, including returned merchandise. You’ll know what you have in stock and where items are in your reverse supply chain. 
     
  • Processing space optimized for speed and simplicity. Does the customer want a larger size or a different style? Store credit or cash back? Quickly processing returns and getting refunds or new merchandise out right away not only ensures customer satisfaction, it also promotes future transactions. Remember, 95 percent of consumers will shop again at a business where they had a positive return experience. 

In addition, streamlining activities related to processing avoids a pile-up of packages on the distribution center floor, giving you access to assets that could be re-shelved or otherwise handled to gain value.

Need insight into product selection and quality control? That’s part of returns processing, too. As your processors unwrap and inspect returned goods, they can enter information into your digital system to provide the data you need for better decision-making and inventory accuracy. If you see hundreds of lilac sweaters coming back but not a single teal version, you can fine-tune your assortment to better meet customer expectations.  

  • Waste handling zones. There’s no question that returns generate a lot of scrap material—corrugated cardboard, bubble wrap, oversized padded envelopes, and more. To keep your facility clean, organized, and free of potential hazards caused by discarded packaging, you’ll need substantial space to store recyclables and easy access for trash hauling.

Space considerations aren’t the only issues that need to be resolved, of course. Because return-to-stock procedures are significantly different from the pick, pack, and shipping tasks typical to most distribution centers, establishing a strong set of standard operating procedures is a priority—and so is training staff accustomed to a different type of work. Warehouse workers will need to understand the disposition for every returned item and prepare each piece for the next step as efficiently as possible.

Integrators Bring Issues Down to Size

There’s no doubt that returns are an unavoidable part of today’s business landscape. And there’s no question that dealing with them is complex: Returns and refunds seem to have an outsize effect on every aspect of distribution center operations: inventory, accounting, staffing, automation requirements, and even trash removal.

But it’s possible to reverse the challenges of reverse logistics and bring those factors back into proportion.

Working with an experienced integrator, companies can optimize distribution center design to:

  • Rapidly receive incoming goods from trucks full of returned merchandise.
  • Integrate unloading equipment and conveyors to transport packages, bags, and parcels. 
  • Employ scanning equipment that can read labels in any orientation for maximum read rates. 
  • Sort product to associates who unpack the returns, conduct an initial check and remove trash using trash handling conveyors.
  • Design ergonomic workstations with room for supplies, repacking material, and scanning equipment to identify the return.
  • Design return to stock conveyor and sorters to sort product to outbound staging or to warehouse storage.
  • Design adequate storage to hold returned product for rapid resale. 
  • Provide routing conveyor for returns that may be resold, donated, or destroyed.

The Returns are In

Especially as e-commerce grows, it won’t be possible to stop the flood of merchandise returns—a phenomenon some have likened to a tsunami. With effective distribution center design, however, retailers and manufacturers can keep from drowning, regain value and strengthen customer relationships.